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The IBR is a publication of the Indiana Business Research Center at IU's Kelley School of Business.

Executive Editor, Carol O. Rogers
Managing Editor, Brittany L. Hotchkiss

Evansville forecast 2017

Professor of Economics and Dean of Business, Romain College of Business, University of Southern Indiana

There are 382 metropolitan statistical areas (MSAs) in the United States, and nearly 70 percent have populations less than 500,000. While regional analyses of economic development and innovation have tended to focus on metro areas with populations above 500,000, there has been increased interest in exploring the economic dynamism of relatively small metro areas (i.e., those with less than 500,000 people).

Recently, the Federal Reserve Bank of Atlanta launched a research project on the economic dynamism of small cities. An outcome of this project was the creation of an economic dynamism index based on 14 indicators related to the demographics, economic performance, human capital and infrastructure of metropolitan statistical areas with less than 500,000 people. As one of the 245 MSAs included in the study, the Evansville MSA is shown to be in the medium-high economic dynamism quartile, with strong anchor institutions and industrial structure being important drivers of growth.

The closure of Alcoa’s smelting plant in 2016 was a drag on output and employment in the Evansville metro area. However, new investment in the health care and hospitality sectors provided a boost in economic activity that will continue in 2017.

Relatively strong growth in the education, health care, and leisure and hospitality sectors in 2016—combined with increases in personal income and announcements of future fixed investments—provide the basis for projecting increased output, income and employment in 2017.

Nominal personal income for 2016 is estimated to have increased by 3.9 percent and real gross metro product is estimated to have increased by 3.2 percent. In 2017, Evansville metro area output is forecasted to increase by 2.6 percent, the number of jobs is projected to increase by 1,800, nominal personal income growth is forecasted to increase by 5.6 percent, while the unemployment rate is projected to be 4.2 percent.

The unemployment rate in the Evansville metro fell from 4.7 percent in January 2016 to 4.4 percent in August 2016. Meanwhile, the national unemployment rate slightly increased from 4.9 percent to 5.0 percent over the same time period. Job gains occurred primarily in the following sectors: education, health care, and leisure and hospitality. The primary sectors experiencing jobs losses were manufacturing and professional and business services.

On average, homeowners experienced an increase in existing-home prices over the year, from an average of $145,228 to $150,310 in 2016. Between 2015 and 2016, single-family housing permits are estimated to have increased by 28.8 percent, while housing starts increased from 746 to 852.

The manufacturing sector continues to be an important base to local household incomes and consumer spending activity, even as the economy exhibits a long-term pattern of diversification away from manufacturing-industry dependence (see Figure 1).

Figure 1: Evansville metro manufacturing employment as a percent of total nonfarm employment


Note: 2016 data are for September.
Source: STATS Indiana, using U.S. Bureau of Labor Statistics and Indiana Department of Workforce Development data

As one of the most manufacturing-dependent metro areas in the nation, the Evansville economy was noticeably impacted by the Great Recession. Since 2007, Evansville’s manufacturing workforce has fallen by 12.9 percent (or about 3,300 workers), compared to the 6.1 percent reduction in Indiana’s manufacturing workforce over the same period. In 2016, manufacturing earnings continue to be a significant driver of economic activity, accounting for about 26 percent of total earnings in the Evansville economy. As Table 1 shows, the manufacturing sector accounts for 14.1 percent of employment in the Evansville metro.

Table 1: Manufacturing percent of total employment, September 2016

  Evansville metro Indiana U.S.
Manufacturing 14.1% 16.6% 8.5%
Durables 39.6% 70.5% 62.3%
Nondurables 60.4% 29.5% 37.7%

Source: STATS Indiana, using U.S. Bureau of Labor Statistics and Indiana Department of Workforce Development data

Given the proportion of output that is sold outside the metro area, the strength of the recovery in the Evansville area is linked to the strength of the broader economy. As employment and demand for locally produced goods continue to surpass pre-recession levels, disposable income and output growth are expected to increase in 2017.

A widening gap between the Evansville economy and the U.S. economy with regard to income growth over the past three decades highlights the importance of achieving higher rates of future output and employment growth. The completion of the I-69 segment between Evansville and Bloomington represents an important development for future expansion of economic activity. The additional transportation and distribution networks resulting from the I-69 extension are expected to provide a solid foundation for long-term employment and output growth.