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Indiana University Bloomington

Center for Econometric Model Research

Indiana Forecast Summary

June 2015

 

Indiana experienced personal income growth and employment growth below the national rates in 2014. As we look beyond 2014, Indiana’s personal income growth is expected to marginally outpace the nation, while employment growth is forecasted to be slightly below the U.S. rates.

Data

This forecast used data through the fourth quarter of 2014 for personal income and through the first quarter of 2015 for employment. Personal income data for the first three quarters of 2014 was revised lower by 0.1% and the new data for Q4 was weaker than our previous forecast by 0.3%. Employment data experienced even sharper downward revisions of 0.5% for Q3 and 0.4% for Q4. As a result our March forecast for the first quarter was too high by a similar amount (0.5% = 16.2 thousand jobs).

During the recovery from the Great Recession, Indiana’s personal income growth rate was mostly on par or stronger than the national rate. However, since 2013:2, Indiana’s average personal income growth rate has lagged behind the nation’s rate each quarter. Indiana fell sharply behind the nation in 2014:1, but rebounded in the next three quarters to be just 0.4 percentage points behind the nation’s 4.7% Q4 growth rate.

From 2010 to 2012 Indiana’s labor market 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 held Indiana’s growth rate above the national levels. Compared to the U.S., Indiana has experienced tepid employment growth since 2013, with year-over year growth lagging behind U.S. by 0.1 to 0.7 percentage points.

Baseline Forecast

We expect income growth over the remainder of the forecast period to be nearly even with the March forecast. A peak quarterly growth rate of 5.5% is forecasted in Q3 of 2015. Additionally, over the full span of the forecast period, (2015:1-2018:4) Indiana is expected to have slightly stronger average annual growth rates than the U.S (4.8% versus 4.6%).

After averaging a job growth of just 8,000 in the first three quarters of 2014, the state saw an average increase of 18,100 for the past two quarters. We expect the state will continue to experience strong job growth, with creation averaging just under 12,000 for the final three quarters of 2015. Over the full forecast period, job creation slowly decelerates, but still averages 44,500 per year.

The unemployment rate has continued to drop, with March of 2015 recording a 5.6% rate. We expect this gradual decline to continue throughout the forecast, down to 4.8% by the end of 2018. [Data released since this forecast was completed put May unemployment at just 5.1%. This suggests that our forecast may be pessimistic.]

Total establishment employment growth is expected to peak in 2015 followed by a slight drop in the remaining forecast years. Manufacturing employment growth has a different trend with dramatic growth in 2014 followed by significant deceleration. Growth falls to zero in 2017 and slightly below zero in 2018.

Annual change in personal income and in wage and salary income generally parallel change in total employment. We expect a strong increase in both the personal income and wage and salary growth rates in 2015, followed by a gradual decline in real income growth in subsequent years.

Summary

In 2014 both personal income growth and payroll employment growth lagged behind the U.S. rates each quarter. Personal income and employment growth are expected to increase marginally in 2015, then slowly decrease from 2016 to 2018. Manufacturing job creation from 2015 to 2018 will not keep pace with the growth rates experienced in 2014. However, in the next year, all industries except for the services sector are expected to have employment growth.