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Indianapolis-Carmel-Anderson forecast 2021

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Clinical Assistant Professor of Business Economics, Kelley School of Business, Indiana University

Last year’s forecast stated that 2020 “could be quite volatile economically.” That statement turned out to be both true and a significant understatement of what has actually played out over the past year. There are two pieces of optimism for the Indianapolis metro area heading into 2021. The first piece of good news is that the area continues to outperform other areas of the state, albeit by a smaller margin, even in this challenging economic environment. Secondly, 2021 will likely be a year of economic recovery, with increases in job creation and economic growth.

The Indianapolis-Carmel-Anderson MSA makes up 29.0% of the state’s population (or about 1.95 million people), but accounts for 33.5% of the state’s employment and 34.0% of the state’s income. So Indianapolis will continue to be a driver of the state’s economic activity.

Economic forecasting is always a challenge, but this year is especially difficult. The uncertainty created by the COVID-19 pandemic leads to a wide range of potential economic outcomes. We are not forecasting the types of widespread government-mandated business closures that occurred in March and April 2020 to happen again—but that is certainly a possibility. The baseline forecasting in this article assumes that Indiana will essentially remain at Stage 5 or better for 2021. A significant worsening of the pandemic, which seems more likely to occur in the first quarter of 2021, will likely lead to a weaker economic situation than is outlined in this forecast. Further, economic stimulus is badly needed to protect businesses and households until the worst effects of the pandemic are dealt with. As of this writing, it is unclear whether and what forms any stimulus will take. We are modeling a “most likely” outcome that there will be a modest stimulus package that will have beneficial effects in the first quarter of 2021. The absence of any stimulus will likely lead to a slower recovery than laid out in this article.

Employment and wages

The Indianapolis-area economy will have lost an estimated 43,000 jobs over the course of 2020. This represents an annual 3.3% decline in total employment. Based on estimates from the Indiana University Center for Econometric Model Research (CEMR),1 we forecast that these jobs will largely be recovered in 2021, leaving the total employment numbers by the end of 2021 very close to where they were by the end of 2019. While this sounds like a strong recovery, this essentially means we will have lost two years of growth due to the pandemic. Average annual job growth over the last five years leading up to 2020 was 15,800.

Average wages over 2020 increased, although not for good reasons. The average hourly wage is based on the wages of all workers. The pandemic hit employment hardest in relatively lower wage industries, such as leisure and hospitality. As employees in these sectors have been laid off, average wages per worker have increased, but this is not necessarily a healthy sign. As those sectors recover in 2021, average wages will likely decline.

The unemployment rate in the Indianapolis MSA is 6.0% as of September 2020. This is significantly down from its peak of 13.3% during the COVID-19 shutdown, but still much higher than its low point of 2.6% the year before. Further, the current unemployment number understates the damage to the job market. The pandemic has forced people out of the labor market due to either family obligations and/or the poor economy. This should bounce back somewhat in 2021. Unemployment will decline in 2021 to between 4% and 5% by the end of the year.

Employment sectors

Not surprisingly, the recession has not hit all sectors of the economy equally. Manufacturing, leisure and hospitality, and health care have been hit the hardest with job losses. Table 1 shows total jobs and the percentage change for some of the larger industries.2

Table 1: Employment by sector, September 2020

Industry Total jobs (000's) Change in jobs (12 months)
All employees 1,054.1 -3.3%
Trade, transportation and utilities 222.7 -2.0%
Education, health care and social services 137.7 -4.4%
Government 132.6 -1.7%
Leisure and hospitality 105.4 -5.1%
Retail 102.9 2.7%
Manufacturing 86.2 -8.5%
Construction 54.5 0.8%

Source: U.S. Bureau of Labor Statistics

Manufacturing jobs should recover in 2021, although there are some concerns beyond the pandemic. Trade wars with China and other countries are an ongoing risk that threaten manufacturing in Indianapolis. Leisure and hospitality jobs are likely to remain depressed for the coming year. Construction and retail have been bright spots in the job market.

