Northwest Indiana forecast 2025

Micah Pollak, Ph.D.

Associate Professor of Economics and Associate Dean, Center for Economic Education & Research, School of Business and Economics, Indiana University Northwest

Northwest Indiana¹ has reached a key turning point in transitioning from its traditional manufacturing roots to a more robust, diversified and competitive economy. While this shift from goods-producing to services-providing industries has been taking place in Northwest Indiana for over half a century, we have reached several key milestones in the last few years.

First, in 2009, health care and social assistance became the first service-providing sector to surpass manufacturing in employment. Second, while service-providing industries have been leading job growth in the region for decades, the jobs created were often in lower paying retail and food service industries. However, today we are seeing significant job growth in professional and technology-adjacent service-providing industries that require higher skill and education with correspondingly higher pay. I believe these industries will become a new backbone for Northwest Indiana, alongside manufacturing and health care, and play a key role in long-term regional economic growth and prosperity.

Current sector composition of Northwest Indiana

To place the industry transformation Northwest Indiana is experiencing in context, we first need to characterize the current industry composition of the region. Table 1 provides employment, location quotient² and average annual wage data for all sectors in Northwest Indiana ranked from highest to lowest employment. The table also includes the primary metal manufacturing subsector of manufacturing. The four largest sectors combined account for 59% of employment and 56% of all wages.

The economy in Northwest Indiana has historically been driven by the steel industry and manufacturing has long dominated employment in the region. This dominance is reflected in Table 1 with a location quotient of 1.53 for manufacturing, the highest of any sector. This value means employment in the region is 53% more concentrated in manufacturing than nationally. The manufacturing sector employs 32,063 workers and provides 14.5% of all jobs. With an average annual wage of $110,069 (roughly double the region average), manufacturing contributes 25% of all wage income in Northwest Indiana. Drilling down, roughly half of all workers in the manufacturing sector are employed in the primary metal manufacturing subsector. This subsector has a location quotient of 23.61, with employment in Northwest Indiana 236% more concentrated in this subsector than nationally.

While the manufacturing sector has the highest relative employment concentration of any sector in Northwest Indiana, the largest sector by employment level since 2009 has been health care and social assistance. This sector employs 42,267 workers and provides 19% of jobs. With an average annual wage of $60,561, the health care sector contributes 18% of all wages in Northwest Indiana. The health care and social assistance sector has also been one of the most robust sources of employment growth for the region over the last few decades, nearly doubling sector employment with the addition of more than 20,000 jobs since 1990.

The next two largest sectors, employing 29,583 and 27,053 workers, respectively, are retail trade and accommodation and food services. These two sectors have also provided strong job growth over the last few decades, but with significantly lower-than-average annual wages of $36,095 and $23,293, respectively.

While the level and concentration of employment by sector reveal much about the current industry composition of Northwest Indiana, they are a product of the past and a reflection of the competitive advantages held by the region over the last few decades. To understand the direction in which Northwest Indiana is moving, and ultimately its potential future economic prosperity, we need a more forward-looking metric to assess our competitive advantages as they grow and change.

A shift in Northwest Indiana’s competitive advantage

One way to identify the competitive advantage a region has is through an employment shift-share analysis. In such an analysis, the change in employment in a geographic region for a particular industry or sector _i over a given period is decomposed into three shift-share effects:

• The first is the national growth effect NS_i, which reflects the regional employment growth expected for an industry had that industry followed the national growth trend for all industries.

• The second is the industry mix effect IM_i, which reflects the regional employment growth expected for an industry had that industry followed the national growth trend for that industry. The sum of these two (NS_i + IM_i) is the expected effect, or the regional employment growth expected for an industry based on national and industry trends.

• The third and final term is the regional share effect RS_i, or the competitive effect, which reflects the observed regional employment growth for an industry not explained by expected growth. This is the employment growth for an industry in a region that can be attributed to regional-specific, rather than national or industry, factors.

Table 2 provides the results of an employment shift-share analysis for all sectors in Northwest Indiana over the last five years, from highest to lowest regional share effect. These results highlight the sectors experiencing higher-than-expected job growth, or those in which Northwest Indiana has a competitive advantage.

Manufacturing is traditionally thought of as an area of competitive advantage for Northwest Indiana. However, over the last five years, the regional share effect on employment in manufacturing was -1,212. In other words, Northwest Indiana lost more than 1,200 workers than would have been expected after controlling for national employment trends and national trends in the manufacturing sector. While the manufacturing sector will always be a backbone of Northwest Indiana, our competitive advantage in manufacturing is diminishing.

Likewise, the health care and social assistance sector, the single largest sector of employment in the region, falls at the bottom of Table 2. Between 2019 and 2024, the health care sector added what appears to be a respectable 471 jobs. However, during this time, the expected job growth based on national employment and health care sector trends was 3,386 additional jobs. Thus, despite strong growth since the 1990s, the health care sector in Northwest Indiana significantly under-performed over the last five years, with a regional share effect loss of 2,915 jobs. As with manufacturing, the health care sector will continue to play an important role in Northwest Indiana, but these data suggest it is a sector for which the region is experiencing declining competitive advantage.

