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

Evansville Forecast 2009

Professor of Economics and Dean of Business, College of Business, University of Southern Indiana

November 2008

In 2008, the Evansville economy was not immune to the volatility of financial markets and the slowdown in the national economy that arose after the emergence of the subprime mortgage crisis in early 2007. In 2008, nominal personal income is estimated to increase by 2.2 percent compared to an average annual growth rate of 4.5 percent between 2002 and 2007. Economic performance in 2008 was driven by job losses in key sectors, particularly in manufacturing, construction, and financial services. As a result, real gross metro product is estimated to increase by only 0.9 percent in 2008.

Housing

As the Evansville economy tracked the U.S. economy in 2008, there were indications of a rise in employment volatility, a slowing housing market, deteriorating credit quality, and higher delinquency rates. Single-family housing permits are estimated to have dropped 50 percent between 2007 and 2008, and existing home prices declined from an average of $98,000 in 2007 to $94,000 in 2008. Mortgage originations also dropped from $1.49 billion in 2007 to $769 million in 2008, while personal bankruptcies per 1,000 persons increased from 4.2 to 5.6.

Manufacturing

The Evansville economy is one of the most manufacturing-dependent metro areas in the nation, but has become less dependent in recent years (see Figure 1). However, even as the economy diversifies away from manufacturing-industry dependence, the sector continues to be important to metro area household incomes and consumer spending activity.

Figure 1: Evansville MSA Manufacturing Employment as a Percent of Total Nonfarm Employment

Figure 1: Evansville MSA Manufacturing Employment as a Percent of Total Nonfarm Employment

Since 2000, Evansville's manufacturing workforce has fallen by 15.4 percent or about 5,700 workers, compared to the 20.4 percent reduction in Indiana's manufacturing workforce over the same period. At the same time, manufacturing earnings as a share of total earnings has remained stable at about 28 percent between 2001 and 2007 in the Evansville metro economy. The national economic slowdown and its impact on the automotive sector partly explains the trajectory of Evansville's manufacturing sector in 2008.

During the summer, the largest Evansville area employer—Toyota—implemented several non-production days for half of its employees as sales for cars and trucks dipped. Workforce reductions were also announced by a plastics firm, automotive parts manufacturers, and Whirlpool Corporation.

Outlook

In 2009, we forecast output to increase by 0.4 percent, the number of jobs to decrease by 1,000 and nominal personal income to grow 2 percent. Figures 2 and 3 provide a comparison of forecasts for the Evansville economy and the state of Indiana for the 2006–2010 period.

Figure 2: Average Growth for Personal Income

Figure 2: Average Growth for Personal Income

Figure 3: Average Growth for Total Employment

Figure 3: Average Growth for Total Employment

Ongoing challenges for the Evansville economy include adjustment away from manufacturing-industry dependence, particularly in nondurable manufacturing (see Table 1), an elderly age cohort as a proportion of the population that is higher than the state average, and a youth cohort as a proportion of the population that is lower than the national average.

Table 1: Manufacturing as a Percent of Total Employment, September 2008*

Evansville Metro Indiana United States
Manufacturing 18% 18% 10%
Durables 54% 73% 63%
Nondurables 46% 27% 37%

*Preliminary data
Source: IBRC, using Bureau of Labor Statistics and the Indiana Department of Workforce Development data