Indiana Forecast Summary
The first quarter of 2014 was sluggish at best with little employment growth and meager personal income growth. However, personal income is expected to improve for the rest of the forecast period and employment growth has already rebounded. As we look beyond 2014, both employment and income are anticipated to generally parallel the nation.
This forecast utilized first quarter 2014 personal income data and employment data through 2014:2. Personal income data for 2014:1 was weaker by 0.4% than anticipated in our May outlook. Employment data was nearly on target with the last forecast – only deviating by 0.1%. Overall the May forecast fairly accurately estimated the state’s economic trends.
During the recovery from the Great Recession, Indiana’s personal income growth rate has been mostly on par or stronger than the national rate. In 2013, Indiana’s personal income growth rate was choppy – with a strong start and finish and weak middle two quarters. Using annual average data, the nation’s 2013 personal income growth rate was just 2.0% vs. 2.2% for Indiana. In 2014:1 Indiana fell sharply behind the nation with 1.0% growth versus the nation’s 3.7% growth.
Since 2009 Indiana’s labor market has mostly outperformed the nation as a whole, especially during the early part of the recovery period. In 2012, Indiana benefited from strong growth in manufacturing payroll employment, which pushed Indiana’s growth rate above the national levels. Indiana employment growth matched the U.S. for the four quarters of 2013, but then was virtually flat in 2014:1. While the state bounced back in the second quarter, growth in the first half trailed the U.S. 1.2% to 1.9%.
Our current forecast for personal income has a significant second quarter rebound from the disappointing results of the last two quarters, followed by steady growth in in the rest of 2014. Income growth in both 2014 and 2015 is stronger than our May outlook. Over the full span of the forecast period (2014-2017), Indiana is expected to have slightly stronger average annual growth rates than the U.S.
After a disappointing first quarter payroll employment growth of 500 jobs, the state saw an increase of 17,900 jobs in the second quarter. We expect the state to have a slight dip in payroll growth in the third quarter and then a small rebound in the fourth before leveling out in 2015 and beyond. We anticipate state payrolls will increase by 49,000 workers by the end of the year. Over the following three years job creation slowly decelerates, but still averages 45,300 per year.
Thus far in 2014, the unemployment rate has continued to drop – with 2014:2 recording a 5.8% rate. We expect this drop to continue throughout the forecast, reaching 5.5% at the end of this year and down to 4.8% by the end of 2017.
So far in 2014, personal income growth has lagged while payroll employment growth has matched the U.S. rate. Turbulence is to be expected in 2014 in personal income and employment growth before leveling out in years 2015 through 2017. After 2015, it is anticipated that the state will experience manufacturing job creation shrinkage. However, in the next year, all industries are expected to have employment growth, producing a bump in real income.