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

Gary forecast 2017

Assistant Professor of Economics, School of Business and Economics, Indiana University Northwest

The value of Northwest Indiana's economy in 2016 was $29.4 billion, measured using imputed gross metropolitan product (GMP).1 This makes Northwest Indiana’s economy equivalent in size to 4.6 percent of the Chicago metropolitan area’s economy, or 8.6 percent of Indiana’s economy.2

Despite its relative large size, Northwest Indiana’s economic growth has been anemic. During 2016, the growth in real GMP for Northwest Indiana was just 0.1 percent (compared to 0.4 percent for the state and 1.4 percent nationally). Even more concerning, real GMP per capita for Northwest Indiana decreased 0.3 percent in 2016 to $41,616 per person (compared to a 0.2 percent increase to $51,521 for the state and a 0.6 percent increase to $57,131 nationally).

Figure 1 provides a visual comparison of real GDP/GMP for the United States, the state of Indiana and Northwest Indiana since 2009. Since the low point of the Great Recession in 2009, real GMP per capita for Northwest Indiana has risen only 0.1 percent per year on average (+$35/year), compared to 1.2 percent (+$647/year) nationally and 1.9 percent (+$898/year) for the state. This lack of significant real growth can also be seen in real personal income, real earnings per worker and other measures. This suggests that, for the average worker, the region’s economy has recovered very little since the Great Recession.

Figure 1: Real GDP/GMP per capita

graph

Source: School of Business and Economics at Indiana University Northwest (Northwest Indiana GMP) and the U.S. Bureau of Economic Analysis

This lack of economic growth is perhaps surprising given that other measures of the regional economy have improved significantly. The unemployment rate for the seven-county Northwest Indiana region (which includes Lake, Jasper, LaPorte, Newton, Porter, Pulaski and Starke counties) dropped to 5.6 percent from its 12.4 percent peak during the Great Recession. Total employment for Northwest Indiana was 395,970 in July 2016, which is higher than before the Great Recession and higher than any time in the last 25 years.3 Even the production of steel in Indiana, the traditional lifeblood of the region, has returned to its pre-recession average.4

Despite these improvements, the average annual income per person in Northwest Indiana has not risen significantly since the end of the Great Recession. To understand why the effects of the recovery have been so limited for workers, we have to look at ongoing changes to the labor market and the types of jobs being created in the region.

When you look closer at employment in Northwest Indiana, two significant trends stand out. The first is that our economy is becoming increasingly service-based. The second is that the service-providing jobs that are growing in Northwest Indiana are mostly low-paying. Taken together, these two trends help explain what is happening to average incomes in Northwest Indiana.

A shift toward a more service-based economy has been a national trend in the United States since the 1960s, and is consistent with the continued economic development of our nation. As our economy develops, our comparative advantage shifts from goods-producing sectors (like manufacturing and construction) to more service-providing sectors (like education and professional/technical services). Between 1990 and 2015, the proportion of service-based jobs in Northwest Indiana rose from 70 percent to 79 percent. These numbers are consistent with employment changes in the state of Indiana (66 percent to 77 percent) and nationally (77 percent to 85 percent) over the same period.

By itself, a shift toward service-sector jobs does not necessarily pose a problem, provided the region replaces declining high-paying goods-producing jobs with similar high-paying service-providing jobs. However, this is an area where Northwest Indiana has struggled.

Table 1 shows the 10 largest subsectors of employment for Northwest Indiana in 2015. These 10 subsectors make up approximately 45 percent of all employment in Northwest Indiana. The largest subsector, with 30 percent higher employment than any other, is food services and drinking places, which has an average annual pay of just $13,313. This service-providing subsector is also one of the fastest-growing subsectors, adding more than 2,400 jobs in the region since the Great Recession. In contrast, the two highest-paying subsectors are primary metal manufacturing and specialty trade contractors—both of which are goods-producing subsectors and lead the decline in regional jobs.

