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

Indiana industry: On the rebound or permanent shifts?

Senior Economic Research Analyst, Indiana Business Research Center, Indiana University Kelley School of Business

Co-Director, Indiana Business Research Center, Indiana University Kelley School of Business

Introduction

The pandemic arrived like a slow-moving train wreck in Spring 2020. And from our own unique vantage points, we were able to witness parts of it, but never really got a 30,000-foot view. Because it takes time for the official record keeping to be tallied and released (which we rely on in order to get the “whole picture”), we were not able to get a wider, more comprehensive view until most recently.

Our view of how the various sectors of the Indiana economy and its industries suffered from the combination of stay-at-home orders, remote work arrangements and the illness itself affecting thousands is a bit like looking in the rearview mirror. Using the Quarterly Census of Employment and Wages (QCEW) counts that are based on payroll employment for each quarter through the second quarter of 2021 (the most recent available at the time we conducted this analysis), we can see back to the quarters leading up to the fateful second quarter of 2020 up through the spring of 2021 (see Figure 1).

Figure 1: Indiana quarterly employment before, during and after the COVID-19 lockdown

Area chart from 2018 Q1 to 2021 Q2 showing Indiana quarterly employment.

Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

What we found affirms many assumptions made throughout the spring and summer of 2020, notably that retail, food services, entertainment and hospitality were among the hardest hit by job losses. In fact, nearly all service sector industries were hit hard. But we also learned how deep the job cuts were in certain manufacturing industries, which for Indiana generates billions of dollars in earnings-based productivity.

Indiana’s employment levels dropped by 13% between March and June 2020. While many sectors have rebounded, by the spring of 2021, we hadn’t yet returned to our pre-pandemic jobs level. Two sectors, hospitality (i.e., accommodation and food services) and manufacturing, were the hardest hit with combined losses of 160,000 jobs. Within manufacturing, the transportation equipment industry lost 30% of its jobs. Retailers, such as clothing, department and hobby stores, as well as performing arts, saw job losses of more than 50% during the stay-at-home (aka lockdown) period of the pandemic. Two sectors were either not impacted or actually grew: logistics (i.e., transportation and warehousing) and professional, scientific and technical services.  

Compared to the nation, Indiana’s transportation equipment manufacturing is showing greater competitive advantage during this pandemic. This sector quickly recovered its job losses from the lockdown and continues faster-than-average job growth. The pharmaceutical industry also exhibits above-average growth. On the other hand, medical equipment and supplies and the aerospace industries experienced a slower-than-average recovery.

Changes in total employment and establishments

Let’s first take a look at the state’s overall jobs picture from 2018 to 2021. Figure 2 shows Indiana’s employment growth closely following the national trend at a rate of 2% prior to 2019. That growth rate began to fall below the nation during 2019 and was exacerbated by the statewide COVID-19 lockdown during the second quarter of 2020.1 Both Indiana and the U.S. overall saw job losses of 13%. During the recovery phase, however, Indiana began regaining jobs at a faster pace, although job levels for both haven’t yet returned to their pre-pandemic levels.2

Figure 2: Employment year-over-year growth: Indiana vs. U.S.

Line chart from 2018 Q1 to 2021 Q1 showing percent change for Indiana and U.S.

Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Establishment growth rates reveal a different picture (see Figure 3). Positive growth rates, at both the state and national level, suggest the number of new establishments continued to grow, even during the COVID-19 lockdown. Indeed, the pandemic created new opportunities for business creation.  

The number of Indiana establishments grew slowly between 2018 and 2019, but entered an accelerated growth phase after the third quarter of 2019. Indiana surpassed the national average by the first quarter of 2020 when the state establishment growth reached a three-year high of 3.5%—frustratingly just before the pandemic hit. Growth rates have since slowed to less than 1%.

Figure 3: Establishment year-over-year growth: Indiana vs. U.S.

Line chart from 2018 Q1 to 2021 Q1 showing percent change in establishments for Indiana and the U.S.

Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Employment losses and gains by sector/industry

Each of Indiana’s major industrial sectors experienced pandemic-related job loss (see Figure 4).

Figure 4: Indiana’s employment by major sector

Line chart from 2018 Q1 to 2021 Q2 showing employment for 10 sectors, led by manufacturing and health care.

Note: This chart shows Indiana’s major employment sectors, based on 2-digit NAICS codes, excluding agriculture, utilities and mining.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Indiana is the nation’s top manufacturing state (in percentage terms), with manufacturing employing roughly 20% of the workforce—that’s over 530,000 workers. During the COVID-19 lockdown in spring 2020, employment in this sector was down by 15% compared to spring 2019 (see Figure 5).  

