Lafayette forecast 2018
Community Development Regional Extension Educator, Purdue University
The Lafayette Metropolitan Statistical Area (MSA) maintained its steady growth this year and is poised to continue this trend in 2018.
In 2017, nearly all industries in the region experienced both employment and wage increases, as well as low unemployment rates. The tightening housing market may be a challenge for the region if relief does not occur. Likewise, economic growth could be hampered by lack of labor as local businesses continue to expand.
The Lafayette MSA (which includes Tippecanoe, Benton and Carroll counties) has maintained a steady growth since the recession. Over the next several years, growth will likely continue due to the MSA’s diverse industry portfolio and the expanding local university. These strengths, coupled with its geographic location, make the Lafayette region an attractive area to live and work.
The MSA has experienced continuous population growth—an addition of approximately 2,300 people per year between 2006 and 2016 (see Figure 1). The estimated 2017 population is 218,472, and the Indiana University Center for Econometric Model Research anticipates annual population growth of about 0.8 percent in the region through 2020.
Figure 1: Annual Lafayette MSA Population
Note: Data for 2017 through 2020 are projections.
Source: U.S. Census Bureau and the Indiana University Center for Econometric Model Research
The Lafayette MSA continued to maintain a lower unemployment rate than the United States and Indiana between August 2016 and September 2017 (see Table 1). These lower unemployment rates reflect the increasing demand and scarcity of workers within the MSA’s diverse and strong economy. Last year’s outlook predicted the MSA would see unemployment rates between 3.5 and 4.5 percent, and the rate stayed below 4.2 percent—even dipping down into the 2.5 percent range a couple of times. In 2018, the local unemployment rate will likely hover within the 3 percent range, depending on the region’s ability to attract new entrants into the job market, as well as employer demand.
Table 1: Labor force and unemployment for the Lafayette MSA
|Year||Month||Labor force||Employment||Unemployed||Lafayette MSA unemployment rate||Indiana unemployment rate||U.S. unemployment rate|
Source: U.S. Bureau of Labor Statistics
A year-over-year comparison between August 2016 and 2017 shows that employment increased by 1,400 workers, and 260 exited the unemployment rolls. Relative to the 2015-2016 comparison, this labor market growth is not spectacular and may reflect a tight job market with scarcity of employees to fill existing job openings.
Table 2 looks specifically at regional employment between 2016 and 2017 in the Lafayette MSA. During 2017, the MSA experienced a 1.3 percent uptick in employment, or nearly 1,300 jobs. The bulk of the gains came from service-producing industries, with the top two industries being professional and business services (+331 workers) and trade, transportation and utilities (+242 workers). Only two industries experienced minor declines—leisure and hospitality and information.
Table 2: Lafayette MSA employment
|Industry||2017*||Change since 2016||Percent change, 2016-2017|
|Mining, logging and construction||3,544||163||4.8%|
|Private educational and health services||12,178||123||1.0%|
|Trade, transportation and utilities||15,167||242||1.6%|
|Leisure and hospitality||9,711||-81||-0.8%|
|Professional and business services||7,922||331||4.4%|
*January through September data annualized for 2017. September data are preliminary.
Source: U.S. Bureau of Labor Statistics
Since 2016, Indiana’s economic growth has come from multiple areas—personal consumption, goods-producing industries, equipment, nonresidential investment and structures. As of September 2017, the top three employing industries in the Lafayette MSA were manufacturing (18 percent), educational services (18 percent), and health and social services (13 percent). These top industries are reflective of the strong manufacturing presence in the MSA, Purdue University and a growing health care sector.
A number of large companies in the Lafayette MSA have announced expansion plans in the past few years, several of which neared completion in 2017. The expansions range from equipment/production growth to employee growth. Examples include the following:
- Carroll County landing GEP Fuel and Energy, a $300 million project with 245 jobs
- Subaru producing the new Ascent SUV line, necessitating a 66 percent expansion of production
- GE Aviation growing its workforce
- Tate and Lyle wrapping up their 2015 announced expansion
- New construction beginning at Franciscan Health Lafayette East
- Indiana Packers Corporation finishing their expansion in mid-2017
- Rolls Royce establishing a turbine lab at Purdue University in a $24 million private-public partnership
In 2018, a continuation of the steady growth will occur, extending the trend since the recession. It is projected the Lafayette MSA may gain an additional 2,600 workers, distributed throughout the various industries. At the time of this writing, there is no reason to expect contractions in any particular industry.
Between first quarter 2016 and first quarter 2017, average weekly wages increased 5 percent within the Lafayette MSA. This wage growth is a sizeable jump from the past few years and a return to the type of increases experienced between the first quarters of 2014 and 2015 (which yielded 4.6 percent growth). All major sectors had positive wage increases (two were nondisclosed), ranging from 0.4 percent (construction) to 17.7 percent (finance and insurance), as seen in Table 3. If the labor market remains tight, another increase in wages may occur to attract new employees. The increase will likely not be as high, perhaps around 2.5 percent.
Table 3: Average weekly wages in the Lafayette MSA
|Industry||Average weekly wage, 2017 Q1||Change in jobs since 2016 Q1||Change in average weekly wage since 2016 Q1|
|Finance and insurance||$1,294||-0.5%||17.7%|
|Agriculture, forestry, fishing and hunting||$782||4.3%||8.8%|
|Real estate and rental and leasing||$691||4.5%||8.8%|
|Transportation and warehousing||$815||6.6%||6.3%|
|Management of companies and enterprises||$1,362||-4.0%||5.7%|
|Arts, entertainment, and recreation||$240||13.9%||4.8%|
|Other services (except public administration)||$589||2.1%||4.2%|
|Accommodation and food services||$294||-0.8%||3.5%|
|Health care and social services||$828||5.1%||3.0%|
|Professional, scientific and technical services||$1,156||4.5%||2.1%|
|Administrative, support, waste management and remediation services||$494||7.3%||1.9%|
* Indicates that some county data were nondisclosable.
