Commerce Lexington

A bit of a respite in unemployment terms. The official unemployment rate for Fayette County dropped .5% to 7.7%. This is along seasonal change lines (there is often a drop between Aug and Sept) but it was also a bit more than expected. This means two things to me: one, employment following seasonal trends is a good thing. When employment is following seasonal trends, it often means that it there are no other major forces acting on it. Two, if I expected unemployment to drop around .2% and it dropped by .5%, that gives me hope that we may have eliminated some of that excess unemployment that we have racked up during the recession. Here is a visual view of what I am talking about:

From February when we were about 3% above normal, to June/July/August when we were about 4% above normal, Lexington still managed to follow it’s normal seasonal trends. From the averages of the rest of the years in this decade, one would expect September unemployment to drop around .2%. So it is definitely good news that it dropped farther than that.

So you may be asking yourself, “Self, what about the labor force? Is this drop in unemployment due to a large number of people dropping out of the labor force (i.e., no longer looking for work)?”

Well I’m glad you asked, because I did the same thing with the labor force that I did with the unemployment rate – with one caveat. Because Lexington is a population growth city, the labor force naturally grows as well. So I had to normalize it by using the average percent change instead of the raw number. Here is what I found:

It does look like that a contraction in the labor force may have played a role in the greater than anticipated drop in the unemployment rate. The average percent change from August to September is a positive .08%, whereas this year, it was a negative .26%. I still stand by my statement that a drop in the unemployment rate is a good thing. However, like most things, it has to be taken with the grain of salt that the labor force contracted. I’ll continue to keep an eye on the trends and keep my fingers crossed that our nagging unemployment problem will eventually subside.

Must have been a good week for sixes. Immediately after it’s #6 ranking among the best mid-size cities to start a small business, Lexington followed up with another #6. This time, it is the #6 best place to raise a family. Children’s Health magazine used a comprehensive statistical analysis to rank cities on more than 30 factors that parents deem vitally important, including crime and safety, education, economics, housing, cultural attractions, and health. The top cities were the ones that best complemented family life.

Pretty easy sell, isn’t it? Great place to start a business, then raise a family.

CNNMoney recently rated the best places to start a small business, and Lexington took the #6 spot in the mid-sized metros.

“Lexington puts a unique spin on 4-H: Horses, health care, high-tech and higher education make up its diversified economy.

Known as the Thoroughbred Capital of the World, Lexington is home to horse farms that handle more than $750 million in horse sales annually. The region is expected to reap another $150 million in economic activity when hundreds of thousands of visitors come to town for the 2010 World Equestrian Games in September 2010. The city’s revitalization efforts have reached warp speed in preparation for the event: New music venues and restaurants are sprouting, along with fresh parks and biking and walking trails.

Even in the absence of major events, Lexington knows how to draw a crowd. Residents throughout the eastern third of Kentucky travel miles to reach its retail stores and three major hospitals, all of which have begun major expansion projects.

The University of Kentucky, Transylvania University and another dozen colleges, universities and technical colleges educate workers for Lexington’s growing tech sector, which includes strong Lexmark, IBM and Hewlett-Packard presences.

Local businesspeople say the municipal government is undergoing a vast restructuring to eliminate redundancies and improve communication, which promises an even more welcoming environment for business owners.”

The article also profiles Commerce Lexington’s 2008 Minority Business of the Year, TCG America, on why they chose Lexington as the place to start their business.

August unemployment figures (released a couple weeks ago) show a continued seasonal decline in the unemployment rate. Lexington dropped from 8.3% to 8.2% and the region from 9.3% to 9.0%. See picture below:

Probably the most interesting parts of the above chart are the July spikes in unemployment returning to normal. Still not entirely sure what they represent, but something happened in Scott County in late summer that I really would like to have some more information on. The funny thing is that despite the spikes from a few counties, overall, unemployment for the region was relatively unaffected overall. This would be due to the 800lb gorilla in the room, Lexington. With just under half of the labor force residing in Fayette County, large changes in Lexington’s unemployment will have a much more pronounced effect on the region than the smaller counties. Here is what that looks like visually for August:

A more comprehensive breakdown for the statistical table geeks like me looks like this:

As you can see, there is a pull between Fayette and Woodford counties and the rest of the region’s counties. Fayette and Woodford are contributing more labor force than unemployed persons, the rest of the counties, the opposite.

Big word of caution here: the program that these statistics come from, the Local Area Unemployment Survey (LAUS), measures unemployment based on residence, not place of work. Many of the unemployed in the surrounding counties could have lost a job in Lexington and vice-versa. I’ll try to dig up some way to flesh that out in a later post.

The Bureau of Economic Analysis simultaneously released their local GDP data for 2007 and 2008 this week. Usually this data is delayed by at least a couple of years, so having 2008 data before the end of 2009 was quite exciting (as far as research geeks like myself go). Knowing that the stock market crash happened right before the start of the third quarter last year, I definitely expected not-so-great news on the output front. Turns out, I was only partially right.

For the record, in 2008, Lexington’s MSA (metropolitan statistical area, more on this later) churned out $22.7 billion dollars in nominal output. This was divided between $13.7 billion in service-producing industries, $5.8 billion in goods-producing industries, and $3.3 billion in government activities.

In order to compare these numbers to past years, you need real GDP, or for inflation to be taken out of the picture. Adjusted for inflation and chained in 2001 dollars, you get the numbers in the chart below. As you can see, overall, Lexington’s output grew slightly from 2007 to 2008. Slightly equates to .8% to be exact. The closest comparison is between 2002 and 2003, when output only grew by .6%.

The biggest question mark in all this analysis is what 2009’s numbers will end up showing. My inclination is to think that if one quarter of serious recession was enough to drag down growth to .8%, then a full year of recession will show no growth or contraction. Notice the decrease in goods-producing output. This category is 5/6 manufacturing, with construction, mining, and agriculture making up the remainder. While service-producing and government activities both grew or were flat in 2008, the overall output was dragged down by goods production. It will be interesting to see if there is as serious of a reduction in services as I predict there will be in goods. If both services and goods decrease significantly, it could make for some uncomfortable numbers in 2009.

Just a note: Lexington’s MSA includes the counties of Bourbon, Clark, Fayette, Jessamine, Scott, and Woodford. Illustrating the point that governmental and political distinctions don’t always accurately describe economic activity, both Madison (Richmond and Berea) and Franklin (Frankfort) are not technically part of our MSA. Instead they are designated as distinct micropolitan areas, which (in my world at least) means that they don’t exist in BEA figures, which are only released at the national, state, and MSA level. I think it is a pretty easy assumption that both Madison and Franklin counties are part of our local economy, so it is also a safe assumption that Lexington’s economy is larger than the stated $22.7 billion.