Other sectors experiencing dramatic job losses in second quarter 2020 included:

  • Hospitality (i.e., accommodation and food services): -30%

  • Other services: -20%

  • Administrative and support services: -20%

  • Retail: -13%

Figure 5: Indiana’s year-over-year employment growth by major sector

Line chart from 2018 Q1 to 2021 Q1 showing percent change for 10 major sectors.

Note: This chart shows Indiana’s major employment sectors, based on 2-digit NAICS codes, excluding agriculture, utilities and mining.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Manufacturing job losses were the steepest in the transportation equipment manufacturing (TEM) industry, with a 30% loss in jobs in the second quarter of 2020 (see Figure 6). Other goods-producing industries also suffered job loss. Plastics product manufacturing lost 15% of its workers, while medical equipment and supplies lost 6%. Transportation equipment rebounded the most quickly and might have shown even stronger growth had it not been for chip shortages and supply chain issues.3 Pharmaceutical manufacturing had positive, albeit slower job growth throughout the pandemic.

Figure 6: Indiana’s year-over-year employment growth by major manufacturing industry

Line chart from 2018 Q1 to 2021 Q1 showing percent change for TEM, plastics product, medical equipment & supplies; pharmaceuticals; and iron & steel mills.

Note: This chart shows Indiana’s top five manufacturing industries based on 4-digit NAICS codes. TEM includes motor vehicle (MV), MV body and parts manufacturing. The legend is sorted by employment size.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

The medical equipment manufacturers, on the other hand, continue to struggle to grow jobs due to the continued effects of the pandemic on elective surgeries and other medical procedures that have been forestalled for nearly two years. The aerospace industry in Indiana has continued to lose jobs (see Figure 7).

Figure 7: Indiana’s year-over-year employment growth by major advanced manufacturing industry

Line chart from 2018 Q1 to 2021 Q1 showing percent change for TEM; medical equipment & supplies; pharmaceuticals; primary metal; engines & turbines; and aerospace.

Note: This chart shows Indiana’s top advanced manufacturing industries (employment > 10,000) based on 4-digit NAICS codes. Primary metal includes iron and steel mills, steel products, and aluminum manufacturing. The legend is sorted by employment size.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Indiana’s health care and educational services—the state’s second- and third-largest sectors by employment—suffered job losses of 5% and 8%, respectively (as shown in Figure 5). These two sectors hadn’t been hit as hard as other services. Educational services were quickly shifted to online platforms during the stay-at-home order, and although some restrictions were imposed in health care, it is an essential industry exempt from the shutdown order. This also explains why the lockdown impact on retail isn’t as large as we would think because grocery stores (a large share of retail employment) remained open during the lockdown.

To explore the the services sector further, we divided it into customer front-facing services and professional services. Customer-facing services were deeply disrupted by the COVID-19 lockdown (see Figure 8).  

  • Employment in clothing stores and performing arts each went down by 50% or more.

  • Recreational facilities (theme parks, gyms and events, etc.) went down by 40%.

  • Food and drink places and specialty shops (sporting, hobby and book stores, etc.) were both down by 30%.

None of the customer-facing service industries had recovered fully by first quarter 2021, three quarters after the lockdown. For example, employment in food services, clothing and specialty retail stores still remained 10-20% below their pre-pandemic levels. Also, notice that the impact of the lockdown in the performing arts industry is profound and long-lasting.

Figure 8: Indiana’s year-over-year employment growth by major customer-facing services industry

Line chart from 2018 Q1 to 2021 Q1 showing percent change for food/drink places; auto/auto-part dealers; recreational; clothing stores; sporting/hobby/book stores; and performing arts.

Note: This chart shows selected pandemic-impacted services industries based on 3-digit NAICS codes. The legend is sorted by employment size.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Professional services suffered smaller employment losses, compared to customer-facing services (see Figure 9). Among them, religious and nonprofit organizations; personal care; and administrative and support services were hit the hardest, losing 20-30% of their jobs during the lockdown. Nursing homes, social assistance, and repair and maintenance services each lost more than 10% of their jobs. The only industry without a sharp decline was professional, scientific and technical (PST) services. Its employment level was almost stable throughout this tough time, thanks to remote-working practices that were quickly and widely adopted within this industry.

Figure 9: Indiana’s year-over-year employment growth by major professional services industryLine chart from 2018 Q1 to 2021 Q1 showing percent change for education; admin; ambulatory health care; PST; nursing homes; social assistance; repair & maintenance; religious & nonprofits; and personal/laundry services.

