99 years of economic insights for Indiana

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

Indianapolis-Carmel-Anderson forecast 2023

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Associate Dean of Academic Programs and Academic Director, Indiana Business Research Center, Kelley School of Business, Indiana University

The U.S. is expected to post real GDP growth of 1.7% in 2022, followed by even slower growth of 1.2% in 2023. The same is true in Indiana, with 2.6% growth expected in 2022 and only 0.4% in 2023. The Indianapolis metro area expects 2.7% real GDP growth in 2022 and 0.8% in 2023. In a normal year, real GDP grows between 2.0% and 3.0%. An expected rise in the federal funds rate from 0.8% in the second quarter of 2022 to 4.5% through the fourth quarter of 2023 will dampen demand and severely slow growth within the economy. Spending on goods will especially decline and have a disproportionately negative impact on regional economies that rely upon manufacturing. As a percent of real GDP in 2020, manufacturing was 11.5% of the U.S. economy, 26.7% of the Indiana economy and 18.2% of the Indianapolis economy.1 These comparative shares explain why 2023 growth in Indianapolis will be slightly better than the state, but slightly weaker than the nation.

Employment and wages

The September 2022 unemployment rate in Indianapolis was 2.1% (not seasonally adjusted), at the time of this writing. This beat the state rate of 2.2% and the national rate of 3.3%. Between September 2019 and September 2022, the Indianapolis labor force grew 2.3%, whereas the state labor force declined by 0.4% and the national labor force only grew by 0.3%.2

Average hourly earnings for all private sector employees in Indianapolis fell 2.5% between September 2021 and September 2022. This contrasts with a statewide increase of 4.2% and national increase of 5.0%.3 Indianapolis as a positive outlier in labor force growth and a negative outlier in hourly earnings suggests disproportional growth in low-wage employment. Just under half of employment growth in Indianapolis between 2019 (pre-pandemic) and 2022 (post-pandemic) occurred in trade, transportation and utilities as the region’s warehousing cluster expanded to accommodate unprecedented growth in online retail (see Table 1). Average hourly earnings in trade, transportation and utilities in Indiana were $2.28 (or 7.9%) less than the private sector average of $28.83 in September 2022.4

Table 1: Employment growth in the Indianapolis-Carmel-Anderson MSA, 2019 to 2022

Industry 2019
% of total
employment growth
Natural resources & mining 700 800 14.3% 0.3%
Construction 55,600 63,500 14.2% 22.1%
Manufacturing 94,100 95,300 1.3% 3.4%
Trade, transportation & utilities 226,500 244,200 7.8% 49.4%
Information 13,400 12,500 -6.7% -2.5%
Financial activities 71,800 77,900 8.5% 17.0%
Professional & business services 172,500 184,800 7.1% 34.4%
Private educational & health services 164,600 166,400 1.1% 5.0%
Leisure & hospitality 111,500 105,000 -5.8% -18.2%
Other services 45,800 43,100 -5.9% -7.5%
Government 138,800 137,600 -0.9% -3.4%
Total nonfarm employment 1,095,300 1,131,100 3.3% 100.0%

Note: This table displays data for September 2019 and preliminary September 2022. The data is not seasonally adjusted.
Source: STATS Indiana, using U.S. Bureau of Labor Statistics Current Employment Statistics (CES) data

With a forecast of slower growth, unemployment is expected to increase to 4.2% nationally, 3.4% in the state and 3.0% in Indianapolis during 2023. Historically, during periods of economic retrenchment, unemployment trends in Indiana typically lead the rest of the country, which means Indiana’s unemployment rate rises and falls before unemployment rates in other states. Trends suggest that unemployment will peak in the first half of 2023 and then begin to fall. The pandemic accelerated retirements and motivated many of working age to leave the labor force. This combined with demographic shrinkage in the annual number of young adults leaving school suggests continued tightness in the availability of talent in Indianapolis. For this reason, any spike in unemployment will be mild when compared to economic slowdowns in the past.

Rapid growth in trade, transportation and utilities employment is only one part of the significant changes in labor force composition that took place in Indianapolis between 2019 and 2022. Natural resources and mining; construction; financial activities; and professional and business services similarly experienced employment growth over 7.0% (see Table 1). In contrast, information; leisure and hospitality; and other services each shrank by close to 6.0% or more. Total employment grew by 3.3% with high variance in industry-specific growth rates. The current economic slowdown puts jobs in construction, manufacturing and trade, transportation and utilities at higher risk. These sectors are expected to experience an early and disproportionate share of Indianapolis job losses.

Residential real estate   

Recent mortgage rate increases have hit the Indianapolis housing market relatively hard. The median listing price for a house in Indianapolis fell 7.7% from a high of $324,900 in July of 2022 to $299,900 in October. This compares with a decrease of 2.7% from a June high of $279,365 in the state and a 5.3% price decrease from a June high of $449,000 in the nation. In comparable metropolitan markets, the median list price fell 3.1% from a June high of $349,900 in Columbus, Ohio and 6.5% from a June high of $561,533 in Nashville, Tennessee. Prices have remained flat and not fallen in Louisville or Cincinnati.5

Comparably healthy growth in the Indianapolis labor force since 2019 drove demand for housing and generated a strong increase in housing prices. An expected rise in unemployment decelerates this labor force growth and expansion in housing demand. Recent above-average growth in the labor force logically suggests an above-average fall in housing price as the economy slows when compared to other regions. Prices will fall as interest rates rise. The Federal Reserve is expected to end interest rate increases by the end of the second quarter of 2023, after which real estate markets will stabilize at permanently higher mortgage rates and lower housing prices. Consequentially, residential investment is not expected to grow during 2023. The Indianapolis residential real estate market will be in retreat for most of 2023.

Economic drivers   

Economic slowdown during the fourth quarter of 2022 is tempered through continued household spending of excess savings accumulated during the pandemic. The forecast presented here assumes such spending will continue through 2023. If uncertainty and fear motivate households to pull back on their spending, the unemployment rate could be up to two points higher than forecasted and the rate of real GDP growth could be up to two points less than forecasted (taking the growth rate below zero). The holiday season offers an early signal of how households might behave in 2023.

A slow 2023 has deliberately been engineered by the Federal Reserve to slow the rate of inflation. The faster inflation comes down in response to higher interest rates, the faster the Federal Reserve can reverse its monetary pullback. This is expected to happen by the end of the second quarter. If inflation responds more quickly, interest rates will stabilize in the first quarter and growth in 2023 will be higher than forecasted. If inflation remains stubbornly high and the Federal Reserve must increase interest rates more than expected, economic activity will shrink instead of expand in 2023 and job losses will be harsher than predicted.


  1. Bureau of Economic Analysis data available at https://www.bea.gov/data/gdp.
  2. Bureau of Labor Statistics data available from Federal Reserve Economic Data (FRED) at https://fred.stlouisfed.org/.
  3. Bureau of Labor Statistics Current Employment Survey (CES) data available from Federal Reserve Economic Data (FRED) at https://fred.stlouisfed.org/.
  4. Bureau of Labor Statistics Current Employment Survey (CES) data available from STATS Indiana at https://www.stats.indiana.edu/ces/ces_naics/.
  5. Realtor.com data available from Federal Reserve Economic Data (FRED) at https://fred.stlouisfed.org/.