Since mid-2016 Indiana has experienced faster personal income growth than the U.S. as a whole. During the same period, however, employment in Indiana has mostly lagged national growth. During our forecast period from 2017Q4 through the end of 2020 we expect the Indiana economy to virtually match the U.S. For both income and employment this implies improvement for Indiana relative to the past year.
This forecast used data through the third quarter of 2017 for both personal income and employment. Gross state product data were available through 2017Q2. Personal income data were revised lower beginning in 2014Q1, with the change for 2017Q1 amounting to $2.64 billions (0.9%). Our September forecasts for Q2 and Q3 (relative to the revised data) were low by 1.0% and 1.3% respectively. There were no revisions to employment data; our September forecast for Q3 was 0.1% too high. Finally, there were revisions to total and sectoral GSP data (mostly positive), again back through 2014. Our September forecast for Q2 was low by 0.4%.
During the early recovery from the Great Recession, Indiana’s personal income growth rate was mostly on par or stronger than the national rate. Then from 2013 through 2015, Indiana’s average personal income growth rate lagged behind the national rate. The relative performance has reversed again since 2016, although for the year ending with 2017Q3 Indiana personal income growth basically matched the U.S.
From 2010 to 2012 Indiana’s labor market mostly outperformed the nation as a whole, especially during the early part of the recovery period. During this period Indiana benefited from strong growth in manufacturing. Since 2013, however, state employment growth has fallen below that in the U.S. Partly this was due to a relative decline in the growth of manufacturing as the recovery unfolded. Partly it reflects demographically driven growth in the labor force.
We expect income growth over the forecast period to be, on average, slightly above our September forecast. Quarterly growth accelerates during 2018 and then is relatively stable in 2019 and 2020. Over the full span of the forecast period, (2017:4-2020:4) Indiana is expected to match the U.S at 4.4%.
After averaging strong quarterly job growth of 14,100 from Q1 2015 through Q1 2016, the state experienced a dip in quarterly employment growth (as we anticipated) to only 3,300 jobs in 2016:2. Growth rebounded over the remainder of 2016, peaking at 19,700 jobs in Q3 before falling back once again. Our new job growth forecast is significantly higher than in our September outlook. This reflects a similar pattern in the U.S. tax cut alternate. Employment growth over the forecast period is now at an average rate of 39.7 thousand per year, almost 10 thousand higher than in our September forecast.
The unemployment rate experienced a quarterly increase (from 4.6% in 2015:4 to 4.7% in 2016:1) for the first time since 2012. The rate dropped each of the following five quarters to a near historic low of 3.3% in 2017:2, but then moved higher again in Q3. We expect it to remain relatively stable over the forecast period at about 3.8%.
Total establishment employment growth peaked in 2015. Growth has fallen off so far this year, but we expect a significant increase next year, followed by slowing increases in 2019 and 2020. Manufacturing employment growth has been strong recently, and we expect this to continue into 2018. Farther out we see manufacturing job growth declining. However, unlike our last forecast, even in 2020 we now see some slight growth.
The annual change in personal income and wage and salary income both fell off significantly in 2016, with wage and salary income actually experiencing a small decrease. We expect better growth this year, and a further rise in 2018. The growth holds up quite well in the final two years of the forecast period.
Only the non-durable goods industry sector experienced employment declines in the most recent year. Industries with the strongest growth were fabricated metals (4.9%), motor vehicles (3.7%), construction (3.4%), and health care (2.0%). In the next year, non-durable goods is the only industry sector with expected employment loss. Sectors with the strongest expected growth are fabricated metals (4.0%), professional and business services (2.7%), health care (2.4%), construction (2.2%), and leisure and hospitality (2.1%).
Although less so than in times past, Indiana is still a manufacturing state. This plays out in the relative success of Indiana compared to the U.S. as a whole. Early in the recovery growth was led by manufacturing and Indiana outperformed the nation. More recently services have dominated national growth and manufacturing growth has lagged with clear impact on the state’s relative standing. The tax cuts just enacted seem designed to stimulate manufacturing. If this is in fact the case, which is what our models predict, it will be good for Indiana. This shows up in our new forecast in the form of stronger growth in income and employment, with the strongest impact later in 2018 and into 2019.