Richmond.

• Author: Veramallay, Ashton I.

The Richmond-Connersville-New Castle (RCNC) area economy can expect a rebound in 2004. Business activity will pick up from its current lackluster performance. This is predicated upon national economic performance, which, in turn, will influence the local economy.

The recession of 2001 meant the usual cutbacks and closings in manufacturing. The manufacturing sector is still experiencing soft demands, especially in the automobile and technology industries. However, other firms producing components to the housing, pet, plastic, and casket industries have strong demands even in the wake of the Iraq war.

Manufacturing firms tend to make their largest "job-destruction" decisions during economic downturns. Job losses from contracting establishments rose sharply while job gains from expanding establishments fell sharply. The net result of these two gross flows moving in opposite directions is the loss of jobs during the recession-recovery period.

The September 2003 figures released by the Indiana Department of Workforce Development show that the unemployment rates in Wayne, Fayette, and Henry counties, were 5.3 percent, 9.2 percent, and 4.9 percent, respectively (see Figure 1). These unemployment rates were higher than the state rate of 4.8 percent, but lower than the national rate of 5.8 percent, with the exception of Fayette County, which is intricately tied to the automobile industry.

[FIGURE 1 OMITTED]

Despite nearly two years of steady gains in U.S. production and income, total employment is still below the peak of the previous business cycle in March 2001. Manufacturing jobs seem particularly vulnerable, having declined by roughly 13 percent since the recession began. As U.S. firms adjust to import competition from low-wage companies, they increase plant capacity and hire skilled workers. Consequently, there is increased productivity, which also translates into worker displacement because it takes fewer workers to produce the same output. The current jobless recovery may be due to structural, rather than cyclical, changes and RCNC is not immune to it.

Unlike manufacturing, the housing sector is doing extremely well. Home sales have surpassed last...