In contrast, there are industries in Northwest Indiana which often do not receive as much focus as manufacturing and health care, but for which the employment shift-share analysis shows the region has a significant and growing competitive advantage. At the top of Table 2, and the largest sector by regional share effect, is professional, scientific and technical services. This sector is comprised of industries requiring a high degree of expertise, education and training. Examples of these jobs include law, accounting, architecture, engineering, specialized design, computer systems, management, scientific and technical consulting services and advertising. Between 2019 and 2024, Northwest Indiana added a total of 3,745 new jobs in the professional, scientific and technical services sector, which reflects 2,828 more new jobs than expected based on the national and industry growth rates for this sector.

Put another way, between 2019 and 2024, professional, scientific and technical services was the sector in Northwest Indiana with the highest competitive advantage. Employment growth in this sector outperformed expectations by over 300%. In addition, the industries responsible for much of this job growth within the sector are relatively higher paying. For example, 1,719 of these new jobs were in the management, scientific and technical consulting services industry, with an average pay of $62,041. The computer systems design and related services and architectural, engineering and related services industries also both grew significantly. These industries boast average annual pay of $95,024 and $89,447, respectively. Table 3 highlights some of the industries within the professional, scientific and technical services sector which have experienced strong job growth in the last five years.

Strong competitive advantage in this sector is an excellent predictor of future economic growth for Northwest Indiana, as this sector typically requires workers with high levels of education and skill. The growing competitive advantage in this sector for the region is likely due to proximity to Chicago and relatively more affordable housing prices coupled with the expansion of mass transit and greater investment in quality of place in recent years. This combines to make the region an increasingly desirable location among educated and skilled workers, particularly for those whose job allows some flexibility in remote work or work from home.

Some of the growth in this sector is highly visible in the form of data centers, such as the $40 million Digital Crossroads data center built in Hammond in 2020, which has since reached capacity and is expected to generate an additional $200 million in investment.³ The success of this facility has also helped bring billions of dollars of additional planned investment in new data centers to and around Northwest Indiana.⁴ While data centers may not directly employ many workers, they help attract technology- and information-intensive industries. Growth of these industries is an extremely promising sign for future economic development and prosperity. As the factors driving this competitive advantage are primarily structural, I expect the professional, scientific and technical services sector to continue to grow and become an important backbone of the Northwest Indiana economy.

A strong competitive advantage in the sector of professional, scientific and technical services is a welcome surprise. The other sectors for which Northwest Indiana has a competitive advantage are more expected. The next sector in which Northwest Indiana has had the strongest competitive advantage over the last five years is accommodation and food services. This is the fourth-largest sector in Northwest Indiana and between 2019 and 2024, it added 1,870 jobs above and beyond expectations. While relatively low paying with an average annual income of just $23,293, the accommodation and food services sector in Northwest Indiana has seen significant growth in pay recently, with average annual wages growing 43% (18% after adjusting for inflation) over the last five years.

Skipping the other services sector, the next two sectors with the highest competitive advantage are closely related. Between 2019 and 2024, the wholesale trade sector added 900 new jobs and the transportation and warehousing sector added 1,949 new jobs. This combined for a total of 2,849 new logistics-related jobs across both sectors in Northwest Indiana, 1,005 more jobs than expected. These sectors are also relatively higher paying, with an average annual wage in wholesale trade of $85,182 and an average annual wage in transportation and warehousing of $61,482. This expectation-exceeding job growth can be attributed to a competitive advantage stemming from the geographic and logistical assets in Northwest Indiana, which have begun attracting significant investment by industries in the wholesale trade and transportation and warehousing sectors. Some specific examples include cold storage facilities, which “have been flocking to the Region with more than a third of a billion dollars of projects underway,”⁵ and the construction of a growing number of large-scale warehousing and distribution centers, such as a $125 million, 1.2 million-square-foot warehouse approved this year.⁶

Future and forecast for Northwest Indiana in 2025

As we enter 2025, Northwest Indiana finds itself in its strongest economic position in decades. As evidence of this, Senator Todd Young was asked at the 2024 IGNITE luncheon about the impact of the Northwest Indiana Forum’s “Ignite the Region” economic development plan,⁷ which was launched in 2018 and designed to catalyze economic growth and prosperity. His response was, “I think the Region’s already ignited. It’s on fire!”⁸

Northwest Indiana now finds itself in a position new to us. Instead of grappling for a way to stem economic decline, we find ourselves already well down a path of growth toward greater economic prosperity. Population is growing, real incomes are rising and we are building a foundation for even stronger growth in the future.

As the economic success of the region continues and accelerates, we will begin to have the luxury of shaping the nature of our success. Accordingly, there are two initiatives I would like to see the region focus efforts on in 2025. The first is broadening and strengthening our stock of housing to better meet the needs of our population and the growing professional and technical services workforce. The second is greater investment in affordable and quality early childhood education. This is a critical factor in quality of place and maintaining a strong labor force, and an investment which has the highest return of any schooling, education or job training investment.⁹

Table 4 provides a forecast of key economic variables for Northwest Indiana in 2025.

Table 4: Northwest Indiana regional forecast for 2025

Source: “Indiana MSA Forecast,” Indiana University Center for Econometric Model Research and author’s calculations