94 years of economic insights for Indiana

The IBR is a publication of the Indiana Business Research Center at IU's Kelley School of Business

Indiana

Indiana Business Research Center,Kelley School of Business, Director, Indiana University, Bloomington, Indianapolis, and Gary

Senior Lecturer in Finance and Research Fellow in the Indiana Business Research Center, Kelley School of Business, Indiana University, Indianapolis

After a long period of uncertainty fed by mixed economic signals, more and more economists are dancing to the tune that the jobless recovery of the U.S. economy is finally turning around. In Indiana, however, clear support for a change in the song’s key from minor to major has yet to emerge.

From its May 2000 peak at 3,014,400, total employment in Indiana has fallen by 5.1 percent (154,600 jobs) to 2,859,800 in September 2003. As shown in Figure 1, employment at the national level continued to grow for nearly a year after Indiana employment began its downhill slide; since Indiana’s peak, U.S. jobs have declined by only 1.4 percent. Moreover, in the past 14 months, national employment has been relatively flat, slipping by only 0.2 percent, while Indiana’s payrolls have shrunk an additional 1.6 percent.

Figure 1
Relative Change in U.S. and Indiana Employment,
May 2000 to September 2003

Figure 1

Losers and Gainers

The largest portion (61.3 percent) of the jobs lost since Indiana’s employment peak has been in manufacturing—a drop of nearly ninety-five thousand jobs. The manufacturing sector now accounts for 20 percent of all nonfarm jobs in Indiana, down from more than 22 percent in early 2000. Two factors are largely responsible for this shrinkage: manufacturers moving production to places where labor is cheaper (largely overseas) and improvements in productivity. Although much attention has been paid to the outsourcing issue, significant increases in productivity have enabled many factories to hold, or even increase, production volumes without having to replace laid-off workers. In this environment, substantial growth in Indiana factory payrolls is unlikely in the short term.

As shown in Figure 2, other sectors losing substantial numbers of jobs include professional and business services (21,600 jobs, or 14.0 percent of the total decline since May 2000) and retail trade (19,800 jobs, or 12.3 percent). Both losses reflect the general impact of a sluggish economy, as businesses and consumers cut out discretionary spending when money and jobs are scarce. On the bright side, employment in educational and health services has actually increased by 17,300 jobs during Indiana’s general employment downturn; this sector now accounts for 12.2 percent of all Hoosier jobs. Government was another sector showing significant growth during this period, adding a total of 3,100 workers to payrolls that now account for 14.7 percent of all jobs in the state.

Figure 2
Key Sectors in Indiana's Nonfarm Employment,
January 1999 to September 2003

Figure 2

It’s All Relative

As Figure 3 reveals, Indiana ranks near the bottom of the nation in job growth the last two and a half years, with a 5.1 percent loss since the state’s employment peaked. Only Michigan lost a larger percentage of its workers, and only four states (Michigan, Ohio, New York, and Illinois) lost larger numbers of workers during this period. On average, employment throughout the nation shrank by 1.4 percent, with losers outnumbering gainers about three to two.

Figure 3
Percent Change in Jobs, May 2000 to September 2003

Figure 3

Indiana’s Outlook for 2004

As the national economy picks up steam in the year ahead, Indiana should see a modest upturn before the year is out. Indiana entered the most recent recession before the rest of the nation, and it is taking its time climbing out.

Several factors lead to the forecast of only modest improvement in the Hoosier economy. Growth in auto sales nationally, which drive large portions of Indiana’s manufacturing activity, may level off from its frenetic pace of the past year. Similarly, home sales (another big driver of the economy) are expected to grow at a more moderate pace, since interest rates may rise slightly and much of the formerly latent demand for housing has been filled. Markets abroad are not expected to pump much life into sales of Indiana companies, and the state’s own population is growing slowly.

In light of these considerations, we forecast an increase of only about 1 percent, or roughly twenty-eight thousand jobs, in Indiana employment. The unemployment rate is projected to decline slightly from its current seasonally adjusted level of 5.2 percent, approaching the long-term average of 4.6 percent by the end of 2004.