Note: Data for mining and utilities were nondisclosable.
Source: STATS Indiana, using Quarterly Census of Employment and Wages data
Research shows that per capita personal income (PCPI) in Indiana and the Lafayette MSA historically lags behind the United States, due to a different occupational mix within the MSA and the fact that Indiana’s highest-earning tier of occupations tend to be paid less than similar occupations elsewhere, regardless of cost-of-living factors.1 The most recent data for the Lafayette MSA at the time of this writing was 2015, which showed the MSA’s PCPI being 72.5 percent of the national figure, falling short by $13,300. Growth in the Lafayette MSA’s PCPI from 2010 to 2015 averaged 3 percent. PCPI is projected to grow at a stronger pace at an average of 4.4 percent annually between 2016 and 2020.
The real estate market in the Lafayette MSA had minimal changes from the prior year—indicating little relief in the tightening market (see Table 4). Among the three counties that make up the Lafayette MSA, two experienced higher median sale price values, with Carroll County being the exception (-18.5 percent). Across the three counties, each has a different housing story, with Tippecanoe County seeing little to no change in quantity of listings, closed sales and a slight increase in median sale prices. However, the county’s supply of housing continues to have less time on the market (2.8 months) with a supply of 553 homes (-8.3 percent).
Table 4: Lafayette MSA residential real estate sales
|Lafayette MSA||Benton County||Carroll County||Tippecanoe County|
|Year to date*||Year to date*||Year to date*||Year to date*|
|Median sale price**||n/a||n/a||n/a||$72,950||$102,500||40.5%||$116,500||$95,000||-18.5%||$148,000||$152,000||2.7%|
|Months supply of inventory**||n/a||n/a||n/a||9.5||6.9||-27.4%||7.1||7.2||1.4%||3||2.8||-6.7%|
|Inventory of homes for sale||752||699||-7.0%||50||46||-8.0%||99||100||1.0%||603||553||-8.3%|
* Year-to-date data reflect January to September for both years. Months supply of inventory and inventory of homes for sale are September values only.
** Reflects national Realtor.com data for the MSA
Source: Indiana Association of Realtors and Realtor.com Economic Research
Benton County has commonalities to Tippecanoe County’s housing story as quantity of new listings remained the same and the months supply of inventory of homes continues to drop (6.9 months), along with the number of homes on the market (-8 percent). Benton County saw increases in closed sales (42.6 percent) and the median sale price ($102,500, an increase of 40.5 percent).
Carroll County had a slight increase in listings, inventory of homes and months supply of housing inventory. The county did see a drop in its median sale price and in closed sales. In the MSA, the total inventory of homes for sale has dropped by 7 percent, a continuing trend. As of October 2017, Realtor.com data show the Lafayette MSA had an average listing price of $195,000, 627 homes on the market and an average duration of 62 days on the market.
Nationally, the housing market is experiencing sustained price momentum coupled with a lower home inventory. Housing inventory is selling at a faster pace than in 2016, now averaging around 73 days on the market. Recently, Realtor.com has seen a slight increase in inventory during the fall of 2017, which will provide some relief, but listing prices of the homes are also remaining high with a national average of $274,000. Bottom line: Nationally, fewer listings are commanding higher listing prices with minimal time on the market.
Tippecanoe County mirrors much of that national trend. Across the Lafayette MSA, the housing situation will likely remain mixed, based on location. Within Tippecanoe County, it is expected that 2018 will be a continuation of current trends, diminishing housing supply due to increased sales and fewer listings, as well as increased sales prices or sellers able to receive close to their original asking price. In the more rural areas of the MSA, the housing market will remain volatile.
Given a gradually tightening existing housing market, one would expect to see more housing permits issued. In 2016, the MSA had an increase in permits issued (627 permits, +19 percent) from the prior year (see Figure 2). Thus far in 2017, housing permits are up and may rival the 2014 issuances—continuing the yo-yo trend evidenced in the Lafayette MSA over the years. The region is also seeing an expansion of permits for multifamily units, similar to 2013 where more than half of all permits issued fell into this category.
Figure 2: Lafayette MSA residential building permits
* 2017 reflects year-to-date figures through September 2017 for the MSA.
Source: STATS Indiana, using U.S. Census Bureau data
In 2018, if the reduction in homes for sale continues, we can anticipate stronger demand to build homes. It is expected that median sale prices will likely continue to rise as the area reduces its inventory of existing homes for sale.
Growth continued within the Lafayette MSA in 2017. Given that household expenditures appeared to be the driving factor for economic growth at the end of 2016, it was a nice surprise to see nearly all industries report growth in 2017. While the uptick in employment was small (1.3 percent), signals are pointing to the MSA operating at full employment. As a region that continues to attract and expand businesses, the full employment will yield very low unemployment rates despite wage growth across industries competing for labor. Additionally, individuals are still enticed to the Lafayette MSA, as evidenced by the population growth and demand for housing (both existing and new). This mix of activity, coupled with the economic activity associated with Purdue University, makes the Lafayette MSA a region to watch, as the state is poised for growth in 2018.
- For more research on differences between the U.S. and Indiana PCPI, see “Occupational Hazard: Why Indiana’s Wages Lag the Nation” and "Finding New Cheese: Why Indiana’s Per Capita Personal Income Lags (and How to Fix It)" in the Indiana Business Review.