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Gary forecast 2019

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

Northwest Indiana (NWI)1 is the second-largest regional economy in the state of Indiana and, in the first three quarters of 2018, its economic output grew at an annualized rate of 2.9 percent to $30.4 billion.2 This growth reflects a significant improvement compared to recent years. Following the end of the 2007-2008 financial crisis, Northwest Indiana’s economic output has grown at the anemic rate of 1.5 percent nominal growth per year on average, in contrast to 4.2 percent nominal growth per year for the state of Indiana and 3.8 percent per year nationally over the same time period.3

Northwest Indiana has also been subject to several concerning trends, particularly declining employment in traditionally high-paying goods-producing jobs in manufacturing, construction and steel, which has only poorly been offset by a rise in low-paying service sector jobs, as well as a continuing decline in total population (with the highest decline among important demographic groups).4

While economic growth has been relatively slow for Northwest Indiana following the Great Recession, in 2018—for the first time in almost a decade—there are signs of significant economic improvement and accelerating growth.

Economic and demographic trends in Northwest Indiana

Figure 1 shows the Northwest Indiana Coincident Economic Index. During the first nine months of 2018, the index grew at an annualized rate of 2.7 percent (from 139.3 to 142.1). In contrast, the index grew only 0.6 percent during 2017, and it grew at an annualized rate of only 1.1 percent between 2012 and 2017. This growth in 2018 represents a significant and substantial change from previous years and can be linked to several shifts in both sector employment and demographic trends.

Figure 1 : Northwest Indiana Coincident Economic Index

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Source: Northwest Indiana Coincident Economic Index (http://go.iu.edu/nwi)

Since the 1970s, as well as during the years following the Great Recession, Northwest Indiana has been experiencing a structural shift from goods-producing to service-providing jobs, which has led to continued declines in real income per person for the region. However, in the last year, there are signs of this structural change slowing and potentially shifting to a healthier sector employment mix. Figure 2 shows the average annual change in employment in Northwest Indiana for two periods: the years following the Great Recession recovery (2012 Q1 to 2017 Q1) and the last year (2017 Q1 to 2018 Q1) by employment sector (goods-producing vs. service-providing). The annual growth in total employment during these two periods was relatively stable, with the region adding 1,153 jobs per year from 2012 to 2017 and 1,149 jobs in the last year. However, the sector composition has shifted dramatically in the last year.

Figure 2: Annual change in Northwest Indiana employment by sector

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Source: Quarterly Census of Employment & Wages (QCEW) data from the U.S. Bureau of Labor Statistics

Between 2012 and 2017, Northwest Indiana lost on average 634 jobs per year in goods-producing sectors, such as manufacturing and construction. This decline was offset, at least in number of jobs, by the addition of 1,787 jobs per year on average in service-providing sectors, such as general merchandise stores and food service and drinking places. As a result of the replacement of higher-paying goods-producing jobs (with an average income of $80,000 per year) with lower-paying service-providing jobs (with an average income of $39,000 per year), real income per person fell by 0.6 percent in Northwest Indiana, but rose 13.3 percent nationally and 19.1 percent for the state of Indiana over the same period.

In the last year, this trend reversed, with job growth being driven primarily by goods-producing industries. Between the first quarters of 2017 and 2018, Northwest Indiana added 918 jobs in goods-producing industries and 231 jobs in service-providing industries. This shift in job creation is one of the factors underlying the strong economic growth for Northwest Indiana in 2018. While it is too early for a clear trend to emerge from the data, this growth in jobs appears to be driven by increases in employment across all goods-producing sectors, including construction and manufacturing (and within primary metal manufacturing).

Another significant concern for the future of Northwest Indiana has been the continued decline of population. Between 2012 and 2016, the population of Northwest Indiana5 fell by 0.2 percent per year, while the population of the state of Indiana rose by 0.6 percent per year. The population decline for Northwest Indiana was especially pronounced in 2016 when it fell by 0.3 percent and in 2015 when it fell by 0.4 percent. However, in 2017 (the most current data available), Northwest Indiana’s population remained stable, losing only 26 people. Table 1 shows the annual population growth rates for Northwest Indiana by age group, and several of these age groups saw population growth rise in 2017. Population growth rose from -1.2 percent to -0.9 percent among children, from -0.5 percent to +0.4 percent among young adults and from +2.8 percent to +2.9 percent among those of retirement age. However, two important age groups (college age and older adults) both saw slight declines in population growth rates.

