Indiana Forecast Summary
We began 2013 with hopes of an improving Indiana economy. However, thus far the state has had sluggish employment and personal income growth that has essentially paralleled the national economy.
Personal income data for the first half of 2013 and three quarters of 2013 employment data were used for this forecast. Personal income data were revised from 2000:1 forward, due a comprehensive revision to the national income and product accounts (NIPAs) in July. Therefore, the level of personal income for 2013:2 was higher than anticipated (+3.9%), but growth was below our August forecast (2.6% compared to 3.7%). Employment growth for the second quarter was revised upward by 1.2 thousand, and the third quarter data exceeded our August forecast by 6.9 thousand.
Prior to the recession, Indiana historically lagged behind the nation’s personal income growth rate. Since mid-2009, Indiana’s growth has either been on par or stronger than the national rate.
As can be seen in Figure 2, 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, pushing Indiana’s growth rate above 2%, compared to the nation’s 1.6%. Thus far in 2013, Indiana’s payroll employment growth has lagged slightly behind the nation, growing at 1.6% compared to the nation’s 1.7%.
Our current forecast for personal income growth is slightly weaker than that in August. For the most part, this reflects a similar change in our national outlook. Our model expects income growth over the next three and a half years to be very similar to the national rate, averaging close to 4%.
Employment growth from quarter to quarter has historically been choppy, which will continue through 2013. Thus far in 2013, the state has added 35,200 workers to payrolls. As predicted, employment growth did strengthen in 2013:3. Our model expects a weak fourth quarter, which may prove to be pessimistic. The expected payroll rise for all of 2013 is just 39,600, compared to 56,200 in 2012. Then the labor market regains some momentum in 2014 to 2016 with an annual average gain of 44,700. The unemployment rate will continue its descent with the anticipated 7.6% rate in 2013:4 falling to 5.3% at the end of 2016.
Compared to 2012, establishment employment growth in the forecast years is expected to decelerate – particularly in manufacturing. In 2013 manufacturing growth is expected to decline (through three quarters it is down by 2,700) before regaining moderate growth in 2014 and beyond. In the meantime, other industries employment will be the main source of growth.
Thus far in 2013, Indiana has had modest employment and personal income growth – matching prior forecasts. Manufacturing employment is expected to slow considerably this year – hence the non-stellar employment growth projections. However, employment and personal income growth will likely pick up steam again in 2014 through 2016, thus the 2013 lull will be temporary.