Lafayette Forecast 2010

Economic Research Analyst, Indiana Business Research Center, Kelley School of Business, Indiana University

November 2009

A turbulent economy characterized 2009. As we look to the future to determine how 2010 will treat the Lafayette Metropolitan Statistical Area (MSA), it appears that we may have a slow recovery. A quick recovery is likely to be hampered by additional job shedding through the beginning of 2010 before businesses begin to slowly re-hire and thaw out pay freezes.

Despite the prediction of a slow recovery and its consequences, there is a sense of optimism in the Lafayette MSA due to the mixture of science and technology that Purdue’s Research Park is bringing to the area. This sense of optimism may be reflected in the continuous population growth in the Lafayette MSA since 2000 (see Figure 1). This population growth has been particularly strong in Tippecanoe County, home to Purdue University and its Research Park. It is expected that the population growth will continue in 2010 with around 0.7 percent growth, or an additional 1,300 residents in the MSA.

Figure 1: Annual Population Change in the Lafayette MSA and Tippecanoe County, 2001 to 2008

Figure 1: Annual Population Change in the Lafayette MSA and Tippecanoe County, 2001 to 2008

Labor

Overall, the Lafayette MSA, which includes Tippecanoe, Benton, and Clinton counties, has weathered the recession fairly well compared to Indiana and the United States. As seen in Table 1, except for June and July 2009, the Lafayette MSA has had lower unemployment rates (8.9 percent in August) than Indiana (9.7 percent) and the United States (9.6 percent). The variance seen in June and July may have been related to the school year or to the substantial layoffs announced in May from Caterpillar, Wabash National, Inc., and Fairfield Manufacturing Co.

Table 1: Labor Force and Unemployment for the Lafayette MSA, 2008 to 2009

Year Month Labor Force Unemployed Unemployment Rate
2008 August 95,748 4,775 5.0
September 98,140 4,558 4.6
October 99,055 4,660 4.7
November 98,471 5,301 5.4
December 97,507 5,919 6.1
Annual 97,413 4,744 4.9
2009 January 99,108 8,287 8.4
February 98,871 8,292 8.4
March 98,742 8,619 8.7
April 98,815 8,148 8.2
May 100,501 8,826 8.8
June 101,237 10,540 10.4
July 96,528 10,381 10.8
August 93,169 8,318 8.9
Source: IBRC, using Bureau of Labor Statistics data

Table 2 compares the employment between 2008 and 2009 in the Lafayette MSA. As of September 2009, total nonfarm employment declined by 1,556 jobs (-1.6 percent) over the 2008 average. In particular, the goods production sector experienced most of the job losses thus far in 2009 (-8.2 percent or -1,653 jobs). The majority of these job losses (-1,369) can be attributed to manufacturing, which accounts for 20 percent of the Lafayette MSA jobs. In contrast to the goods-producing sector, the service-providing sector had a slight improvement (0.1 percent) in employment from 2008 due to the private educational and health services and leisure and hospitality industries. These trends suggest that the service-providing sector will continue to grow in 2010, yet its rate of growth will be dependent on the goods-producing sector. The goods sector is anticipated to continue to struggle, but may grow slightly. If the recovery is slow as expected, its impact will be felt in the trade, transportation, and utilities; professional and business services; and financial activities industries.

Table 2: Lafayette MSA Employment, 2008 to 2009

Industry 2009* Change since 2008 Percent Change 2008–2009
Total Nonfarm 94,244 -1,556 -1.6
Total Private 65,378 -1,756 -2.6
Goods-Producing 18,556 -1,653 -8.2
Manufacturing 15,356 -1,369 -8.2
Mining, Logging, and Construction 3,200 -283 -8.1
Service-Providing 75,689 56 0.1
Professional and Business Services 5,567 -158 -2.8
Trade, Transportation, and Utilities 14,244 -131 -0.9
Financial Activities 3,811 -22 -0.6
Other Services 2,978 3 0.1
Leisure and Hospitality 8,767 67 0.8
Private Educational and Health Services 10,456 197 1.9
Government 28,867 158 0.6
*January through September average. September data are preliminary. Annual data are used for 2008.
Source: IBRC, using Bureau of Labor Statistics data

Although the Lafayette MSA has experienced an overall decline in employment in 2009, average weekly wages by workers only slightly declined (-0.1 percent). Eleven out of the seventeen major sectors had a wage increase from the first quarter of 2008 to the first quarter of 2009 (not adjusted for inflation), as seen in Table 3. This increase may be due to increased productivity or the deflation seen in 2009 that led to the elimination of jobs, thus affecting the weekly wage average. In 2010, wage and salary earnings may slightly decline again (less than 1 percent) until employment regains its momentum.

