Impact of Available Financing on Key Assets in Louisville
By Uric Dufrene
There is no question that the Great Recession has been one of the toughest in quite some time. Unemployment rates remain elevated, and housing continues to face challenges. Recently, U.S. automakers reported slow sales for August, one of the slowest months in 28 years.
The origins of the current recession can essentially be traced to the housing slow down in four key states. Mortgage delinquencies, in response to adjustable mortgage resets, quickly spread to other states and ultimately had an impact on the bottom line of financial institutions. Problems in the financial sector then culminated with the failing of Lehman Brothers in September 2008. The financial crisis subsequently impacted the availability of financing, and this affected Louisville Metro.
This is particularly relevant for Louisville Metro because of the connection between the Louisville economy and availability of financing. Even though manufacturing employment in Louisville had declined, manufacturing continues to be a major source of employment. The lack of financing primarily impacted two major assets: housing and automotive. Both are closely tied to the Louisville Metro manufacturing economy.
Louisville Metro is closely tied to automotive through Ford and the various suppliers throughout the region. Louisville Metro is tied to housing through manufacturing facilities such as GE and furniture and related wood products. Additionally, if we don’t make it here, we likely have a role in shipping. Louisville is a logistics hub, so any slow-down in consumer and business spending would also be felt through our transportation and logistics industries.
This recession has been quite severe. Employment losses have resulted in an elevated unemployment rate, and we will likely see an elevated rate through the rest of the year, and into 2011. However, while the recession has been pretty tough, employment losses have not been as severe as the 1980 recession, as the graph indicates. Our local housing sector does face challenges, but the decline in home values has not been as severe as other locales.
As the graph indicates, the 2001 recession required the longest period to arrive at pre-recessionary employment levels. Unfortunately, the same will likely apply to the most recent recession. Gains in productivity due to changes in technology and improvements in production processes will serve as headwinds to employment growth in the near term. The end result is that it will take quite some time to regain the lost jobs.
The absolute key for regions such as Louisville Metro rests with education and development of the workforce. Regions that do the most efficient job in preparing new entrants and developing existing workers have the most to gain economically. Geographic location is important for any business, but having access to a reliable and trained workforce is absolutely essential.
Uric Dufrene serves as Sanders Chair in Business at Indiana University Southeast. He teaches corporate finance at both undergraduate and graduate levels, and his research includes keeping pace with region's economy. He makes numerous presentations to various business and community groups.