Revised Employment Data for Louisville-Jefferson County Metro Area Show Significantly Higher Growth for 2005-2006 than Previous Estimates

LOUISVILLE, Ky. — Based on calculations by the Federal Reserve Bank of St. Louis, newly revised estimates for the Louisville-Jefferson County metro area in 2005 and 2006 indicate that employment growth in the region was 6.6 thousand (1.1 percent) in 2005 and 11.9 thousand (1.9 percent) in 2006. Pre-revision estimates for employment growth for the Louisville-Jefferson County metro area were 4.4 thousand (0.7 percent) and 3.9 thousand (0.6 percent), respectively.

By comparison, according to the latest estimates for the United States over the same periods, payroll employment grew by 1.9 percent in 2005 and 1.7 percent in 2006.
These calculations, by St. Louis Fed economists Michael R. Pakko and Howard J. Wall, were done in response to annual benchmark revisions, released Thursday by the Bureau of Labor Statistics (BLS), for payroll employment data for every metro area in the United States.

The Louisville-Jefferson County MSA includes the following counties: Bullitt, Henry, Jefferson, Meade, Nelson, Oldham, Shelby, Spencer and Trimble Counties in Kentucky; and Clark, Floyd, Harrison and Washington counties in Indiana.

Monthly employment estimates by the BLS going back to April 2005 were affected by these revisions. In addition, new population controls resulted in small revisions to the data further back in time.

Louisville-Jefferson County Employment Over Time and Across Industries
The charts below show total employment and its growth rate for the Louisville-Jefferson County metro area from 1999 through 2006. The revised estimates reflect significantly higher levels of employment throughout 2006 than had been indicated by earlier estimates. The second chart shows that employment growth was higher than previously thought for all but one quarter in 2006. More specifically, the sharp decline at the end of 2006 has become a moderate increase.

"Overall, the revised employment numbers indicate that the LouisvilleJefferson County metro area experienced steady employment growth for the last three years," said Pakko and Wall. "Also, although employment growth tapered off during the second half of the year, 2006 looks to have been somewhat better for the Louisville-Jefferson County metro area than for the country as a whole."

The table below breaks down the employment estimates by major sector:

"The most interesting thing in the table is that Louisville bucked the trend by seeing a significant increase in manufacturing employment in 2006," said the economists. "An upward revision of 6,700 jobs in manufacturing accounted for about 80 percent of the overall revision for 2006. Growth in 2006 was fairly spread out, with four industriestrade, transportation, and utilities; manufacturing; professional and business services; and governmenteach seeing increases of 2,000 or more jobs."

Background: Jobs Data and Benchmarking
At any time, the most up-to-date estimates of payroll employment in a metro areathe number of jobsis provided by the Current Employment Statistics (CES) program of the BLS. According to the BLS, each month it surveys about 160,000 businesses and government agencies, representing approximately 400,000 individual worksites, from around the United States. Although the survey covers hundreds of thousands of employers, these employers make up only a small percentage of all businesses and worksites in the country. (According to the BLS, there were more than 8.8 million such establishments in the United States in June 2006.)

To calculate a comprehensive measure of metro area employment, the BLS needs to estimate the number of establishments in the area. "This," said Pakko and Wall, "is the primary reason for the sometimes-large revisions to the CES data: the difficulty in estimating the number of establishments. When the economy is in recovery, for example, new firms might be setting up and hiring workers very quickly. The BLS doesn't find out about the new firms or jobs until the unemployment insurance records are updated, which can take several months or more. This lag is compounded by the fact that small firms, which provide the bulk of jobs, might only need to provide unemployment insurance information once a year rather than monthly or quarterly, as is required of larger firms."

To estimate the number of establishments, the BLS relies on the Quarterly Census of Employment and Wages (QCEW). The QCEW is a tabulation of employment information for workers covered by state and federal unemployment insurance programs. Because of its comprehensive nature, data from the QCEW cannot be produced as quickly as data from the CES: Initial data are released 6 to 7 months after the end of a quarter and are subject to subsequent revision. To fill in the blanks, the BLS estimates the number of establishments using the QCEW as a benchmark. Each year, the BLS establishes new benchmarks using updated data from the QCEW. Because of the lags and revisions to the QCEW data, the yearly benchmarking affects employment data from the CES going back 21 months. "This is why the estimates just released have affected the yearly employment changes for 2005 and 2006," said Pakko and Wall. "Note also that the estimates for job growth in 2006 will change again in March 2008 because much of the data for 2006 will be affected by the benchmark revisions that will occur then."

The following table provides the history of recent revisions to the yearly employment changes for the Louisville-Jefferson County metro area:

The first column of data is based on the first estimates of December employment, which are released in the subsequent January. The second data column is the estimate after the first benchmark revision, which happens in the subsequent March, and the last column is the estimate after the second benchmark revision, which occurs in March of the following year.

"As these numbers make clear, our view of the economy can change dramatically following benchmark revisions," said Pakko and Wall. "For example, 2001 initially looked like a much better year than it did by the time the second benchmark revisions were done. For the year, the estimated change in the number of jobs changed from a moderate increase of 6,600 to a very large decrease of 20,400 between the initial release and the second benchmark revision. Employment in 2003, on the other hand, looked initially to have risen only slightly, but subsequent revisions turned the year into an extremely robust one."

With branches in Little Rock, Louisville and Memphis, the Federal Reserve Bank of St. Louis serves the Eighth Federal Reserve District, which includes all of Arkansas, eastern Missouri, southern Indiana, southern Illinois, western Kentucky, western Tennessee and northern Mississippi. The St. Louis Fed is one of 12 regional Reserve banks that, along with the Board of Governors in Washington, D.C., comprise the Federal Reserve System. As the nation's central bank, the Federal Reserve System formulates U.S. monetary policy, regulates state-chartered member banks and bank holding companies, and provides payment services to financial institutions and the U.S. government.

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