Lexington, KY - Job growth in the Lexington-Louisville region accelerated and even bested the nation in the 2nd quarter of 2012, according to PNC Bank Senior Economist Gus Faucher. “Lexington has some advantages. It has concentrations in education and healthcare which tend to be less cyclical than other industries,” Faucher told Business Lexington.
The market’s unemployment rate dipped below 9 percent in the 1st Quarter and continued its downward trend, breaking through 7 percent in July.
Faucher said local economic recovery has broadened to include a wider range of industries. “The national rebound in auto manufacturing has been very important to this area. Auto demand is up, sales are up, production is up.”
Professional and business services, finance and leisure and hospitality are also contributing to recovery, he said.
But there was a caution: “Obviously, an educated population is important. I’ve seen some data that indicates that the share of educated workers has actually fallen in Lexington over the past few years, which is a concern.”
Faucher added that while Lexington has many advantages in attracting the young knowledge workers local industries need, “it’s a question of whether it can build on those advantages.” He cited bio-technology as an important future driver for the area.
A recent economic development win for the region peaked Faucher’s interest: the decision by the Boston-based international law firm Bingham McCutchen to cut costs by consolidating its back-office operations, relocating some 250 jobs to Lexington. He sees the beginnings of a trend reversing out-sourcing. “Five years ago the focus was on firms moving operations overseas. Some of the advantages of that were overstated - I mean, the time differences, the language differences, those kinds of concerns. And the dollar is weaker then it was before the recession while wages are rising in a lot of those countries, so that has shifted the cost-benefit equation more towards the U.S.”
Faucher reemphasized that it’s critical to the longterm success of such economic development efforts that Lexington works hard to attract and retain a young, skilled workforce.
On the national level, Faucher was asked to comment on the most recent Bank of America Merrill Lynch Fund Manager Survey that found “uncertainty” the most pressing concern among global investors. Most often cited as a chief source of this concern is the so-called “fiscal cliff” confronting the U.S. government at year’s end when the terms of the Budget Control Act of 2011 take effect, automatically raising taxes and making deep cuts in hundreds of federal programs, including Defense and Medicare.
Adding to the unease about the future is Europe’s sovereign-debt crisis and a growing recognition that this is not a passing phase, but deeply rooted political, economic and financial issues that will not be solved in the near-term.
“Technically, we’ve been in recovery for three years now but the economy just isn’t very good,” noted Faucher. “We have a national unemployment rate of 8.1 percent and we’re adding jobs at below the pace that we need to keep up with an expanding labor force. Employment is still down by more than 4-million from where it was prior to the peak of the recession. We’ve been through the worst downturn that most of us have lived through. It effected all sorts of industries; it effected the country very broadly, geographically. People are still anxious about that. And then, on top of it are the concerns about Europe. What’s going to happen there? Is the Euro Zone going to dissolve? Is that going to cause huge problems for the United States?”
Add to that, he said, a tight presidential election and questions about what will happen with tax policy. “When you add all of those factors together with all of the uncertainty out there, it’s a drag on growth.”
Faucher said in such an atmosphere, businesses are reluctant to make decisions about whether to expand over the next 12 to 18 months. “I think businesses are going to try to hold off until the political picture is more certain.” All of this, he said, is dampening consumer enthusiasm to spend.
He is optimistic, however, that Congress will act in late 2012 or early 2013 to protect a fragile recovery from the impact of the fiscal cliff. “We may see some of these things go into effect temporarily. But no one wants to see these huge spending cuts take hold. No one wants to see personal income tax rates go back up on everybody. They may go up for higher income households if President Obama is reelected. But I don’t think anyone wants to see them increase for everyone across the economy. So, I’m hopeful that either in the lame duck session or shortly after the presidential inauguration early in 2013 that these issues are resolved and a consensus develops.”
Faucher warned that continued political gridlock and refusals to compromise are the most significant impediments to solutions.