The economy is constantly serving up complex puzzles for us to solve.  Have energy prices peaked?  How much longer will the mortgage markets continue to bleed?  How will the dollar’s decline impact the low prices for imported goods we’ve all gotten used to?  These are complicated issues, and some of us actually earn a living trying to sort them all out.  And those us who went to school for far too long trying to learn this stuff cut our teeth looking for solutions by building and manipulating formidable-looking models of the economy that became almost as complicated as the economy itself.

But sometimes we need to step away from the nuances of policy and address the simpler, more fundamental, questions.  Such as, how does the economy grow?

Of course, some might say “not at all,” particularly in a state that has been besieged at times by headlines reporting economic setbacks and other disappointments.  Yet the data clearly show that the Indiana economy is growing.  In fact, the news from the latest Bureau of Economic Analysis report on state personal income says that the state enjoyed its best three month period of growth to the beginning of 2007 since the beginning of 2006.

Those who only look at employment growth may be surprised by that, since the state’s job total hasn’t shown much growth at all in the first half of 2007.  But those job counts miss a lot of things that factor into the prosperity of communities around the state.

There are at least three that come to mind.  First, there are expansions and contractions inhours worked occurring independently of job counts, which cause significant swings in income that employment tallies miss.  Second, there are important movements in forms of income – and spending power – that come from sources of income other than wages and salaries.  These include dividends, rents, and transfer payments received from government funded pensions such as Social Security.

And finally, there is the money earned by workers who are not on payrolls.  These are family workers, the self-employed, and those who receive non-employee compensation.  And they are particularly important in agriculture.

The more comprehensive BEA data tell us that things have been going very well on the farm of late.  Of the 1.8 percent gain in statewide earnings in the first quarter of 2007 paid by all industries, 0.4 percentage points – almost a quarter of that overall gain – were due to income gains in agriculture.  While farm earnings are notoriously erratic, rural communities in Indiana can take some comfort in the fact that the performance of Indiana farms eclipsed every other state in the first quarter of the year.

And when you factor in so-called non-earned income, the growth for the state looks even better.  The 2.1 percent growth in total income Indiana experienced in the first three months of the year puts an end to an unhappy streak that saw personal income growth fail to exceed 1 percent for three consecutive quarters at the close of 2006.  That dismal growth record should give pause to those who are currently eyeing the state’s meager budget surplus as a means of paying for more property tax band-aids 

But the final piece of the puzzle comes from the gyrations of hours worked that unfold between the lines of the job reports.  Particularly when overtime is involved, these can significantly attenuate or amplify swings in employment.  For the first three months of the year, at least, it was the latter.  The continued decline in Indiana durable goods employmentinto 2007 was offset enough by rising wages and hours worked to make durable goods earnings actually rise in the first quarter.

Of course, there was more to the growth puzzle than manufacturing.  Health care, professional business services and other white collar-dominated sectors also saw significant income growth to start the year.  The bottom line is that 2007 has been a better year for Indiana thus far than the job figures, by themselves, would suggest.