Indianapolis-Carmel forecast 2018
Clinical Assistant Professor of Business, Kelley School of Business, Indiana University
The 2018 outlook for the Indianapolis-Carmel-Anderson metropolitan area1 economy is strong. Job growth in the region has been some of the strongest in the state, as unemployment continues to fall in central Indiana. Indianapolis metro area unemployment is 3.8 percent, which represents full employment. Wages are rising, which means the benefits of economic growth will be felt across the entire economy.
Employment and wages
The Indianapolis-Carmel-Anderson economy added 24,700 jobs over the past 12 months, an increase of 2.3 percent. This reduced the unemployment rate from 3.7 to 3.4. The current civilian workforce stands at 1.06 million workers, and of those, only 36,000 are unemployed. This represents an extremely tight labor market that will create a challenge for businesses looking to grow. However, it is a good sign for the local economy, as consumer spending and housing should benefit from full employment.
The local economy will continue to add jobs in 2018. Last year, the workforce grew by 2.0 percent, a trend that will need to continue in order to fuel employment growth. Fortunately, the Indianapolis area continues to be an attractive place for individuals and families, so that our working-age population grows.
Given the tightness of the labor market, we expect wages to continue rising. Over the last four quarters, average weekly wages have risen at an average annualized rate of 4.2 percent. This is the highest level of wage gains since before the 2008 recession. This trend will continue into 2018.
Evolution of the metro economy
To get a feel for the evolution of the economy, it is sometimes helpful to examine job announcements by some of the larger employers in the area. Technology companies Salesforce and Infosys have both announced an expansion in downtown Indianapolis that will bring as many as 3,000 new tech jobs over the next few years.
Indianapolis is an attractive option for many companies due to its affordable cost of living, especially compared to traditional technology areas, such as San Francisco and Seattle. A growing number of tech startups also contribute to the local economy. Together, these opportunities will help to attract and retain highly educated, younger workers in the area.
Not all of the expansion is due to technology. UPS is expanding operations in Plainfield, with plans to add more than 500 jobs in the area. While each of these job announcements are small in an economy with 1 million jobs, they give a sign of which sectors of the economy are growing. Specifically, technology and logistics and distribution are likely to continue to drive job growth going forward.
There have also been job losses in the area. Carrier has reduced the number of manufacturing jobs in the area by shifting some operations internationally. Eli Lilly is in the process of reducing its workforce by several thousand employees globally, with many of those coming from Indianapolis. Manufacturing jobs will likely continue to be under pressure. In spite of the Lilly news, health care jobs will likely grow over the coming year.
Many of the employment transformations are difficult to identify on a year-to-year basis. So it is helpful to look at the number of jobs and average wages for each industry over a longer period. Table 1 shows the change in number of jobs and wages by industry from prior to the last recession to first quarter 2017.2
Table 1: Indianapolis metro employment, 2008 Q1 to 2017 Q1
|Industry||Change in number of jobs, 2008-2017||Change in average weekly wage, 2008-2017||Number of jobs, 2017||Average weekly wage, 2017|
|Health care and social services||34.2%||25.8%||143,522||$1,030|
|Accommodation and food services||22.3%||22.5%||90,338||$338|
|Administrative, support, waste management and remediation services||24.1%||25.8%||78,495||$664|
|Transportation and warehousing||22.5%||15.4%||63,852||$845|
|Professional, scientific and technical services||26.6%||30.4%||54,886||$1,528|
|Finance and insurance||5.9%||26.5%||45,572||$1,785|
|Other services (except public administration)||11.9%||17.1%||30,536||$706|
|Real estate and rental and leasing||8.5%||32.1%||15,820||$1,116|
|Management of companies and enterprises||12.1%||26.6%||12,884||$2,419|
|Arts, entertainment and recreation||17.5%||6.5%||12,718||$1,181|
Source: STATS Indiana, using Quarterly Census of Employment and Wages data
Health care and social services has increased the most, with jobs growing by more than a third over the last decade. Other areas of growth were professional, scientific and technical (technology jobs); administrative; and transportation and warehousing. Job losses were experienced in manufacturing, construction and information. Manufacturing job losses are part of a continued pattern in the country, even as manufacturing output continues to grow through productivity gains. Construction employment has been volatile since 2008.
Housing and construction
The strong economy has prompted increased demand for housing, resulting in increasing house prices. Prices have risen an average of 5.1 percent over the past four quarters. New housing permits are weaker than they have been in a few years. Over the past four quarters, permits for 2,500 new private housing units were approved.
The forecast for 2018 calls for weak growth in construction. The labor shortage will constrain construction, and rising interest rates will dampen both investment enthusiasm and demand.
Overall, the Indianapolis economy continues to be moderately strong. The region is at full employment and continued job growth will ensure that it stays there. Low unemployment and continued growth are leading to higher wages for workers. Increasing interest rates and a potential labor shortage will lead to slower growth in residential construction. Economic growth will be around 2.5 percent in the area.
Of course, if Amazon chooses Fishers/Carmel for the location of their second headquarters, this forecast will need to be revised significantly upward.