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November 11, 2005

Predicting Indiana’s Economic Future

It’s the time of year to get out our crystal balls and ask the deceptively simple question:  what kind of year will 2006 be for the Indiana economy?  This year, like any other year, finds us making up lists of what’s going right, and what’s going wrong, in the economic environment that ultimately determines our fate.

 Let’s start with the good news on the economy.  It may surprise some of you to know that there is plenty to choose from.  Topping the list has to be the surprisingly robust health of the national economy.  From the vantage point of November, the coming year is shaping up to be a very respectable one for overall economic growth.  We should see growth only slightly down from this year, with a mild increase in inflation and interest rates.

There’s plenty to worry about in the national economy, of course.  The trade deficit, the low savings rate of American households, and the unwinding of the housing price spiral are just a few things that come to mind.  But overall growth isn’t on the list.  And while it takes more than growth in the U.S. economy for the Indiana economy to prosper, it’s almost impossible for our state to go forward when the rest of the country is not.

The pattern of that growth, at least to this point in time, has been quite friendly to Indiana businesses as well.  One of the best kept secrets has been the quiet resurgence of the industrial economy.  In the last two years, output in factories across the country has rebounded from its post-recession low, with growth making up and now surpassing the losses sustained in the first three years of the decade.

That growth has helped our manufacturing-based state economy rebound as well.  Since the low point of mid-2003, manufacturing employment statewide has stabilized and even managed a bit of growth.

Businesses today have plenty of cash, and their brisk spending on capital goods and equipment have kept plenty of Indiana business’ order books full.  But the extra stimulus to Indiana from the industrial boom nationally is starting to wind down.  I expect to see a reduced trajectory of growth for the U.S. manufacturing sector next year, and this tops my list of concerns for the state in the coming year.

 For some analysts, the recent weakness in statewide job growth is also a concern.   But it’s not on my list, at least not yet, and here’s why.

For several years running, the preliminary data on employment have done a much more accurate job counting the job losses than they have done in tallying the new jobs created.  That is especially so for the services producing industries, and especially for the Indianapolis metro area.  As a result, when more complete information becomes available and the preliminary estimates are revised, what was once sluggish or negative job growth starts to look much better.

 The state employment picture in October thus presents a familiar pattern, with the state’s total job count treading water for the last six months, with Indianapolis’s employment total down by more than 15,000 jobs since the early spring.  I believe this will be revised upward again, to show 2005 as a year of growth at or above 2004 levels.

My confidence in this belief, however, is being tested by the news coming out of the state’s Department of Revenue.  After growing at double digit rates for the first half of this year, growth in individual income tax receipts came to an abrupt halt in the third quarter.  October’s receipts look more respectable, but this certainly bears close attention.

The bottom line, I believe, is that Indiana’s growth will continue in 2006, but won’t be as strong as 2005.

Link to this commentary: https://commentaries.cberdata.org/244/predicting-indiana-s-economic-future

Tags: economics


About the Author

Pat Barkey none@example.com

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He served previously as Director of the Bureau of Business Research (now the Center for Business and Economic Research) at Ball State University, overseeing and participating in a wide variety of projects in labor market research and state and regional economic policy issues. Note: The views expressed here are solely those of the author, and do not represent those of funders, associations, any entity of Ball State University, or its governing body.

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