South Bend and Elkhart forecast 2017
Director of the Bureau of Business and Economic Research and Associate Professor of Economics, Judd Leighton School of Business and Economics, Indiana University South Bend
The South Bend-Mishawaka Metropolitan Statistical Area (MSA) and Elkhart-Goshen MSA in 2016 saw mild economic growth, good expansions in the labor force, moderate gains in employment, slightly higher unemployment rates, modest growth in wages and continuous recovery in the housing market.
Real metropolitan GDP
The joint economy of the South Bend-Mishawaka and Elkhart-Goshen MSAs continued to grow in 2015.1 The total real metropolitan gross domestic product (RGDP) was $563 million higher in 2015 than in 2014, a rise of 2.3 percent.2 The combined region has now surpassed its pre-recession real GDP level from 2007 by $768 million.
Specifically, the Elkhart-Goshen MSA outperformed the South-Bend-Mishawaka MSA by gaining $454 million in its real GDP, a 3.7 percent output growth rate. The South Bend-Mishawaka MSA grew only 0.9 percent in its aggregate production, adding an additional $109 million. It is worth noticing that aggregate production in the South Bend-Mishawaka MSA still fell $337 million short of its pre-recession 2007 level. Furthermore, both areas experienced slower economic growth in 2015 with an average rate of 2.3 percent, whereas the growth rate was 3.7 percent in 2014.
Labor force and employment
The labor market in the combined region saw sizable growth from August 2015 to August 2016, adding 6,281 workers to the local labor force (see Figure 1).3 In August 2016, the combined labor force was 264,724 workers, on par with the June 2007 pre-recession level of 264,700 workers. The increase in the labor force indicates that more people started actively searching for jobs.
Payroll employment in the two MSAs continued gaining ground: Total employment for the combined region went up from 247,580 workers in August 2015 to 252,825 workers by August 2016. In particular, added employment in the South Bend-Mishawaka MSA was the major driving force, gaining 4,659 workers; the Elkhart-Goshen MSA only added 586 new jobs. The growth rate of employment in the South Bend-Mishawaka MSA at 3.2 percent was beyond the national average growth rate of employment at 1.7 percent, yet lagged behind the state average of 3.6 percent. The Elkhart-Goshen MSA’s employment growth rate of 0.6 percent lagged both the national and state averages in 2016.
Figure 1: Labor force and employment in the Elkhart-Goshen and South Bend-Mishawaka MSAs combined, January 1990 to August 2016
Note: Data are not seasonally adjusted.
Source: STATS Indiana, using U.S. Bureau of Labor Statistics data
With increased employment and a growing labor force, the unemployment rates in both MSAs fluctuated during the year. The jobless rate in the Elkhart-Goshen MSA was 4.0 percent in August 2016, up 0.4 percentage points from 3.6 percent in August 2015. The South Bend-Mishawaka MSA’s unemployment rate tipped up 0.2 percentage points from 4.6 percent in August 2015 to 4.8 percent in August 2016.
Figure 2 illustrates the unemployment rates in the Elkhart-Goshen and South Bend-Mishawaka MSAs since January 1990. For both areas, the unemployment rates were down to pre-recession levels by the end of the period. By looking at the year-over-year unemployment rate, the Elkhart-Goshen MSA still outperformed the U.S. and Indiana averages between 2015 and 2016. The national average unemployment rate declined from 5.2 percent in August 2015 to 5 percent in August 2016, while the state average unemployment rate rose from 4.5 percent to 4.6 percent during the same time period. The South Bend-Mishawaka area was a bit above the state average unemployment rate but below the national average.
Figure 2: Unemployment rate in the Elkhart-Goshen and South Bend-Mishawaka MSAs, January 1990 to August 2016
Note: Data are not seasonally adjusted.
Source: STATS Indiana, using U.S. Bureau of Labor Statistics data
Employment by industry
Table 1 shows employment data by industry and by metro area in August 2016 and the year-over-year changes from August 2015. According to the Current Employment Statistics (CES) data, 265,600 people were employed in the nonfarm sectors in both areas as of August 2016. However, the year-over-year comparison on employment data indicates a much slower pace in job creation for the combined economy in 2016 relative to 2015. For example, the nonfarm sectors in both metro areas only added 300 new jobs in total from August 2015 to August 2016, whereas the job gains were 6,500 from August 2014 to August 2015.
Table 1: Employment by industry and metro area, August 2016
|Elkhart-Goshen||South Bend-Mishawaka||Combined MSAs|
|Industry||Employment||Change since August 2015||Employment||Change since August 2015||Employment||Change since August 2015|
|Natural resources, mining and construction||3,500||100||5,700||100||9,200||200|
|Trade, transportation and utilities||19,300||200||26,500||1,000||45,800||1,200|
|Professional and business services||10,700||400||13,700||200||24,400||600|
|Private educational and health services||12,300||600||36,700||2,900||49,000||3,500|
|Leisure and hospitality||8,200||400||14,400||300||22,600||700|
|Government (includes public schools and hospitals)||8,200||-200||13,000||-700||21,200||-900|
Source: STATS Indiana, using Current Employment Statistics data
Industries in the combined MSAs experiencing job growth between 2015 and 2016 include natural resources, mining and construction; trade, transportation and utilities; financial activities; professional and business services; private educational and health services; leisure and hospitality; and other services. Meanwhile, manufacturing employment saw the largest reduction, down 5,100 jobs from August 2015. The government sector followed by losing 900 jobs, and the information sector cut 100 jobs between 2015 and 2016.
