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Indiana University Bloomington

Center for Econometric Model Research

Indiana Forecast Summary

December 2015

 

Indiana experienced personal income growth and employment growth below the national rates in 2014. Indiana’s personal income growth rate lagged behind the nation in the second quarter of 2015, and is predicted to remain lower than the U.S. rate for the remainder of the year. Payroll employment growth experienced slightly lower than U.S. rates for the first half of 2015, but outpaced the nation in Q3 and is expected to remain stronger in Q4 2015.

Data

This forecast used data through the second quarter of 2015 for personal income and through the third quarter of 2015 for employment. Personal income data for Q1 2015 was revised weaker by 0.5%, and the new data for Q2 2015 was 0.8% below our September forecast value. The new employment data was 1.8 thousand (0.1%) higher than our September estimate.

During the recovery from the Great Recession, Indiana’s personal income growth rate was mostly on par or stronger than the national rate. However, from 2013:2 to 2014:4, Indiana’s average personal income growth rate lagged behind the nation’s rate each quarter. Indiana fell sharply behind the nation in 2014:1, but rebounded to be 0.8 percentage points ahead of the nation’s 5.2% Q4 2014 growth rate before falling to be one percentage point behind the nation’s 4.5% Q2 2015 growth rate.

From 2010 to 2012 Indiana’s labor market mostly outperformed the nation as a whole, especially during the early part of the recovery period. During this period Indiana benefited from strong growth in manufacturing payroll employment, which held Indiana’s growth rate above the national levels. Compared to the U.S., Indiana has experienced tepid employment growth since 2013, with year-over year growth lagging behind the U.S. by 0.1 to 0.7 percentage points. However, in Q3 of 2015 Indiana payroll employment growth outpaced the nation by 0.3 percentage points.

Baseline Forecast

We expect income growth over the remainder of the forecast period to be slightly higher than our September forecast. A peak quarterly growth rate of 6.4% is forecasted in Q3 of 2015. Over the full span of the forecast period, (2015:3-2018:4) Indiana is expected to have stronger average annual growth rates than the U.S (5.0% versus 4.5%).

After averaging quarterly job growth of 11,500 during 2014, the state saw an average increase of 16,100 for the first three quarters 0f 2015. The state will likely continue to experience solid, but slowing job growth, with expected creation of 13,200 and 12,900 jobs in 2015 Q4 and 2016 Q1, respectively. Over the full forecast period, job growth is expected to level out, but Indiana is still predicted to average job creation of 34,800 annually.

The unemployment rate experienced a second consecutive quarter of sharp declines, with Q3 2015 recording a 4.6% rate. We expect an increase of 0.1 percentage points in Q4, and the rate to level off throughout the remaining forecast, stabilizing at 4.8% by 2018.

Total establishment employment growth is expected to peak in 2015 followed by a slight drop in 2016 and slowing, but even growth in the remaining forecast years.  Manufacturing employment growth has a different trend with dramatic growth in 2014 followed by significant deceleration. Growth falls to almost zero in 2016 and below zero in 2017 and 2018.

Annual change in personal income and wage and salary income generally parallel change in total employment.  The negative growth in personal income for 2013 reflects both the ending of the payroll tax reduction and an acceleration of dividend payments in 2012. Over the forecast period, we expect slight increases in personal income and wage and salary growth rates in 2016, followed by gradual declines in real income growth in subsequent years.

Summary

In 2014 both personal income growth and payroll employment growth lagged behind the U.S. quarterly rates. Personal income growth is expected to outpace the U.S. quarterly rates for the remainder of the forecast period, but quarterly employment growth for Indiana is forecasted to be slightly less than the nation through 2018. Manufacturing job creation from 2015 to 2018 will not keep pace with the growth rates experienced in 2014. However, in the next year, all industries are expected to have employment growth.