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 behind national growth. During our forecast period from 2018:Q1 through the end of 2020 we expect the Indiana economy to be on par with the U.S. forecast. For both income and employment, this implies improvement for Indiana relative to 2017.
Data
This forecast used data through the third quarter of 2017 for personal income and gross state product, and through the fourth quarter of 2017 for employment. There were no revisions to previously released employment data. The new data for Q4 2017 were below our December forecast by just 1.4 thousand. Finally, the total Gross State Product for Q3 2017 was one percent higher than our December forecast.
During the 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 2017:Q3 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. Since 2013, however, state employment growth has fallen below the U.S. due to a relative decline in manufacturing growth compared to the boom of the Indiana manufacturing sector during the recession recovery.
Baseline Forecast
We expect income growth over the forecast period to be above our December forecast each quarter. Quarterly growth accelerates during 2018 and then is stable in 2019 and 2020. Over the full span of the forecast period, (2018:1-2020:4) Indiana person income growth is expected to match the U.S at 5.0%.
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 December outlook. This reflects a similar pattern in our U.S. forecast due to stimulus from the recent budget agreement. Employment growth over the forecast period is now at an average rate of 46.9 thousand per year, over 8 thousand higher than in our December 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, and most recently clocked in at a near historic low of 3.4% in 2017:Q4. We expect it to remain relatively stable over the forecast period at about 3.8%, which matches the U.S. rate.
Total establishment employment growth peaked in 2015. Growth has fallen off so far this year, but we expect a significant increase in 2018, followed by slowing increases in 2019 and 2020. Manufacturing employment growth was stronger than total growth in 2017, and we expect this to continue in 2018. Farther out we see manufacturing job growth declining to expected losses in 2020.
Summary
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 enacted in December seem designed to stimulate manufacturing. To a lesser extent that is true of the budget deal as well. 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.