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Indiana University Bloomington

Center for Econometric Model Research

Indiana Forecast Summary

May 2014

 

For most of 2013 Indiana growth in both income and employment trailed the U.S. as a whole. Employment, however, surged in the fourth quarter, but then had no growth in the first quarter of 2014. As we look into 2014 and beyond, both employment and income are anticipated to generally parallel the nation. This implies some improvement relative to growth during 2013.

Data

The forecast now has personal income data for all of 2013 and employment data through 2014:1. Personal income data was weaker than anticipated in 2013:4 by 0.9%. Employment data has been significantly revised by the BLS. Employment levels prior to 2012 were generally increased slightly, while estimates starting with 2012:2 have been lowered. For 2013:4 the downward revision was 9,900 (0.3%). Partly as a result our February forecast for 2014:1 was too optimistic by 0.7%.

During the recovery from the Great Recession, Indiana’s personal income growth rate has been mostly on par or stronger than the national rate. During 2013, however, the historical pattern of Indiana falling behind the U.S. reasserted itself. For 2013, the nation’s average personal income growth rate was 1.6% vs. just 1.2% for Indiana.

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. Payroll growth weakened in the first quarter of this year, more so in the state than nationally.

Baseline Forecast

Our current forecast for personal income has a significant bounce from the disappointing fourth quarter result followed by steady growth in in the rest of 2014. Income growth in both 2014 and 2015 is stronger than our February outlook. Over the full span of the forecast period (2014-2017), Indiana is expected to have slightly stronger average annual growth rates than the U.S.

For all of 2013, in spite of dramatic quarter-to-quarter swings, Indiana added 52,300 jobs. But then the first quarter of 2014 had employment grow by just 400. We anticipate this lull to be temporary, and expect that state payrolls will increase by 45,700 workers by the end of the year. Over the following three years job creation slowly decelerates, but still averages 42,600 per year.

The unemployment rate, which fell from 8.0% to 6.8% during 2013, is expected to continue its descent to 5.4% in 2014, and to reach be close to 5% at the end of 2015.

 

Summary

Thus far in 2014, Indiana’s employment has struggled to keep up with the nation. During 2013, Indiana’s personal income growth rate lagged behind the U.S., however it is anticipated that both will pick up in 2014 and beyond. Our forecast for 2014 predicts slightly better employment growth from the manufacturing sector, but much of the employment growth will come from other industries. Personal income growth is expected to improve in 2014 after the lull in 2013.