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

Indianapolis-Carmel Forecast 2016

Senior Lecturer in Finance, Kelley School of Business, Indiana University

The Indianapolis metro area drives the economic results of the entire state of Indiana. But Indianapolis is not likely to drive much improvement in the state economy in 2016.

The 11-county Indianapolis metropolitan area1 contains 30 percent of the state population.2 It produces 40 percent of Indiana's gross domestic product.3

As the U.S. economy pulled out of the Great Recession, GDP growth in Indianapolis failed to keep pace (see Figure 1). In the five full years of the recovery, beginning in 2010, the nation's real GDP is up 8 percent. Indianapolis' GDP has grown just 4 percent.

Figure 1: Gross Domestic Product during the Recovery

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Source: U.S. Bureau of Economic Analysis

The recent employment picture in the Indianapolis metro area looks better (see Figure 2). The unemployment rate in Indianapolis dropped to 3.8 percent in September (not seasonally adjusted). The comparable U.S. rate was 4.9 percent in September. The decline in unemployment in Indianapolis pulled the statewide rate down with it.

Figure 2: Unemployment Rate by Month, 2015

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Source: STATS Indiana, using U.S. Bureau of Labor Statistics data

It's unlikely the metro area's unemployment rate can fall much further. This low rate already is showing signs of acting as a brake on future growth. From January through September 2015, nonfarm employment in Indianapolis grew just 1.1 percent.4

Housing construction is one area where the availability of labor is likely to curb new business. The number of building permits issued in September 2015 was less than the number issued last year at this time (see Figure 3).

Figure 3: Building Permits Issued in Indianapolis Metro Area

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Source: U.S. Census Bureau

Forecast for 2016

The economic climate in Indianapolis in 2016 is likely to be a continuation of the flat conditions in 2015. In particular:

  • Weakening international markets already are causing declining sales and even cutbacks at major manufacturing firms in the area.
  • Automobile sales are forecast to be not much better than in 2015.
  • Rising interest rates and a tight labor supply will constrain business expansion, especially in housing.

The resulting forecast for 2016 in the Indianapolis metro area is:

  • Total nonfarm employment will grow about 1 percent. The metro area at the end of the third quarter of 2015 held 1.03 million jobs, so the increase in 2016 should average only about 1,000 jobs per month.
  • The unemployment rate will stabilize around 4 percent.
  • Retail sales, especially car sales, will be flat. Retail numbers will be similar to 2015.
  • With little increase in demand, new investment by area businesses will take place slowly and carefully.

Notes

  1. The Indianapolis metro area is made up of these counties: Boone, Brown, Hamilton, Hancock, Hendricks, Johnson, Madison, Marion, Morgan, Putnam and Shelby.
  2. Source: STATS Indiana, using U.S. Census Bureau data
  3. Source: STATS Indiana, using U.S. Bureau of Economic Analysis data
  4. Source: STATS Indiana, using U.S. Bureau of Labor Statistics data