A leading University of Kentucky economist says he’s “guardedly optimistic” about the state’s fortunes in 2015 after a year that ended with robust employment growth and rebounding confidence indicators.
“I think we have things going on the right track,” UK’s Christopher Bollinger said during the 26th annual UK Economic Outlook Conference, which was held recently at the Lexington Convention Center. “A big part of what’s holding back the economy has been uncertainty. People are unwilling to invest in projects and to move forward if they don’t know what’s going to happen.”
After what Bollinger called “a really incredible fall” in employment during the depths of the Great Recession, unemployment rates for Kentucky and the U.S. as a whole are back below 6 percent. However, Bollinger is predicting a slower decline in the unemployment rate in Kentucky in 2015, to about 5.5 percent. Bollinger also anticipates that food prices in the state will rise while gas prices remain relatively low.
Bollinger analyzed the state’s urban triangle region — including Lexington, Louisville and Cincinnati/Northern Kentucky — where most of the state’s economic activity is centered. The region represents 50 percent of Kentucky’s population, 59 percent of its employment and 54 percent of its businesses.
Kenneth Troske, another economist with UK’s Gatton College, told attendees the state’s rural areas face bigger obstacles. He said southeastern Kentucky in particular faced problems related to population losses.
Troske also highlighted data that showed a significantly lower percentage of the state’s men were in the workforce versus the nation as a whole. He said only about 50 percent of males in the Ashland area, the Cumberland region and eastern Kentucky were working.
Bollinger noted that Lexington, with 4.5 percent unemployment, and Louisville, with 5.1 percent unemployment, have recovered strongly with employment rates well above prerecession levels. Bollinger said the Cincinnati/ Northern Kentucky area started “from a deeper trough” but its upward trend was “very steady.”
Lexington, the state’s second-largest city, relies less on manufacturing but benefits from a workforce with relatively high education levels.
“That just translates into lower unemployment levels,” Bollinger said.
He highlighted the state’s signature industries of mining, agriculture (including horses) and beverages — which he called the “Big Three” — but noted each represent only 1 percent or less of state employment.
“Kentucky is way more than coal, horses and bourbon,” Bollinger said.
Bollinger said the biggest industries for jobs in Kentucky are government (federal, state and local) with 19 percent of state employment, followed by health care and manufacturing, both at 12 percent. He doubted government employment will expand significantly but said health care and education were poised for continued growth.
Bollinger said he expects manufacturing in the state will continue to expand while producing only modest employment gains, with technology and automation eliminating the need for some jobs.
Troske said the state economy’s diversity made it resilient but that low worker skill continues to limit growth.
The total value of goods and services produced in Kentucky in 2013 was $183 billion, compared with the U.S. economy, which has a GDP of $17 trillion. While government represents slightly more jobs in the state than any other industry, Troske says manufacturing by far produces the biggest share of economic activity.
The auto industry is a major part of Kentucky manufacturing, said Troske. Toyota, Ford and General Motors produce hundreds of thousands of vehicles per year here and hundreds of parts-manufacturing plants dot the state.
Troske said transportation and warehousing are also important to the state.
“We’re involved in shipping a lot of goods throughout the country. Amazon and UPS fall into this sector,” he concluded.