Indiana Forecast Summary
May 2013
Indiana began 2013 with admirable employment growth and with personal income growth that has been respectable compared with the U.S. 2013 is still expected to be a lethargic year for Indiana’s economy.
Data
We now have personal income data for all quarters of 2012 and first quarter 2013 employment data. Personal income forecast for 2012:4 was 1 percent less than we anticipated but much of this was due to downward revisions of the data for the first three quarters of 2012. Employment figures for 2013:1were stronger than forecasted by 0.8 percent. The 2.3% year-over-year growth was well above the U.S. figure of 1.5%. This marks the fifth quarter in a row in which Indiana payroll growth has exceeded the U.S.
Prior to the recession, Indiana historically fell short of the nation’s personal income growth rate, a pattern that temporarily re-emerged in 2010. Since 2010, Indiana’s growth has been similar or stronger than the national rate.
Since 2009 Indiana’s labor market has alternated between strong and weak growth rates compared to the U.S. from year to year. In 2012, Indiana benefited from strong growth in manufacturing payroll employment, which pushed Indiana’s growth rate to 2.8%, compared to the nation’s 16%. In 2013:1, payroll employment dipped a little by only growing 2.3%. Still, Indiana outperformed the nation.
Baseline Forecast
Personal income is expected to plunge in 2013:1 with negative growth and then bounce back in 2013:2 before leveling out through 2016. The current forecast predicts slower quarter over quarter employment growth in the second half of 2013 both compared to 2012 and to our February forecast. This reflects a similar pattern in our national forecast.
For personal income, there was a positive spike in 2011:1 caused by the payroll tax cut. A smaller spike in 2012:4 resulted from a surge in corporate dividends. Both these effects are offset in 2013:1. In 2012 average annual personal income grew by 4.8%, slightly higher than the 2011 rate of 4.7% yet less than the February estimate of 5.8%. For all of 2013 the payroll tax and dividend effects hold income growth to just 2.5%, but in 2014 growth rebounds to 4.5%. Both these numbers are slightly higher than the national figures.
Employment growth from quarter to quarter has historically been choppy, which will continue through 2013. In 2013:1, the state had an additional 11,400 workers on payroll (0.4% growth rate from the prior quarter). This figure is much higher than our February forecast of 3,300 additional workers. Nevertheless, we expect employment growth in the rest of 2013 to slow considerably. The expected payroll rise for all of 2013 is just 35,200, compared to 78,400 in 2012. Then the labor market picks up steam again in 2014 with an annual gain of 58,500. The unemployment rate will continue its slow descent with the anticipated 8.3% rate in 2013:2 falling to 6.5% at the end of 2014.
Summary
In 2012, Indiana’s employment and personal income experienced relatively strong growth. 2013 is expected to see a pullback in both employment and personal income growth before accelerating again in 2014.
