95 years of economic insights for Indiana

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

Gary forecast 2021

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

In 2020, the coronavirus pandemic plunged Northwest Indiana,1 along with the state, nation and world, into what may be the most severe economic recession since the Great Depression. In April, the unemployment rate in Northwest Indiana spiked to 19.6%—or almost 60% higher than the highest recorded rate since at least 1990.2 During the same month, the region lost almost 29,800 jobs, or 10.7% of its entire employment. While this was a devastating loss, it was less severe than employment losses nationally (-13.2%) and statewide (-12.0%) occurring at the same time.

Fortunately, the most severe effects on employment were short-term as consumers stayed home during the statewide stay-at-home order. By September, the region had recovered about two-thirds of the jobs lost and was only 4.1% below peak employment from March. In comparison, employment was still down 5.5% nationally and down 2.4% in Indiana. However, the full and longer-term economic effect of the crisis on Northwest Indiana’s economy is still mostly unknown. Unfortunately, we will not have regional estimates of how income and economic output were affected until sometime in 2021.

As we reach the end of 2020, as much of the economic recovery that can happen without a long-term solution to the coronavirus pandemic has already happened. The economic recovery necessary to restore pre-pandemic levels of employment and income will likely take until well into 2022 or longer. How long this recovery takes will depend crucially on how quickly a long-term solution to the virus can be found, most likely in the form of an effective and widespread vaccine. Despite the negative economic effects of the pandemic, Northwest Indiana experienced some significant developments in the last year and the region’s economic future is bright.

Economic challenges and employment

One of the limitations early in an economic crisis is that it takes considerable time to get economic data at the regional level. The metrics we would commonly use, such as changes in personal income or economic output in 2020, will not be available at the regional level until 2021 at the earliest. The economic metrics we do have available at this point are mostly related to employment. However, given the nature of this crisis, and how its effects have been concentrated on workers and demand, these metrics are likely a better representation than usual of the broader economic effects.

Figure 1 shows the weekly combined (initial and continued) unemployment insurance claims in 2020 for Northwest Indiana, Indiana and the United States.3 Since the pandemic began, Northwest Indiana has regularly had lower unemployment insurance claims per person each week than the state of Indiana and the United States. Since the week ending 3/21, Northwest Indiana has had 9.5% fewer cumulative weekly unemployment insurance claims per person than Indiana and 42% fewer than the United States. While regional weekly unemployment insurance claims are still well above pre-pandemic levels, at current trends they may return to normal levels by early or middle 2021, barring any additional economic shocks.

Figure 1: Initial and continued unemployment insurance claims

Line graph from week ending 1/4/2020 to 10/10/20 showing weekly total unemployment claims for the U.S., Indiana and Northwest Indiana (EGR 1)

Note: Data are not seasonally adjusted.
Source: Indiana Department of Workforce Development, U.S. Department of Labor and U.S. Census Bureau

While weekly unemployment insurance claims per capita for Northwest Indiana have generally been lower than the state and nation, unemployment rates have been higher (see Table 1). In September 2020, the unemployment rate in Northwest Indiana was 7.8%, or 0.1 percentage points higher than the United States and about a third higher than Indiana. While the unemployment rate in Northwest Indiana remains elevated, it is not unusually high in relation to Indiana and the nation, as can be seen from the comparison with September of the previous year.

Table 1: Regional unemployment rate comparison

Region September 2020 August 2020 September 2019
Northwest Indiana (EGR 1) 7.8% 8.6% 3.8%
Indiana 5.8% 6.5% 2.8%
United States 7.7% 8.5% 3.8%

Source: U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS)

While the unemployment rate in Northwest Indiana continues to fall and is well below the peak of 19.6% in April, there are still sectors that are lagging in employment recovery.4 In April, during the statewide stay-at-home order that was in place from March 25 to May 4, the sectors that saw the largest employment declines were food services and drinking places which lost 5,200 jobs (-19.6%), retail trade which lost 4,600 jobs (-14.4%), educational services which lost 1,500 jobs (-19.7%), and health care and social assistance which lost 5,100 jobs (-11.6%). By September, the first three sectors had mostly returned to within a few percentage points of their March levels. However, health care and social assistance employment in September was still down 5.5% compared with March and down 7.0% from one year ago. While health care and social assistance is undoubtably a critical sector during a global pandemic, many hospitals have struggled financially with the decline in elective surgeries and preventative care.