Table 3: Average Weekly Wages in Lafayette MSA, 2008:1 to 2009:1

Industry 2009:1 Change since 2008:1 Percent Change
Total $743 -$1 -0.1
Management of Companies and Enterprises 1,215 -377 -23.7
Information 493 -47 -8.7
Transportation and Warehousing 702 -49 -6.5
Health Care and Social Services 705 -15 -2.1
Other Services (Except Public Administration) 435 -6 -1.4
Retail Trade 395 -3 -0.8
Manufacturing* 1,154 3 0.3
Professional, Scientific, and Technical Services 885 6 0.7
Administrative, Support, and Waste Management 428 3 0.7
Accommodation and Food Services 227 2 0.9
Construction 730 13 1.8
Finance and Insurance 945 19 2.1
Educational Services* 987 23 2.4
Public Administration 733 25 3.5
Real Estate, Rental, and Leasing 546 20 3.8
Wholesale Trade 955 61 6.8
Arts, Entertainment, and Recreation* 256 30 13.3
*These totals exclude county data that are not available due to nondisclosure requirements.
Note: Utilities data are not available due to nondisclosure requirements.
Sources: IBRC and the Bureau of Labor Statistics, using QCEW data

The Lafayette MSA’s per capita personal income (PCPI) continues to lag behind the United States with the 2008 PCPI only 75.6 percent of the national figure. This difference can be attributed to the loss of well-paying jobs in the area, especially in manufacturing. In 2010, the local PCPI is estimated to increase roughly 2.5 percent, a stronger growth than the expected 2009 figures.

Housing

Residential construction peaked in 2003 with 1,519 permits issued for single- and multi-family building permits. More recently, the number of permits issued dropped 28.2 percent in 2008 and data for 2009 (January to August) indicate that building permits are down nearly 60 percent in 2009 (see Table 4).

Table 4: Lafayette MSA Residential Building Permits, 2001 to 2009

Permits 2001 2002 2003 2004 2005 2006 2007 2008 2009*
Total 1,576 2,113 1,519 1,511 1,079 918 919 660 264
Single-Family 923 1,624 1,026 1,334 1,048 720 623 537 260
Multi-Family 653 489 493 177 31 198 296 123 4
*January through August
Source: IBRC, using U.S. Census Bureau data

Comparison of 2008 to January through September 2009 real estate activity in the Lafayette MSA finds the market relatively soft, as the number of units sold in the three counties declined by 12.1 percent (see Table 5). The median sales price declined in Tippecanoe (-2.0 percent) and Carroll counties (-22.8 percent), but increased in Benton County (14.3 percent). In 2010, it is anticipated that the real estate market will see an increase in home sales, yet prices will continue to decline slightly in the soft market. Permits issued are expected to increase a little over 2009.

Table 5: Lafayette MSA Residential Real Estate Sales, 2008 to 2009

County Units Sold Median Sales Price
2008 2009* Percent Change 2008 2009* Percent Change
Lafayette Metro 1,582 1,391 -12.1 n/a n/a n/a
Tippecanoe 1,392 1,240 -10.9 122,500 120,000 -2.0
Carroll 132 111 -15.9 90,500 69,900 -22.8
Benton 58 40 -31.0 52,450 59,950 14.3
*January through September
Source: IBRC, using Indiana Association of Realtors data

Conclusion

Overall, the Lafayette MSA outlook is expected to show a slight growth in population, employment, PCPI, and housing activity, but experience minor downturns in wages and earnings and home sale values. Hopefully, the recovery is stronger than predicted, but that will depend on the consumer’s confidence in the economy and their willingness to secure loans and acquire debt, as well as increased demand for U.S. goods and services.