The regional breakdown reveals imbalanced nonfarm sector employment in the two MSAs. On one hand, the year-over-year statistics indicate the first employment decline (-2,300) in the nonfarm sector of the Elkhart-Goshen area in seven years. The job loss in manufacturing was the major cause, declining by 3,900 jobs between August 2015 and August 2016. In addition, government saw a loss of 200 jobs. Sectors that experienced job growth in the Elkhart-Goshen MSA included natural resources, mining and construction (+100 jobs); trade, transportation and utilities (+200 jobs); professional and business services (+400 jobs); private educational and health services (+600 jobs); leisure and hospitality (+400 jobs); and other services (+100 jobs).
On the other hand, total nonfarm employment continued to grow in the South Bend-Mishawaka MSA, adding 2,600 jobs between August 2015 and August 2016. The major driving force of job growth in the South Bend-Mishawaka MSA was observed in the service-producing industries. For example, private education and health services once again contributed the most to the local labor market by adding 2,900 jobs; trade, transportation and utilities created 1,000 jobs; leisure and hospitality came in third place, adding 300 jobs. Other sectors experiencing job growth between 2015 and 2016 included natural resources, mining and construction (+100 jobs); financial activities (+100 jobs); and professional and business services (+200 jobs). However, the job losses in manufacturing (-1,200 jobs), information (-100 jobs), and government (-700 jobs) offset part of the strong job growth in South Bend-Mishawaka.
Local wages and hours worked
Average weekly wages increased in both areas over the past 12 months. The average weekly wage in the Elkhart-Goshen MSA was $797 in August 2016—8.3 percent higher than in August 2015; meanwhile, the South Bend-Mishawaka MSA’s average weekly wage was $787 in August 2016—up 0.7 percent from August 2015. From August 2015 to August 2016, average weekly hours scaled up 3.1 percent to 37.1 hours in the Elkhart-Goshen MSA, whereas the average weekly hours declined slightly by 0.9 percent to 34.7 hours in the South Bend-Mishawaka area.
Residential construction, measured by the number of single-family building permits issued in St. Joseph County, continued to remain strong in 2016 (current data for Cass and Elkhart counties are not available). In total, 117 permits were issued from January 2016 to August 2016, up 6.4 percent from the same time period in 2015 (see Figure 3). However, St. Joseph County's housing market still has a lot of recovering to do in order to reach its pre-recession level (e.g., 368 permits were issued in the first eight months of 2005).
Recent housing market data released by the Indiana Association of Realtors indicated positive signs in the local housing market.4 The year-over-year inventory of homes for sale fell 26.1 percent, while closed sales increased 2 percent in August 2016. The median sales price went up 1.2 percent in August 2016 compared to one year ago. Overall, the above statistics suggest a tighter housing market in St. Joseph County with greater demand and an insufficient supply of houses driving up the housing prices.
Figure 3: Single-family residential building permits in St. Joseph County, January 2005 to August 2016
Source: St. Joseph County Building Department
With a general prediction of modest growth in the U.S. economy in the upcoming year, stronger consumer and business spending will help boost the local Elkhart-Goshen and South Bend-Mishawaka economies. Real metropolitan GDP is forecasted to grow at tepid rates in 2017 in both areas, and the South Bend-Mishawaka MSA might take the lead in economic growth.
More residents are expected to join the labor force actively looking for jobs; meanwhile, employment will continue to grow in both metropolitan areas. Unemployment rates will most likely remain stable at around 4 percent for the Elkhart-Goshen MSA and 4.6 to 4.8 percent for the South Bend-Mishawaka MSA (with seasonal fluctuations throughout the year). Because current unemployment rates are very close to the natural unemployment rates, additional workers joining the labor force will create barriers for the unemployment rate to further decline.5
The employment decline in the manufacturing sector of Elkhart-Goshen in 2016 could be temporary, and this sector is likely to hire more workers in the next year. The most job growth in South Bend-Mishawaka is predicted to occur in private educational and health services.
Income growth for 2017 is forecasted in both MSAs, but at milder rates. As the employment level is close to full employment, wages are expected to grow in the next year.
Gains in employment, income and wages will provide the foundation for continued recovery in the housing market. Thus, the demand for single-family houses is expected to continue to grow. Accompanied by the lower inventory of homes for sale and lagging new housing construction, the median sales price will rise. The interest rate is predicted to remain at a lower level in the upcoming year, which will help keep mortgage costs down and aid further recovery in the housing market.
- The data on metropolitan gross domestic product are from the U.S. Bureau of Economic Analysis. The latest data available at the time of this writing were for 2015.
- In 2015, real metropolitan GDP in Elkhart-Goshen and South Bend-Mishawaka combined was $25.215 billion.
- Access these labor force and employment data on STATS Indiana at www.stats.indiana.edu/laus/laus_view3.html.
- Indiana Association of Realtors, “Indiana Housing Market Update,” August 2016 (accessed via STATS Indiana).
- The average unemployment rate was 3.9 percent in Elkhart-Goshen in the first eight months of 2016, which is below the lowest unemployment rate, 4.3 percent, observed in 2004 during the last expansion in 2001-2007. The average unemployment rate in South Bend-Mishawaka was 4.8 percent in the period over January-August 2016, while the lowest unemployment rate observed was 4.6 percent in 2001 during the last expansion.