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

Terre Haute forecast 2017

Associate Professor of Economics, Rose-Hulman Institute of Technology

Professor of Economics, Indiana State University

The Terre Haute regional labor force grew by about 2,400 (a 3.2 percent increase) between August 2015 and August 2016. Since the area’s population has been in decline since 2010, we suspect this growth in the labor force mostly represents people who have finally decided to re-enter the job market, a shift that mirrors national and state trends. As employment experienced similar growth, the seasonally adjusted unemployment rate fell slightly over this period from 5.9 percent to 5.6 percent (see Figure 1).

Figure 1: Seasonally adjusted unemployment rates, January 2005 to August 2016

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Source: Authors’ calculations, using U.S. Bureau of Labor Statistics data

The Terre Haute region is not alone in experiencing population loss. Among 17 small metropolitan areas in Ohio, Indiana and Illinois,1 only six experienced population growth between 2010 and 2015, and most of those were home to either a tier 1 research university or a state government. Among the remaining group—those that are not home to a state government or a tier 1 research university, Terre Haute’s labor force still lags that of comparable metropolitan areas (see Figure 2).

Figure 2: Size of labor force since 2010

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Note: Data are not seasonally adjusted.
Source: Authors’ calculations, using U.S. Bureau of Labor Statistics local area data

Large research universities are great engines of economic growth. Lacking that, Terre Haute must look to other potential sources of growth. We think a natural starting point is to examine those sectors that traditionally have driven economic and job growth in the region, which are (in no particular order) retail, health care, higher education, prisons and manufacturing. In each case, we feel the prospects for significant contributions toward helping the region out of its present stagnation are fairly limited.

Retail

While the new Meijer store on the east side of town is a bright spot for the retail sector and the Highway 46 corridor, it may be merely cannibalizing retail grocery sales from other east-side outlets rather than drawing in significant new business. The economic literature on the impact of new Wal-Marts is instructive. As is the case with this Meijer, local substitution effects tend to dominate when new retail outlets are constructed, but there are significantly positive effects as well. Since Wal-Mart came to the IN-46/I-70 interchange in 2005, one strip mall and several retail shops (located in the out lots between Wal-Mart and IN-46) have been constructed. Meijer’s opening across IN-46 has added momentum to this effect.

New eateries around town, especially on the south-side Highway 41 corridor are also bright spots, but may represent little more than a shuffling of previous restaurant spending. In any event, employment in the local retail and restaurant sectors has fallen by about 4 percent since 2005, and has barely changed since 2011. In addition, prime new retail space in the downtown area continues to be vacant.

The single largest concern for regional retail centers like Terre Haute (which heavily rely on local sales) is that web retailers are not finished gobbling up market share.

Health care

In the health care sector, the enormous capital expenditures by Union Hospital (and its merged physician’s group, UAP) on the north side of town are now in the past. Moreover, there seem to be few prospects for significant new spending in this sector. The regional population, though aging, is also declining. Furthermore, while statewide employment in the sector has increased by about 25 percent, in the Terre Haute region it has increased by only 3 percent (about 200 new jobs) since 2005.

Higher education

In higher education, enrollment at Indiana State University (ISU) dipped slightly this past fall after rising by more than 30 percent in the previous eight years. While ISU’s strategic plan calls for further growth in the student population, those plans come bundled with institutional commitments to do more with less. The demographic headwinds are substantial. The areas from which Indiana State University draws its students (Vigo and surrounding counties, as well as the Gary and Indianapolis public schools) are projecting declines in high school graduates. Furthermore, the modification of a scholarship program offered by a foreign government that at one time had placed nearly 800 students at ISU, will likely reduce full-out-of-state-tuition-paying students by 700 or more. So although the university’s strategic plan calls for an increase of 2,500 students, the university’s leadership is looking at short- and intermediate-term reductions in—and re-compositions of—its faculty.

To the east, Rose-Hulman has neither seen nor projects enrollment growth, so the prospects for significant economic impact from the east-side campus are also small.

Prisons

With regard to the federal prison complex on the south side of town, the federal prison population declined by a little over 2 percent in 2014. This marked a reversal of a long upward trend, and if new thinking regarding the social wisdom of long-term incarceration of drug-related criminals takes hold, there is likely to be an acceleration of this trend. The Obama administration’s instructions to federal prosecutors, if followed, will reduce the federal prison population by an additional 4 percent. Therefore, the likelihood of significant new employment opportunities at the prison seems limited.

Manufacturing

In the manufacturing sector, unfortunately, the biggest news in 2016 was the belated recognition that Nantworks would not be bringing life (and jobs) back to the abandoned Pfizer facility on the south side of town. In addition, Kellogg recently announced plans to close its east-side snack-foods facility in 2017. Overall, employment in the local manufacturing sector has decreased by about 9 percent since 2005, mirroring national trends as higher productivity in manufacturing and international competition reduce overall employment levels in manufacturing.

Overall outlook

Summing up the foregoing observations about static conditions in those areas that have traditionally been the area's engines for economic growth, it is difficult to see where significant new jobs and business activity will arise in the near term.

In past outlooks, we have suggested that area leadership needs to think more broadly in terms of economic growth in order to lure a game-changing relocation or expansion to the area that might further diversify the local economic base. We understand that such new entries into an area economy are once-in-a-generation events, but it seems that Terre Haute has been waiting for such news for more than a generation now. Meanwhile, brain drain is sapping economic vitality from the area.

Against this backdrop, ongoing public disagreements over fiscal mismanagement in city government and questions about the quality of primary education in the area continue to introduce negative factors for any company that might consider relocation to the area. We believe that companies looking at areas for relocation prefer governments that work efficiently and schools that provide well-educated and highly motivated citizens. At the present time, it would seem that Terre Haute needs improvement on both fronts. Lacking these things, the outlook continues to be one of stagnation and slow decline.

Notes

  1. Defined here as a metropolitan area with a 2010 population between 100,000 and 250,000.