The key economic tension to watch out for in 2023 will likely be the balance between employment levels and the cost of living, experts say.
Indiana’s unemployment rate has steadily risen since June, peaking at 3 percent in October and November.
“A year ago or so, we were in a white-hot job market. So has it softened a little bit? Yes. But what I would say is that the softening goes from white hot to red hot,” said Rachel Blakeman, director of the Community Research Institute at Purdue Fort Wayne. “So I would hardly say that we're seeing any concern at this point as to unemployment numbers and workforce and things like that.”
Unemployment data for December will come out later this month from the Bureau of Labor Statistics. Blakeman expects those numbers probably won’t differ significantly from November.
“I think one of the things that's interesting to look at is that the unemployment rate is not even across the state. So that tells me that actually, we are at full employment across the state,” she said. "We are seeing a trend of just lack of labor availability.”
The percentage of working-age people actively working or seeking work has been slightly dropping in the latest BLS preliminary estimates, down to 63.2 percent. There were almost 7,000 fewer people in the state's workforce in November compared to August 2022.
People drop out of the labor force for all sorts of reasons, experts say. For example, parents, often women, may be unable to find enough childcare to work.
That fact combined with the low unemployment rate, a high number of Hoosiers quitting jobs and starting new ones as well as a large number of employer job openings forms a picture of a labor market that doesn’t have enough people to meet companies’ needs.
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That can give workers a lot of power to negotiate for better wages and working conditions, or find a new employer that better meets their needs.
“But what we really want to remember here is that we are looking at a lagging indicator for the economy,” she said. “So for anyone who's tried to be like, ‘OK, what do the numbers in November tell us?’ Frankly, nothing about what's ahead.”
Blakeman and other experts say there are reasons to believe the economic tide may turn against workers heading into 2023. Particularly because the Federal Reserve is trying to lower inflation by raising loan interest rates, forcing businesses to reduce production. That means people could lose jobs, but the cost of milk and other goods might go back down.
In a speech last August, Reserve Chair Jerome Powell recognized that the central bank’s aggressive approach to inflation could hurt American workers, but argued that allowing inflation to run rampant could hurt more.
Over the last two years, Indiana University Northwest economist Tin-Chun Lin has been asking his students if they’re more concerned about inflation or being employed.
“They said, yes, prices are very high but I can squeeze,” Lin said. “But if I do not have a job I do not even have income.”
Their answers weren’t surprising, he said. He suspects similar feelings, particularly across younger generations, is why Republicans’ messaging focus on inflation during the 2022 general election did not yield the political gains many expected for the party nationwide.
Lin said he questions whether the Federal Reserve is taking the right approach to bringing down inflation. Rising interest rates aims to reduce costs by bringing down demand, he said.
“Reducing demand may help this economy, but on the other hand it [will] hurt this economy,” he said.
For example, when the Organization of the Petroleum Exporting Countries “increases production, the gasoline price goes down,” he said. “Our problem is from the supply side and not from the demand side.”
Employees may end up having to grapple with the issue of their own rising wages, Lin said. Many industries have seen wage increases as employers try to attract talent by offering paychecks that will help them better handle inflation.
But, he said, some employers may find themselves unable or unwilling to pay those wages as interest rate hikes continue.
“Once you raise the workers' wages, it’s impossible to cut back their wage to the initial [level],” he said. “To solve this problem [employers] could just hire temporary workers to reduce cost.”
Blakeman sees a slightly rosier possibility.
“I look at just the sheer volume of job openings. And so the question then becomes, how much of it is going to be just simply not filling open positions?” she said. “And so could we land with a soft landing, there's a possibility that could exist because of the fact that they just stopped filling open positions. Now, obviously, if you're having plant closures and things like that, that is going to make it more difficult.”
Both Blakeman and Lin agree that if a downturn does hit, there's a high likelihood it'll hurt manufacturing hardest. So even if it is just a mild recession or a "soft landing", it'll probably look worse in manufacturing-heavy states like Indiana than it does the rest of the nation.
“We just don't know what the future holds,” Blakeman said.