Table 1: Northwest Indiana’s top 10 employment subsectors

NAICS subsector 2015 employment 2015 average annual pay 2007-2015 job growth
1. Food services and drinking places 27,539 $13,313 +2,456
2. Educational services(a) 26,471 $31,836 -1,272
3. Primary metal manufacturing* 18,875 $89,439 -796
4. Ambulatory health care services 17,851 $54,992 +3,059
5. Administrative and support services 11,811 $27,497 +315
6. Hospitals 11,289 $50,642 -181
7. Specialty trade contractors* 10,715 $60,775 -1,790
8. Executive, legislative and general government 9,856 $35,301 -1,293
9. General merchandise stores 8,619 $18,248 +669
10. Professional and technical services 8,104 $49,308 -1,161

* Goods-producing subsector
(a) 2008 to 2014 data are used due to non-disclosure issues
Source: U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages

Northwest Indiana has aggressively fought to stem the decline of (and attract new) manufacturing jobs. Between 2007 and 2015, manufacturing employment fell 11 percent nationally compared to just 5 percent in Northwest Indiana. However, as employment in goods-producing industries continues to decline nationwide, there will be even greater competition over these jobs. Northwest Indiana needs to expand its strategy for economic growth by focusing on attracting new high-paying service-based jobs.

For example, one of the fastest-growing and highest-paying subsectors nationwide is professional and technical services, which includes education-intensive jobs like legal services, accounting, architecture, engineering, computer systems, design, consulting services, advertising and public relations. Since 2007, this subsector has added almost 1 million jobs nationally (+12.8 percent), with an average annual pay of $90,000 per year. This same subsector pays on average only $49,000 in Northwest Indiana, and employment has declined by more than 1,000 jobs (-12.5 percent) since 2007.

If we wish to attract high-paying service-sector jobs, then we need to aggressively invest in human capital and regional quality of life initiatives. In its 2016 annual Manufacturing and Logistics Report Card, Conexus Indiana graded the state of Indiana with a “C” in human capital. High-paying service-sector jobs generally require greater education and training than their goods-producing counterparts. Besides improving our human capital, we need to take steps to attract educated workers and retain those that are already here. This means we need to focus on improving quality of life in the region and developing the assets that millennials and future generations care about.

Forecast

Despite these challenges, the 2017 forecast for the economy of Northwest Indiana is positive. Table 2 provides the 2017 forecast, along with the 2016 forecasted and actual growth. In 2017, the Northwest Indiana economy is expected to grow by 1.5 percent, with regional employment expanding by 0.5 percent. That amounts to the creation of approximately 1,500 jobs—almost all of which will be in the service sector. While any growth is good news, this forecast barely keeps pace with inflation and is likely to be significantly slower than the economic growth for both the state of Indiana and the nation overall.

Table 2: Northwest Indiana regional forecasts

  2016 forecast 2016 actual 2017 forecast
Northwest Indiana Coincident Index* +1.0% +0.99% +1.5%
Employment +0.4%
(+1,100 jobs)
+2.1%
(+5,700 jobs)
+0.5%
(+1,500 jobs)
Unemployment rate n/a 5.6% 5.2%
Gross metropolitan product (GMP) n/a +$270 million +$450 million

* The Northwest Indiana Coincident Index is produced by the School of Business and Economics at Indiana University Northwest.
Source: Author’s calculations

Notes

  1. Northwest Indiana imputed gross metropolitan product (GMP) produced by the School of Business and Economics at Indiana University Northwest. These GMP numbers reflect Lake, Newton, Jasper and Porter counties, while the rest of the article is based on the broader seven-county region.
  2. Based on the GDP by metropolitan area and state data from the U.S. Bureau of Economic Analysis.
  3. Based on Local Area Unemployment Statistics (LAUS), monthly Current Employment Statistics (CES) and Quarterly Census of Employment and Wages (QCEW) from the U.S. Bureau of Labor Statistics.
  4. According to data from the American Iron and Steel Institute (AISI).