Table 1 : Northwest Indiana annual population
growth by age groups

2016 2017
Children (ages 0 to 17) -1.2% -0.9%
College age (ages 18 to 24) -1.6% -1.7%
Young adults (ages 25 to 44) -0.5% +0.4%
Older adults (ages 45 to 64) -0.6% -0.7%
Retirement age (ages 65+) +2.8% +2.9%
All ages overall -0.3% 0.0%

Note: These data are for the five-county region including Lake, Porter,
Newton, Jasper and LaPorte.
Source: American Community Survey (ACS) data from the U.S. Census Bureau

The proximity of the region to Chicago has benefited population growth in Northwest Indiana overall. Between 2011 and 2015, Lake County, Indiana, experienced a net inflow of over 5,500 people from Cook County, Illinois.6 The areas to which Lake County has the highest net outflow of population were the Indiana counties of Tippecanoe (Lafayette), Marion (Indianapolis) and Monroe (Bloomington). While 2018 data won’t be available until late 2019, the slowing decline of population loss in 2017 may represent the first signs of a potential reversal and slight population growth in 2018.

In addition to the positive signs in sector employment mix and population, there are several other signs of economic gains for Northwest Indiana:

  1. New residential construction permits rose 22 percent from 1,924 in 2016 to 2,356 in 2017, with 2018 on track to be similar to 2017.7
  2. Retail sales for Northwest Indiana rose consistently every month from $489.8 million in January to $509 million in September 2018.8 Retail trade is an important industry for Northwest Indiana and 14.6 percent of all workers are employment in retail trade.9
  3. The unemployment rate for Northwest Indiana in September fell to 4.1 percent (down from 4.4 percent one year earlier)10 while the labor force participation rate rose to 61.4 percent (up from 61.1 percent on year earlier) and is closer to the national average of 62.7 percent.11
  4. Finally, one of the most prominent industries in Northwest Indiana, the steel industry saw substantial gains in 2018. While primary metal manufacturing employs just 6 percent of workers in Northwest Indiana, it accounts for 12 percent of all earnings. The series of tariffs imposed on foreign steel imports in 2018 drove prices of U.S. domestic steel up by 11 percent and foreign prices down by 4.8 percent.12 As a result of increased prices, profits for the major steel producers in Northwest Indiana rose. Third-quarter profits for U.S. Steel doubled compared to one year ago, with major gains for ArcelorMittal as well.13 These gains are also likely to be passed on to workers in this case. As of this writing, both U.S. Steel and ArcelorMittal have reached tentative agreements with the Steelworkers Union for contracts that include a more than 14 percent raise over the next four years following a freeze in wages that has been in effect since 2015.14 In addition, U.S. Steel announced earlier this year a $750 million investment in their flagship Gary Works.15 The rise in profits, wages and investment in the steel industry for Northwest Indiana are all likely to have a substantial positive ripple effect on the regional economy.

Northwest Indiana economic outlook and forecast for 2019

In 2018, Northwest Indiana saw some of the most promising and widespread signs of stronger economic growth since the end of the Great Recession. Economic output grew by 2.9 percent to $30.4 billion, and there were signs of improvement across the board in sector employment mix, population growth, residential construction, retail sales, labor force participation rate and the steel industry.

While this strong growth is a welcome change from recent years, there are still reasons to be cautious, particularly due to heightened uncertainty in the coming year. The Federal Reserve is likely to continue raising interest rates in 2019 over fears of rising inflation, and U.S. stock markets demonstrated substantial instability in the second half of 2018.

While the tariffs on foreign steel have overall been positive for Northwest Indiana thus far, their full effects have not yet been felt. Rising steel prices may increase profits and wages in the steel industry, but only if demand for steel remains strong. A Ford executive was recently quoted as saying that steel now costs more in the United States than anywhere else in the world due to these tariffs.16 Eventually, the higher price of steel must be reflected in higher prices for goods that use steel as an input, weakening the markets for these goods.