While the most severe shocks to employment that the region experienced early in the pandemic and during the statewide stay-at-home order have mostly reversed, employment in almost every single sector remains well-below normal levels. Over the next year, we can expect employment to continue to rise slowly across most sectors. However, most of the easier to achieve employment gains have already been realized, and returning to pre-pandemic levels of employment will be a slow process that will likely stretch until 2023 or later. While the effects of the pandemic and recession on Northwest Indiana have been widespread and severe, there were several significant economic developments in Northwest Indiana that were unrelated to the pandemic.

Upheaval in steel

In October, the natural resource company Cleveland-Cliffs announced it was acquiring the assets and operations of ArcelorMittal USA. This effectively catapulted a relatively unknown Midwestern mining company, one that has never produced steel before, to become the largest steel producer in the United States. It’s hard to overstate the importance of this acquisition, and phrases like “end of an era” and “game-changer” are entirely appropriate. While the steel industry is not as dominant in Northwest Indiana as it once was, the regional economy still revolves around steel. To have the largest mills in the region abruptly change hands is earth-shattering. In Lake County during the first quarter of 2020, 5.8% of all jobs and 12.1% of all wages were directly in primary metal manufacturing5 with many more jobs and additional wages relying indirectly on the industry.

This acquisition brings a huge amount of uncertainty, as well as reasons to be both optimistic and concerned. Until now Cleveland-Cliffs has been almost exclusively in the mining industry, and this year was the first time it began producing steel. Following this acquisition, it is now the single-largest producer of steel in the United States. There is justifiable concern about how well this transition in ownership from a company with extensive experience producing steel to one very new at it will go. In addition, Cleveland-Cliffs is a relatively small company, with revenue and assets around 3-4% those of ArcelorMittal, which may mean the company has less financial depth and resources available to weather the relatively challenging environment currently facing the steel industry.

One advantage Cleveland-Cliffs brings is vertical integration, especially through greater leverage in the natural resource industry with iron and coal mines. At a time when the steel industry is struggling with rising costs and falling prices, having greater control of the supply chain provides greater flexibility. A second advantage is that Cleveland-Cliffs is headquartered in Ohio. It will likely benefit Northwest Indiana to have ownership and decision-making happening not just from within the United States but from a neighboring state. While the Cleveland-Cliffs name may not be as well known in Northwest Indiana as ArcelorMittal, the company is older than U.S. Steel and was originally founded out of Michigan.

While we will likely not see immediate and widespread changes in day-to-day operations, big changes will come. How this change of ownership affects employment, pensions, idling of capacity and more is impossible to say at this point, since Cleveland-Cliffs does not have a history of steel production to look to. However, Cleveland-Cliffs has been in business since 1847 which, by itself, is strong evidence of making good business decisions. This acquisition is historic and will change the course of the economy of Northwest Indiana in years to come.

Population growth and quality of place

Following the collapse of the steel industry and domestic manufacturing between the 1950s and 1970s, Northwest Indiana struggled with severe population decline. Lake County alone, the most populous county in Northwest Indiana, lost 13% of its population in the two decades between 1970 and 1990.6 While many of those people remained in the larger region, moving to nearby counties, the population of the three industrial core counties of Lake, Porter and LaPorte still fell by 2.1%. In the following decades, between 1990 and 2010, there were some gains in population; but since 2010, the population in these three counties has declined almost every year—from 856,327 in 2010 to 845,853 in 2017 (-1.2% overall).7 This decline was overwhelmingly driven by domestic migration, as the number of people moving away from the region greatly exceeded those moving into the region, natural population growth and immigration combined. However, in the last two years, this long-running trend of domestic outflow has reversed.

Figure 2 shows the components of the annual population change for the counties of Lake, Porter and LaPorte between 2011 and 2019. In 2018, population in these counties increased by 787 (with net domestic migration of +14); and in 2019, population increased by 2,102 (with net domestic migration of +1,194). These two most recent years not only saw the largest annual population increase in these counties since the U.S. Census Bureau’s annual American Community Survey was first collected, but for the first time in at least a decade, significantly more people chose to move into these Northwest Indiana counties than out of them.

Figure 2: Components of Northwest Indiana population change

Combination graph from 2011 to 2019 showing annual population growth due to immigration, natural increase, net domestic migration, as well as the total change

Note: Data in this chart include only Lake, Porter and LaPorte counties.
Source: U.S. Census Bureau, 2011 through 2019 Population and Housing Unit Estimates

This change in trend suggests that Northwest Indiana is becoming a place people find desirable and are choosing to live. While the region has long been perceived as being business-friendly, it is gaining a reputation as an attractive place to live and raise a family. This change in reputation has been driven by the impressive efforts of local economic development agencies, such the Northwest Indiana Forum (which leads the Ignite the Region initiative), the Northwestern Indiana Regional Planning Commission (NIRPC), the Indiana Economic Development Corporation (IEDC) and other organizations. In addition, local governance, grassroots efforts and entrepreneurship have done incredible work to transform the region.