One area of potential concern for 2021 is government spending and employment. The 2020 recession will put a damper on state and local tax revenues, especially those related to activities (e.g., hotel, car rental) that have been greatly diminished. Simultaneously, the need for tax dollars to support businesses and activities remains high. One possibility is that the federal government provides financial support for state and local government, although that is looking increasingly unlikely. If that does not occur, cutbacks in spending at the state and local government level will hit Indianapolis especially hard and will be a drag on growth in 2021 and perhaps beyond.


There are few silver linings of a global pandemic, but from an economic perspective, some industries do stand to see increased investment. The Indianapolis MSA has a strong biotech and pharmaceutical business presence. Eli Lilly is the largest and most well-known Indianapolis company, but there are many other small- and medium-sized enterprises. It is certainly possible that Lilly or another local research company could have a hand in developing and distributing a COVID-19 vaccine, which could have a large and direct impact on the Indianapolis economy. Alternatively, even without being directly involved in developing a vaccine or treatment for this case, there is likely to be increased investment in the biotechnology sector going forward. These investments should result in increased employment and income in the Indianapolis MSA.

Real estate

The real estate markets in the area are divergent, depending on the sector and the area. Residential construction, as measured by residential building permits, is up 12.3% over the prior year. Modest income growth and historically low interest rates suggest that this trend will continue through 2021. Industrial and warehouse real estate will be quite strong as the economy continues to recover, and logistics, distribution and manufacturing all play a significant role in that recovery.

Retail and office real estate markets are going to remain depressed throughout the coming year, and perhaps longer. Lifestyle changes of working from home and shopping from home that were necessitated by the pandemic will to some degree become permanent. The economy is undergoing a significant market disruption, and business and government leaders need to embrace the change for the recovery to be strong.

Downtown Indianapolis challenges

Downtown Indianapolis faces several challenges due to the COVID-19 crisis that indicate a longer recovery period. First, downtown is dependent on the tourism and convention business, which has been devastated by COVID-19 and will likely remain depressed well into 2021. Further, some big events were planned for downtown Indianapolis in 2021, including the NBA All-Star Game and the NCAA Men’s Basketball Final Four. The All-Star Game is unlikely to happen (at least as it was scheduled) and the Final Four is also in jeopardy. Regardless, none of these events will be the large nationally recognized events that would bring tens of thousands of fans and visitors to pack the hotels, restaurants and bars of downtown. Lower profile, but economically significant, events and conventions will also be canceled or downsized, putting a damper on the economic recovery in downtown.

Secondly, the work-from-home trend that was a response to the pandemic has also impacted downtown significantly. While offices will eventually reopen, there is a good chance that at least some of the work-from-home transition will be permanent. This means that downtown office real estate will likely see higher vacancy rates and declining lease rates by as much as 5%. In addition, the businesses that support downtown workers, from parking operations to lunch places, could be in for a challenging period for several years to come.

Over the next few years, strong residential development downtown and in the neighboring areas will eventually counteract some of the economic losses for downtown, but this is a longer-term transition that will take time and certainly hurt some businesses.


The Indianapolis economy will continue its recovery in 2021, with output, employment and incomes trending back toward where they were at the end of 2019. Output will likely be up between 3% and 4% during 2021, and employment will grow by about 70,000 jobs. While these numbers are quite strong, they represent a recovery from a weak baseline of economic activity. We will recover from our COVID-19 hangover in 2021, and hopefully be ready to enjoy a healthy economy heading into 2022.

In this scenario, the pandemic will have cost us two years of economic growth that we may never recover. However, this means that the Indianapolis-area economy will be quite strong by the end of 2021.


  1. Forecasts come from the Indiana University Center for Econometric Model Research (https://ibrc.kelley.iu.edu/analysis/cemr/), October 2020.
  2. U.S. Bureau of Labor Statistics, All Employees: Total Nonfarm in Indianapolis-Carmel-Anderson, IN (MSA) [INDI918NA], retrieved from FRED: Federal Reserve Bank of St. Louis, https://fred.stlouisfed.org/series/INDI918NA