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Indiana University Bloomington

Center for Econometric Model Research

Indiana Forecast Summary

June 2016

 

Indiana experienced personal income growth and employment growth below the national rates for 2015. However, Indiana’s personal income growth rate is predicted to recover in 2016 and outpace the the U.S. rate through the end of the forecast period in 2019. Payroll employment in Indiana is expected to sustain slightly lower growth rates than the nation from 2016 to 2019.

Data

This forecast used data through the fourth quarter of 2015 for personal income and through the first quarter of 2016 for employment. Personal income data for Q3 2015 was revised lower by 0.8%, and the new data for Q4 2015 was 0.4% below our March forecast value. Employment data was also lower than the last forecast by 0.4% for Q4 2015 and Q1 2016..

During the recovery from the Great Recession, Indiana’s personal income growth rate was mostly on par or stronger than the national rate. However, from 2013:2 to 2014:3, Indiana’s average personal income growth rate lagged behind the nation’s rate each quarter. Indiana fell sharply behind the nation in 2014:1, but rebounded to be 0.8 percentage points ahead of the nation’s 5.2% Q4 2014 growth rate. Indiana started 2015 with a 4.5% growth rate equal to that of the US, but has fallen more behind the nation’s growth rate with each successive quarter.

From 2010 to 2012 Indiana’s labor market mostly outperformed the nation as a whole, especially during the early part of the recovery period. During this period Indiana benefited from strong growth in manufacturing payroll employment, which held Indiana’s growth rate above the national levels. Compared to the U.S., Indiana experienced tepid employment growth in 2013 and 2014, with year-over year growth lagging behind the U.S. by up to 0.7 percentage points.

Baseline Forecast

We expect income growth over the remainder of the forecast period to be slightly lower than our March forecast. Over the full span of the forecast period, (2016:1-2019:4) Indiana is expected to have stronger average annual growth rates than the U.S (4.5% versus 4.2%).

After averaging strong quarterly job growth of 13,500 during 2015, and job creation of 12,600 in Q1 2016, the state is expected to experience a dip in quarterly employment creation in 2016:2. Growth is predicted to rebound in Q3 2016 with the creation of 7,000 jobs. Over the full forecast period, job growth is expected to stabilize, but Indiana is still predicted to average job creation of 25,200 annually.

The unemployment rate experienced its first quarterly increase in years, from 4.5% in 2015:4 to 4.8% in 2016:1. We expect the rate to level off throughout the remaining forecast period, stabilizing at 4.7% for the majority of the forecast period..

Total establishment employment growth peaked in 2015. We expect a deceleration in 2016 and then even growth in the remaining forecast years. Manufacturing employment growth has a different trend with dramatic growth in 2014 followed by significant deceleration. Growth falls to below zero for 2016 to 2019.

Annual change in personal income and wage and salary income generally parallel change in total employment. Over the forecast period, we expect stabilization of personal income growth and gradual declines of wage and salary growth rates.

Summary

In 2015 both personal income growth and payroll employment growth were below the U.S. quarterly rates. Personal income growth is expected to outpace the U.S. quarterly rates from 2016 to 2019, but quarterly employment growth for Indiana is forecasted to be slightly less than the nation for the remainder of the forecast period. Manufacturing is expected to experience job losses from 2016 to 2019, but in the next year, non-manufacturing industries are expected to have employment growth.