Indianapolis-Carmel Forecast 2015
Clinical Assistant Professor of Business Economics, Kelley School of Business, Indiana University
Growth in the Indianapolis-Carmel Metropolitan Statistical Area (MSA)1 economy has been stronger than it has been in years. By the end of 2014, the economy will have added about 40,000 new jobs, an expansion of almost 5 percent in the job market. This has led to the lowest unemployment rate since 2008. We expect economic growth in 2015 to be the strongest since the Great Recession.
Employment and Wages
Employment has picked up over the last year in the Indianapolis economy as the unemployment rate has fallen to 4.8 percent. This is the first time it has been under 5 percent since May 2008.
The unemployment rate is lowest in Hamilton and Boone counties and highest in Marion County. Figure 1 shows the September unemployment rate for 2013 and 2014 for the Indianapolis metro broken down by the 10 counties in the area. Every county in the area experienced better than a 1 percentage point drop in the unemployment rate, and the average for the entire area was a 1.5 percentage point drop.
Figure 1: Unemployment Rate by County
Source: U.S. Bureau of Labor Statistics
Employment growth will have to taper a little bit in 2015. There are currently approximately 45,000 unemployed2 individuals in the Indianapolis MSA. It is not feasible that 40,000 new jobs will be added next year. However, it is likely that the unemployment rate will drop to 4 percent.
Wages have not grown as fast as employment, with average weekly wages increasing only 1.4 percent in the past year. However, with unemployment falling and hiring picking up, look for wage pressure to increase in 2015. For the first time in years, employees will have more leverage, and employers will need to give wage increases to keep valuable employees. This will be welcome news for workers in the area, although it may lead to some inflationary pressures, as rising employee costs will be passed along in the form of price increases.
Housing and Construction
The Indianapolis residential real estate market continues to be a source of growth in the economy, but there are signs that the market is tapering. Median housing prices are up 13.9 percent over last year, while inventories have grown by 7.7 percent.3 While solid economic growth will continue to help demand for housing, mortgage rates are likely to begin rising during 2015. This may dampen some of the enthusiasm in this market, both in terms of houses sold and prices that can be attained by sellers.
The number of homes in foreclosure or seriously delinquent on their mortgage obligations has declined over the past year. About 4.9 percent of mortgages are in foreclosure and another 3.2 percent are seriously delinquent (i.e., more than 90 days past due).4 However, this is actually an improvement, as 10 percent were in foreclosure or serious delinquency as recently as two years ago.
As suggested a year ago, the rate of residential construction has continued to grow, but at a much more modest pace. In 2013, residential construction grew by 38.5 percent. In 2014, it is on pace to grow by 13 percent, which is a much more reasonable rate of growth for 2015. Construction growth continues to be led by the suburban counties, specifically Hamilton, Hancock, Hendricks and Morgan. The number of new permits in Marion County declined in 2014.
While there has been some weakness recently in Marion County, the growth in construction within downtown continues to be an important segment of the city. The number of rental units downtown has grown to close to 5,000 units, compared to about 3,000 10 years ago.5 This number is expected to grow to over 8,000 units in the next couple of years. This significant growth in the number of people living downtown is spurring ancillary construction around the downtown area.
Health care and social services is the largest employment industry in Indianapolis, employing 14.6 percent of workers. Job growth was weak in 2014, but demographics favor this industry. Jobs should continue to grow, but the full implementation of the Affordable Care Act may lead to some transitions in this industry.
Manufacturing is an important segment due to its large size (nearly 84,000 workers, or 9.7 percent of jobs) but also its relatively high wages. Manufacturing in Indianapolis experienced slow growth in 2014. There is some concern that a strong U.S. dollar and continued weakness in Europe and other international markets will dampen growth for Indianapolis manufacturers.
Growth in the city has been led by finance and insurance; management; and professional and scientific industries. In order for Indianapolis to continue to grow in these areas, it must make sure that it is able to attract and retain an educated workforce.
The data show that 2014 has been the best year of economic growth for the Indianapolis economy since prior to the Great Recession. While there are always threats to growth and stability, it is likely that the momentum will continue for the local economy. Expect the unemployment rate to continue to decline and wages to increase. Construction projects downtown and in the surrounding area will continue to be an important source of economic growth for the metropolitan area.
- This analysis covers the Indianapolis-Carmel metropolitan statistical area, which includes Boone, Brown, Hamilton, Hancock, Hendricks, Johnson, Marion, Morgan, Putnam and Shelby counties.
- We use the economic definition of unemployed—currently not working but seeking full-time employment.
- Housing prices and supply of houses were collected from www.housingtracker.net.
- Foreclosure and delinquency data come from www.Foreclosure-Response.org.
- Indiana University Public Policy Institute, “Outlook for New Rentals in Downtown Indianapolis,” November 2013, http://policyinstitute.iu.edu/Uploads/PublicationFiles/NewRentalUnits_Downtown_web.pdf.