Improvements in quality of place range from better public transportation with the expansion of the South Shore Line commuter rail, to a wider range of high-end retail, restaurants and breweries, to expanded bicycle trails and green spaces—all of which allow the region to better meet the needs and expectations of the next generation. While Northwest Indiana was once a region many residents hoped to one day leave, we are now seeing more people return, choose to remain here, or be attracted into the region. Of all metrics you could use to measure the economic health of a region, the most fundamental one is population growth and net domestic migration. If a region is a place that people want to move into and live, then its economic future is bright.

Northwest Indiana economic outlook and forecast for 2021

Accurately forecasting economic growth is challenging during even periods of relative economic stability, but during a pandemic unlike anything the nation has experienced since the 1918 Spanish flu, it is far more challenging. Our best estimates for a 2021 economic outlook and forecast for Northwest Indiana come from the Indiana University Center for Econometric Model Research, which produces quarterly economic forecasts for the state, nation, and metropolitan areas.8 Based on their most recent forecast, during 2021 personal income in Northwest Indiana9 will fall 4.7% to $34.1 billion (from $35.8 billion in 2020); but by 2021, personal income is projected to rise close to 2019 levels. In contrast, employment in 2021 is forecasted to rise 4.3% to 341,000 (or up from the severely depressed level of 326,900 in 2020), but that is still well below 2019 employment of 351,400. Despite this forecasted growth in next year, regional employment is expected to remain below pre-pandemic levels until 2024 or later. Table 2 shows the previously forecasted Northwest Indiana employment rates for 2020 along with the actual employment rates and forecasted unemployment rates for 2021.

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

2020 forecast 2020 actual 2021 forecast
Employment +0.7%
(+2,000 jobs)
-7.0%
(-24,000 jobs)
+4.3%
(+14,000 jobs)
Unemployment rate 4.0% 7.8% 5.9%

Source: Indiana University Center for Econometric Model Research and author’s calculations

In summary, we are unlikely to see a return to pre-pandemic levels of economic output and income in Northwest Indiana until 2022 at the earliest. Employment, which is typically slower to recover, is not likely to return to pre-pandemic levels until 2024. These forecasts also depend significantly on how the rest of the pandemic plays out. If an effective vaccine is developed and distributed earlier than expected, recovery may occur sooner. If early 2021 results in an unexpectedly severe spread of the virus and further lockdowns, recovery may take longer. Despite this, the economic future of Northwest Indiana is bright. The region is well on a path to becoming more economically sustainable and an attractive place for the next generation to live and prosper.

Notes

  1. Unless otherwise indicated, the term “Northwest Indiana” refers to the seven-county region of Jasper, Lake, LaPorte, Newton, Porter, Pulaski and Starke counties, consistent with Economic Growth Region 1 (EGR 1) as defined by the Indiana Department of Workforce Development. The economic trends discussed here are not substantially different whether “Northwest Indiana” is defined as a tri-county region (Lake, Porter and LaPorte counties), a four-county region (Gary Metropolitan Division) or the seven-county region.
  2. U.S. Bureau of Labor Statistics, Local Area Unemployment Statistics (LAUS).
  3. Regional and state unemployment insurance claims data come from the Indiana Department of Workforce Development Unemployment Insurance Statistics, while national claims come from the U.S. Department of Labor Unemployment Insurance Weekly Claims Report. Population data come from the U.S. Census Bureau American Community Survey.
  4. The comparisons that follow are based on the four-county Gary Metropolitan Division definition of Northwest Indiana, which includes Lake, Porter, Newton and Jasper counties.
  5. U.S. Bureau of Labor Statistics, Quarterly Census of Employment and Wages (QCEW).
  6. U.S. Census Bureau, 1970 and 1990 Census.
  7. U.S. Census Bureau, 2010 through 2019 American Community Survey.
  8. Forecasts come from the Indiana University Center for Econometric Model Research (https://ibrc.kelley.iu.edu/analysis/cemr/), October 2020.
  9. Northwest Indiana here is defined by the Center for Econometric Model Research as the four-county Gary Metropolitan Division definition of Northwest Indiana, which includes Lake, Porter, Newton and Jasper counties.