In addition, due to both its products and location, international trade plays an important role for Northwest Indiana. As trade war tensions continue to escalate, the region may suffer. Another industry that is almost as important to Northwest Indiana as steel is agriculture. The United States is the single-largest producer and exporter of soybeans in the world, and most U.S. soybeans were exported to our single-largest buyer, China. However, in response to tariffs placed on Chinese goods, like those on steel, China responded with tariffs on American soybeans, which have almost entirely eliminated the sale of American soybeans to China (down by 94 percent from one year ago) and may have permanently eroded our future market potential there.

Despite these caveats, the 2019 forecast for the economy of Northwest Indiana is for strong growth between 1.8 percent and 2.0 percent, which is close to double the average annual growth rate the region experienced between 2012 and 2017. This forecast is based on trends in the Northwest Indiana Coincident Index coupled with several positive leading economic indicators. Table 2 provides the 2019 forecast, along with the 2018 forecasted and actual growth for comparison from the previous year. The forecasted growth in 2019 for Northwest Indiana is expected to translate into regional employment expanding by 0.9 percent, or the creation of approximately 2,500 jobs, a slight decrease in the unemployment rate and substantial growth in economic output of between $550 million and $610 million for the region.

Table 2: Northwest Indiana regional forecasts (Q3 to Q3)

2018 forecast 2018 actual 2019 forecast
Northwest Indiana Coincident Index17 +1.1% +2.0% +1.8% to +2.0%
Employment +0.7%
(+1,800 jobs)
+1.0%
(+2,800 jobs)
+0.9%
(+2,500 jobs)
Unemployment rate 4.5% 4.1% 4.0%
Gross metropolitan product (GMP) +$330 million +$601 million +$550 million to +$610 million

Source: Author’s calculations

Notes

  1. Northwest Indiana is defined as the four-county region including Lake, Porter, Newton and Jasper unless otherwise indicated.
  2. Based on data from 2018 Q1 to 2018 Q3 from the Northwest Indiana Imputed Gross Metropolitan Product (NWI GMP), School of Business and Economics, Indiana University Northwest, at http://go.iu.edu/nwi.
  3. Based on NWI GMP data and U.S. BLS GDP data from 2009 Q2 to 2017 Q4.
  4. For further details, see M. R. Pollak, “Gary forecast 2018,” Indiana Business Review, Winter 2017, www.ibrc.indiana.edu/ibr/2017/outlook/gary.html.
  5. These American Community Survey population statistics from the U.S. Census Bureau are based on the five-county region of Northwest Indiana including the counties of Lake, Porter, Newton, Jasper and LaPorte.
  6. U.S. Census Bureau, County-to-County Migration Flows (2011-2015).
  7. These U.S. Department of Housing and Urban Development data reflects the counties of Lake, Porter, Newton, Jasper and LaPorte.
  8. Author’s calculations based on data from the U.S. Census Bureau and the Indiana Department of Revenue.
  9. U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages (QCEW).
  10. U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics reflects the counties of Lake, Porter, Newton, Jasper and LaPorte.
  11. U.S. Census Bureau, Annual Community Survey and U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics; reflects the counties of Lake, Porter, Newton, Jasper and LaPorte.
  12. “American Steel Index – Update,”  October 26, 2018, Business Forward Inc.
  13. J. S. Pete, “U.S. Steel Doubles Profit Year-over-Year to $291 Million in Third Quarter,” The Times of Northwest Indiana, November 1, 2018.
  14. J. S. Pete, “ArcelorMittal, United Steelworkers Union Reach Tentative Agreement that Includes Raises,” The Times of Northwest Indiana, November 2, 2018.
  15. J. S. Pete, “U.S. Steel Announces $750 Million Investment in Renaissance of Gary Works; Nearly $1B of Investments Announced in Region in Past 2 Days,” The Times of Northwest Indiana, August 16, 2018.
  16. I. Thibodeau, “Ford: US Steel Most Expensive Thanks to Trump Tariffs,” The Detroit News, October 22, 2018.
  17. Northwest Indiana Coincident Index and Forecast, School of Business and Economics, Indiana University Northwest, http://go.iu.edu/nwi.