Note: This chart shows selected pandemic-impacted services industries based on 3-digit NAICS codes. The legend is sorted by employment size.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

However, not all PST services were “immune” to COVID-19. It appears that the lockdown has caused permanent “damage” to the publishing and broadcasting industry (see Figure 10).

Figure 10: Indiana’s year-over-year employment growth by major advanced services industry

Line chart from 2018 Q1 to 2021 Q1 showing percent change for mgmt/sci/tech consulting; computer systems design; architecture & engineering; medical diagnostic labs; and publishing & broadcasting.

Note: This chart shows Indiana’s top advanced services industries (employment > 5,000) based on 4-digit NAICS codes. The legend is sorted by employment size.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Shift-share analysis of Hoosier industries through the pandemic

Shift-share can be a useful tool for analyzing regional industries. It helps us describe the competitive landscape by comparing the actual growth of a state or regional industry with the national growth of that industry. If a state industry grows at roughly the same rate or less than the national average, it might not be competitive; if it grew more than it did across the nation, this suggests that the industry is probably growing due to the region’s particular strength, and thus shows competitive advantage.

We divided the QCEW data into three periods: pre-pandemic (2018 Q1–2020 Q1), lockdown (2020 Q2) and recovery (2020 Q3–2021 Q2). We calculated (average) sectoral/industrial growth rates for each period for Indiana and compared them with their national growth rates (aka expected growth).4

Overall, Indiana’s industry profile and growth patterns follow that of the nation. Before the pandemic, the growth among sectors from 2018 to 2020 was low, averaging 0.3-0.4%. The highest growth sector was logistics for both state and the nation (see Figure 11). Indiana’s agriculture, PST services and wholesale sectors were growing jobs faster than the U.S. average, i.e., showing greater competitive advantage. On the other hand, arts and entertainment; administrative and support services; and information fell behind the national rates—in particular, job growth for the information sector lagged significantly.

Figure 11: Actual versus expected employment growth by major sector

3 column charts showing pre-pandemic, lockdown and recovery growth rates for Indiana relative to the U.S. rate for major sectors.

Note: This chart shows Indiana’s major employment sectors, based on 2-digit NAICS codes.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Before the pandemic, jobs in Indiana’s manufacturing sector also grew slowly, below the national rate. The slower-than-average job growth in manufacturing is attributable to the sluggish job gains in two leading industries, TEM and plastics product manufacturing (see Figure 12). Looking at advanced manufacturing, job growth in aerospace also showed a significant gap—1 percentage point below the national average. Nevertheless, medical equipment and supplies manufacturing, as well as engines, turbines and power transmission manufacturing (aka engines and turbines) were growing jobs faster than the U.S. average, showing greater competitive advantage (see Figure 13).

Figure 12: Actual versus expected employment growth by leading manufacturing industry

3 column charts showing pre-pandemic, lockdown and recovery growth rates for Indiana relative to the U.S. rate for leading manufacturing industries.

Note: This chart shows Indiana’s top five manufacturing industries based on 4-digit NAICS codes.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Figure 13: Actual versus expected employment growth by advanced manufacturing industry

Note: This chart shows Indiana’s top advanced manufacturing industries (employment > 10,000) based on 4-digit NAICS codes.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

During the COVID lockdown, Indiana’s sectors did not do particularly poorly compared to the nation (see Figure 11). Even so, Indiana’s manufacturing sector suffered a great loss—employment fell 5% more than the national rate. That was largely driven by the higher-than-average employment drop in plastics product manufacturing (see Figure 12). Employment in educational services, as well as administrative and support services, also fell more than their national averages. Agriculture and utilities are the only two sectors that did not experience employment loss and maintained above-average growth rates. Job losses in other sectors, such as logistics, construction, health care, and PST services, were slightly less than the national averages.

Indiana’s manufacturing quickly restored jobs after the lockdown and its job growth surpassed the national average (see Figure 11). Interestingly, the leading industries that performed poorly, in terms of growing jobs, before the pandemic, were uniformly doing better than the rest of the nation after the lockdown (see Figure 12). On the other hand, the medical equipment and supplies manufacturing industry, despite have a competitive advantage before the pandemic, continued losing jobs after the lockdown. (The slow recovery of this industry is largely due to the employment loss from surgical appliance, instrument and supplies—aka medical devices—manufacturing that employed 75,000 workers in 2019.)

