Steepest job losses of recession are occurring now

In a typical three-month period in Indiana, 12 percent to 15 percent of the work force changes jobs through a combination
of
job creation or destruction and turnover. So, during even a good quarter, perhaps 450,000 Hoosier workers change jobs.

We are now in a recession that in its first year claimed about 0.42 percent of the state’s job base. From October 2007 through
September 2008, job churning continued at about the same rate. However, for every 1,000 jobs lost, only about 965 were created.

This process now will accelerate. Ball State University’s Indiana econometric model predicts that earnings in all of Indiana’s
major economic sectors except health care will decline in the next three months.

The steepest declines will be in financial services (4.5 percent) and manufacturing (3.3 percent). Wholesale trade will experience
a 0.7-percent decline in personal income, our measure of earnings. We expect the remaining sectors to experience income losses
of less than half a percent.

We forecast a very modest rebound for most sectors in the second quarter of 2009, with only manufacturing earnings continuing
to decline through the quarter, dropping an additional 0.8 percent. Information technology and construction will continue
to lag in the recovery. This represents lagging business investment, primarily in new plants and equipment.

Employment also will decline steeply. Our forecast model predicts net job losses for the first three quarters of 2009. The
most significant losses will occur now through the end of the second quarter of 2009, a span when we expect the state will
lose more than 25,000 jobs, or almost 1 percent of its labor force.

During the summer, the state’s economy will continue to lose jobs, but at a slower rate. Total job losses from this quarter
through the end of the third quarter of 2009 will be about 27,500 workers.

This forecast doesn’t include job losses in the fourth quarter 2008, which could well exceed those of the preceding recessionary
year. This will cause the state’s unemployment rate to rise from its current level of 6.4 percent to between 7.5 percent and
8 percent by the end of next summer.

So, the steepest job losses, and declines in earnings, are happening right now, and will continue through the first three
months of 2009. By fall, the entire Hoosier economy should be in visible recovery (though the technical definition of a recession
ends when the economy hits bottom in the first or second quarter).

This forecast is a good bit less optimistic than that of my colleagues at Indiana University, who are predicting a little
more than half the job losses we envision. They were closer to the mark than I was last year, and I hope that is again the
case.

Unanticipated events, for good or ill, can alter events significantly. However, as things stand now, this looks a lot like
the 1990-1991 recession in depth, and the 1981-1982 recession in length.

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Hicks is director of the Center for Business and Economic Research at Ball State University.
He can be reached at bbr@bsu.edu.