Indiana Forecast Summary
The second quarter of 2014 remained sluggish with little personal income growth. However, employment growth in the state experienced its second quarter of just above national average growth. As we look beyond 2014, both employment and income are anticipated to generally parallel the nation.
This forecast used data through the second quarter 2014 for personal income data and through the third quarter for employment. Personal income data for the first quarter was revised lower by 0.9% and the new data for Q2 was weaker than our forecast by a similar amount (1.1%). Employment data was nearly on target with the last forecast – only deviating by 0.1%. These results indicate the August forecast fairly accurately estimated the state’s recent economic behavior.
During the recovery from the Great Recession, Indiana’s personal income growth rate was mostly on par or stronger than the national rate. However, for the year beginning in 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 second quarter with growth of 7.6% compared to the nation’s 4.9% 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 experienced tepid employment growth for most of 2013 compared to the U.S., but then closed the gap in the fourth quarter. In the second and third quarters of 2014, Indiana slightly outpaced the U.S. quarterly payroll growth by 0.2 and 0.3 percentage points, respectively.
We now expect income growth over the next three quarters that is slightly lower than our August forecast. However, growth remains quite strong for the entire forecast. Over the full span of the forecast period (2014:3-2017:4) Indiana is expected to have slightly stronger average annual growth rates than the U.S (4.6% versus 4.3%).
After disappointing first quarter payroll employment growth, the state saw an increase of over 17,000 jobs in both the second and third quarters of 2014. The state will likely experience a third consecutive quarter of more than 17,000 jobs added in 2014:4. Over the following three years job creation slowly decelerates, but still averages 51,400 per year.
The unemployment rate has continued to drop thus far in 2014– with October recording a 5.7% rate. We expect this drop to continue throughout the forecast, down to 4.9% by the end of 2017.
Thus far in 2014, personal income growth has lagged while payroll employment growth has slightly outpaced the U.S. rate for the last two quarters. Personal income and employment growth are expected to level out in years 2015 through 2017, following a choppy 2014. Manufacturing job creation in 2015 to 2017 will not keep pace with the growth rates experienced in the past year. However, in the next year, nearly all industries are expected to have employment growth.