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Muncie Forecast 2009

Dagney Faulk, Ph.D.

Director of Research, Center for Business and Economic Research, Ball State University

November 2008

Like many small Midwestern cities, the Muncie metro area (Delaware County) struggles to reinvent itself in the face of daunting demographics, the loss of traditional manufacturing jobs, and all the attendant woes of the current recession. Borg Warner's Muncie plant, maker of transfer cases for transmission systems and the last of the giant auto-related manufacturing facilities in Muncie, is scheduled to close in April 2009. Local government has begun to decrease jobs due to tighter budgets. However, as the regional economy braces for movement from traditional manufacturing jobs, there are reasons for optimism. Brevini, the Italian-maker of gear boxes for wind turbine energy generation and other applications, has committed to building a facility by mid-2010 that is projected to create 450 jobs. Ball State University continues to expand its programs and is building a reputation as a high technology university.

Various measures of economic activity are examined for Muncie-Delaware County in this analysis. The data used are from 2001 (the last recession) through the most recent data available at the time of writing. As we face this recession, our goal is to identify and analyze trends since the last recession and changes over the past year. We conclude with a summary of the labor market forecast for the Muncie area.

Labor Markets

The unemployment rate in Delaware County has steadily increased over the past year (see Table 1) although there has been some relief, likely related to the school year, over the past few months. The unemployment rate remains consistently higher (6.6 percent in September) than that of Indiana (5.8 percent) and the nation (6 percent). Figure 1 shows the trend in unemployment for Delaware County, Indiana, and the United States since 2001.

Table 1: Labor Force and Unemployment for Delaware County

*Preliminary data
Source: Bureau of Labor Statistics

Figure 1: Comparison of Unemployment Rates, 2001 to 2008

Table 2 shows average employment 2007 through 2008 for the Muncie metropolitan area.¹ Total nonfarm employment was 53,211 jobs, a decrease of 689 jobs (1.3 percent) over the 2007 average. This decline in jobs is substantially smaller than job losses earlier in the decade, but current economic conditions suggest that job losses will continue to increase for the remainder of 2008. The 2008 data through September suggest that trade, transportation, and utilities (TT&U); manufacturing; construction; and government will be the hardest hit sectors. Over the same period, small employment gains occurred in financial activities and private education and health services. The losses in TT&U and manufacturing are smaller than those earlier in the decade, suggesting that Muncie has weathered the worst of the downturn in traditional manufacturing.

Table 2: Delaware County Annual Average Employment, 2007 to 2008

*January through September average for 2008. September 2008 data are preliminary. Annual data used for 2007.
Source: Bureau of Labor Statistics

Despite the continuing decline in employment, wages in some sectors in the Muncie area have grown over the past year—perhaps signaling increased productivity. Table 3 shows changes in average weekly wages (not adjusted for inflation) from the first quarter of 2007 to the first quarter of 2008 in Delaware County. The inflation rate was 4.1 percent for this same period, so average weekly wages growing by more than 4.1 percent are growing faster than inflation. Wages in several sectors—including wholesale trade, information, professional, scientific, and technical services—meet this criteria and are also growing faster than the state.

Table 3: Average Weekly Wages in Delaware County, 2007 to 2008

Source: Bureau of Labor Statistics

Housing

Residential construction, as measured by residential building permits for new single- and multi-family residential units, peaked in 2003 with 563 permits issues. In contrast, only 30 permits have been issued from January to September 2008 (see Table 4).

Table 4: Delaware County Residential Building Permits, 2001 to 2008

Source: U.S. Census Bureau

Activity in the Delaware County residential real estate market has slowed over the past year (see Table 5). The number of units sold through the end of October is a couple of hundred units lower than it was last year, and the average number of days on the market has increased to 142 days from 127 in 2007. The average sale price has been trending downward since its 2005 peak. Higher mortgage interest rates, increasing property tax payments, and a slowing economy have all contributed. As shown in Table 5, the property tax/sales ratio has increased over the past couple of years, although some relief for property taxpayers is expected over the next few years due to the 2008 property tax reform measures.

Table 5: Delaware County Residential Real Estate Sales, 2003 to 2008

*Data through October 2008
Note: Dollar values are not adjusted for inflation
Source: Mideastern Indiana Association of REALTORS Multiple Listing Service

Outlook

In 2008, the available labor market data for Delaware County are fairly pessimistic. Overall employment has decreased (although job losses are smaller than earlier in the decade) and the rate of decline is larger than that of the state as a whole. The housing market has slowed—fewer building permits were issued in 2008 and it is taking longer for existing houses to sell.

Positive economic indicators also exist. There have been wage gains in some sectors, possibly indicating increases in productivity, and Brevini—a company manufacturing parts for the wind energy industry—has committed to opening a plant. This signals that the Muncie area is attractive to companies related to “green energy.” In addition, there is a supply of workers with the necessary skills ready for both manufacturing jobs in this industry and research and development positions.

Nevertheless, we expect a decrease in employment (1.4 percent—about 900 jobs) for 2008 and a smaller decrease (0.7 percent—about 425 jobs) in 2009 as the economy begins to recover from the current recession.² Personal income in the durable goods sector will decline about 2 percent through 2008 and then experience a dramatic decline (16 percent) in 2009 related to the closing of Borg Warner and related businesses. We expect smaller losses in income in the health care sector (0.8 percent for 2008 and 0.5 percent in 2009) and growth in the nondurable goods sector. A decline in income does not necessarily translate to corresponding losses in jobs. Businesses may cut overtime or move some workers from full-time to part-time status. Finally, we expect retail income to decline in 2008 (2.1 percent) and then recover (1.4 percent) in 2009.