Indiana Model of Indiana
Summary of Current Forecast: May 2009
Our current forecast for the Indiana Economy is somewhat more pessimistic than our February outlook, especially with respect to employment.
Data
The Indiana economy has fallen short of the U.S. economy over the past five years with respect to both personal income and employment.
From the beginning of 2004 through the fourth quarter of last year Indiana per capita personal income has risen by 16.2%, while the national value has gained 21.9%. As a result, the ratio of Indiana per capita income to the national value has declined over four points (from 90.3% to 86.7%). The difference amounts to about $1700 for every person in the state.
Low population growth plays a role in the slower growth of employment in Indiana relative to the nation, but this is less a factor during a contraction. Since the bottom dropped out of the labor market at the end of 2007 Indiana employment has declined by 4.2% compared to a 3.1% loss nationally. In the first quarter Indiana employment contracted at an 8.4% annual rate versus the U.S. rate of 5.9%.
Baseline forecast
For both growth of Indiana personal income and the change in payroll employment our outlook has become a little more pessimistic over the past three months. Mostly this is due to the incoming new data for the state economy, which has been a little worse than we expected in February.
Income growth in the current forecast is slightly below February through the third quarter of this year, then about the same. Including the already achieved third and fourth quarters of last year, we expect income to register three quarters of decline. Over the next year the absolute level of Indiana income growth is below that for the entire country. On a per capita basis, however, income growth in Indiana slightly exceeds the nation.
Our employment forecast is substantially below that in February. The difference results mainly from the first quarter data, which were weaker than our February estimate. Employment continues to drop through the end of this year. At that point total job loss approaches 200 thousand (6.6% of pre-recession peak employment). Since the third quarter of 2007, Indiana employment has been declining at a rate of 88 thousand per year. For comparison, during the period 1991-2006 the state economy gained an average of almost 29 thousand jobs per year.
The manufacturing sector has been particularly hard hit so far, and we expect this to continue. During 2008 and 2009 we project that employment in manufacturing will decline by over 120 thousand. This accounts for well over half the state’s total job loss, even though the sector currently has only 16% of total employment.
To summarize: The Indiana economy has been losing ground relative to the U.S. as a whole, and our forecast is that this discouraging pattern will continue. Especially with regard to employment, the recession will continue to hit Indiana hard over the rest of this year.