During the recovery phase, customer-facing services sectors, such as arts and entertainment and hospitality, led other sectors in terms of employment rebound (see Figure 11). However, as we noted earlier, employment in these sectors still fell short of their pre-pandemic levels, and most of the customer-facing industries were recovering slower than the national average (see Figure 14). However, even though the pandemic has had a disproportionate effect on the performing arts, Indiana’s performing arts industry actually regained jobs at a faster pace relative to the nation.

Figure 14: Actual versus expected employment growth by customer-facing services industry

3 column charts showing pre-pandemic, lockdown and recovery growth rates for Indiana relative to the U.S. rate for customer-facing services industries.

Note: This chart shows selected pandemic-impacted services industries based on 3-digit NAICS codes.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Job growth in professional services were generally following their national patterns (see Figure 15). Indiana shows some competitive advantages in the professional, scientific and technical services industry, whose job growth outperformed the national averages during all three periods examined. We notice a slow recovery of jobs in the personal care industry (e.g., barber shops and beauty and nail salons) with a 7% gap from its national average rate. That said, it might be because this industry did not lose as many jobs as the rest of the nation during the lockdown, and thus the bounce-back rate was smaller in comparison. Nursing home care is the only industry within this group that was still losing jobs after the lockdown, both in Indiana and the nation.

Figure 15: Actual versus expected employment growth by professional services industry

3 column charts showing pre-pandemic, lockdown and recovery growth rates for Indiana relative to the U.S. rate for professional services industries.

Note: This chart shows selected pandemic-impacted services industries based on 3-digit NAICS codes.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Among the advanced services industries, computer system design, architecture and engineering, and consulting industries were doing better than expected; however, Indiana’s publishing and broadcasting industry was losing more jobs even during the recovery period (see Figure 16).

Figure 16: Actual versus expected employment growth by advanced services industry

3 column charts showing pre-pandemic, lockdown and recovery growth rates for Indiana relative to the U.S. rate for advanced services industries

Note: This chart shows Indiana’s top advanced services industries (employment > 5,000) based on 4-digit NAICS codes.
Source: IBRC calculations, using the Indiana Department of Workforce Development Quarterly Census of Employment and Wages

Conclusions

Indiana’s industrial performance in many sectors, before and during this pandemic, has shown remarkable resilience when compared to the nation.  Other sectors haven’t fared as well in terms of reclaiming lost jobs. Broader pandemic-instigated effects took a deeper toll on those face-to-face industries of hospitality, food service, retail trade and entertainment. This analysis also revealed that many of our higher value-added industries are recouping their losses, even though at a slower rate.

In this analysis, we wanted to explore which sectors/industries had rebounded and which sectors/industries had shifted permanently. We found the following:

  • Overall, Indiana fared relatively well compared to the nation as a whole.
  • Two of Indiana’s core industries—transportation equipment and pharmaceutical manufacturing—showed considerable resilience and strong indicators of nationally competitive strength.
  • Higher value-added industries (e.g., advanced manufacturing and advanced services) suffered less and showed greater resilience during the COVID-19 lockdown.
  • We observed permanent shifts (that is, job losses) within retail, nursing homes and the media industry.

The decline of employment in those industries doesn’t mean workers are leaving those industries altogether. More likely, this pandemic has altered the way businesses interact with labor, e.g., substituting traditional payroll workers with non-payroll workers (often called gig or contract labor). Our next research steps are to determine how those workers have transitioned to self-employment and how career pathways have been affected by the pandemic.

Notes

  1. The state issued the “stay-at-home” order on March 25, 2020. Non-essential business started gradually reopening in May, and restrictions on recreational facilities were lifted on July 4, marking the end of the order. Thus, the second quarter of 2020 is referred to as the lockdown period.
  2. The year-over-year growth rate for each quarter was calculated in comparison to the same quarter from the prior year. This method controls for seasonal effects. The charts ending with the first quarter of 2021 do so in order to highlight the change from the pre-pandemic period.
  3. Wes Mills, "Conexus analyzing microchip disruption on Indiana manufacturing," Inside Indiana Business, May 6, 2021, https://www.insideindianabusiness.com/articles/conexus-analyzing-microchip-disruption-on-indiana-manufacturing
  4. For the pre-pandemic growth, we averaged out the employments in four quarters 2019 Q2-Q4 and 2020 Q1 and those of 2017 Q2-Q4 and 2018 Q1—accounting for seasonality and fluctuations—and calculated the average growth between 2018 Q1 and 2020 Q1, eight quarters apart. The growth for the lockdown period is the one-time change from 2020 Q1 to 2020 Q2. The growth for the recovery phase took the employment from the latest data available at the time of analysis (i.e., 2021 Q2) and calculated its change from the employment in 2020 Q2.