Indiana Forecast Summary
February 2012
Compared to the November outlook, our current forecast for the Indiana economy has become more optimistic that economic growth, albeit sluggish, will continue, with rising employment and personal income and decline in the unemployment rate.
Data
Revisions in income data and employment data since our November forecast have been inconsequential, with 2011:2 personal income being revised downward by just 0.3%. Further, our November outlook was quite accurate in its forecast of 2011:3 personal income and 2011:4 employment data. The personal income forecast was too high by only 0.1%, whereas the employment forecast was just 300 workers above the reported number.
Since the recession, Indiana’s growth rate for personal income has consistently trailed behind the U.S., until the first half of 2011 when the rates were nearly identical. In the third quarter, however, the U.S. again outperformed the state (4.2% vs. 3.7%). For the first three quarters of 2011 average growth of Indiana personal income has been 4.9% – slightly under the nation’s 5.1% growth – yet much better than the annual growth rate for 2010 (3.5% for Indiana versus 3.7% for the U.S.). Currently Indiana’s personal income per capita relative to the U.S. is 85.9% – remaining relatively steady.
Throughout 2010, Indiana’s labor market grew more strongly than the nation’s, but in 2011 the state had virtually no growth versus the nation’s 1.2% annual rate. In the fourth quarter of 2011, Indiana had zero increase in payroll employment whereas the U.S. had a 1.3% year-to-year growth in payroll employment.
Baseline forecast
Following a similar pattern seen in 2010, the recent data provided some optimism – deviating away from the negative data seen during the summer. Therefore, at this point we expected to see a continuing recovery, but devoid of strong surges in either personal income or payroll employment growth.
The most dramatic changes in the pattern we see for income are due to the payroll tax cut expiration being moved from the beginning of 2012 to the beginning of 2013. In 2012, the average annual personal income growth rate is anticipated to be 3.5%, slightly less than the 2011 rate.
Due to the strong jobs growth seen in 2010, we had hoped that the trend would continue in 2011. Unfortunately dismal employment figures for 2011 have fallen short of our expectations. Following our U.S. forecast, we anticipate strong growth in the current quarter, with more tepid employment change in subsequent later in the year. For 2012 as a whole our model now projects an employment rise of 53,000. In 2011, by contrast, the state had a net gain of just 100 workers. By year-end we expect state unemployment to fall to about 8%, from 9% in December.
Summary
The data shows that in 2011, payroll employment was stagnant yet personal income posted similar growth rates to the nation. We anticipate that over the next year the Indiana economy will achieve slow, steady growth, with incremental hiring, personal income growth, and continuing decline in the unemployment rolls.
