Since the beginning of 2017, Indiana experienced roughly equal personal income growth close to that of the U.S. as a whole. During the same period, however, payroll employment in Indiana has lagged well behind national growth. During our forecast period from third quarter of 2018 through the end of 2021, we expect the Indiana economy to be on par with the U.S. For both income and employment, this implies improvement for Indiana relative to the recent period.

Data

This forecast used data through the second quarter of 2018 for gross state product and personal income, and through the third quarter of 2018 for employment. Personal income data were unchanged from that used in our September forecast. Employment data prior to the third quarter of 2018 were unchanged from September.  The new datum for the third quarter was lower than our September forecast value by just 0.02%.

Indiana’s average personal income growth rate lagged behind the national rate from 2013 through part of 2016 (see Figure 1). The relative performance of Indiana personal income then exceeded the U.S. from second quarter of 2016 to first quarter of 2017, but since has again lagged behind the U.S rate. The trends have converged during 2018.

From 2011 to 2013 Indiana’s labor market mostly outperformed the nation as a whole, especially during the early part of the recovery period (see Figure 2). Since 2013, however, state employment growth has fallen far below the national growth rate due to a relative decline in manufacturing growth compared to the boom of the Indiana manufacturing sector during the early recession recovery.

Baseline Forecast

We expect income growth to be steady over the forecast period, following closely to September forecast each quarter. Quarterly growth in personal income fell short of our forecast in 2018:Q3 and we expect this shortfall to continue through 2020:Q3.  After that our forecast is for income growth to remain stable over the rest of the forecast period (2020:Q4-2021:Q4). During this period Indiana personal income growth is expected to be close to the U.S rate of 4.6%.

Our new job growth shows a volatile outlook compared to our September forecast. This reflects a similar change in our outlook for the U.S. economy.  Employment growth over the forecast period is now at an average rate of 31.3 thousand per year, around 1.4 thousand lower than in our September forecast, and 0.15 percentage points lower than the average quarterly growth rate for the nation.

The unemployment rate has recently experienced a steady but slow quarterly decrease (from 4.7% in 2016:Q1 to 3.2% in 2018:Q2), before an increase to 3.5% in the third quarter. The rate is forecasted to decrease slightly over the next year and a half, and then to rise back to just above 3.5%.  This trajectory is similar to, but a little below, that at the national level.

The total establishment employment growth in Indiana is expected to peak in 2019, followed by significant deceleration in 2020 and 2021. Manufacturing employment growth was stronger than total growth in 2017, although we expect it to experience lower growth than total growth each year of the forecast period. Farther out we see manufacturing job growth declining to expected losses in 2020 and 2021, at -0.3% and -0.7% respectively.

We expect personal income to grow more at a stable level, around 1.9%, whereas wage and salary growth decreases over the forecast period, as employment growth slows.

Five industry sectors experienced employment declines in the most recent year. Industries with the strongest growth were construction (8.4%), motor vehicles (8.3%), health care (3.7%), and durables (2.1%). In the next year, employment gains are expected across all industry sectors except non-durables. Sectors with the strongest expected growth are construction (6.8%), health care (2.3%), and professional and business services (2.3%).

Conclusion

Personal income growth, employment growth, and the unemployment rate for Indiana are forecasted to show more fluctuation than in our September forecast, but to be roughly on par with the nation over the forecast period. After a slight uptick in manufacturing employment in the coming year, the sector is expected to sustain annual job losses in 2020 and 2021. However, in the next year, growth is anticipated in most sectors.