November 29, 2002
Has Economic Recovery Arrived in Indiana?
It's hard to comprehend the courage it took when our European ancestors loaded themselves into tiny ships and headed west in search of new lands and new riches. It takes almost as much fortitude for economists today to look past the mixed reports on our economic health and declare that the recovery and expansion are just beyond the horizon. That's particularly so for the Indiana economy, whose hard luck during this fairly mild recession has received national notoriety.
For the national economy, at least, there is solid evidence of resiliency in the face of adversity. While there are some notably unresolved issues, such as the potential for an Iraq conflict and recent wobbliness of the manufacturing sector, most analysts are expecting 2003 to be a year of continued growth. We sometimes forget, from all the gloomy talk about the economy, that we've had growth in the economy for four consecutive quarters, and that consumer spending has never faltered.
The same cannot be said for the Indiana economy, but that's not all necessarily bad. Part of the problem is that we simply don't have access to the same kind of data for the state. The measure of economic health that puts the national economy in the best possible light -- growth in output, or Gross Domestic Product -- is not immediately available for individual states.
Out of this necessity, what most of us track when it comes to the state is payroll employment. And in terms of its behavior during an economic recovery, this is an entirely different animal. Because of labor hoarding by firms during hard times, and uncertainty over the durability of any pickup in business, payroll expansion has always been one of the last things that happens as the economy begins to lift off. Thus the absence of meaningful job growth, by itself, does not mean that the economy is not getting better.
That's where the need for courage comes in. It is one thing to intellectually accept the notion that job growth usually occurs only after the economic turnaround is underway. It is quite another to live through the actual experience, to look at the stalled economic indicators that are available and say that land is in sight for the Indiana economy.
But if data on the Indiana economy don't yet show a lot of growth, they do tell us quite convincingly that the bleeding has stopped. Since mid-summer of this year, the steady declines in statewide employment that dated back to the midpoint of 2000 slowed to a halt. Using seasonally adjusted data, an optimistic eye can detect the first signs of a tentative, upward trend since that point. Such judgements are risky, given the potential for data revisions to erase whatever progress the preliminary figures seem to show.
But at least this tentative evidence gives hope that the worst is over for the state economy. Indeed, our first steps toward recovery have brought us out of the cellar when it comes to rankings of state economic performance. While it is hardly cause to celebrate, the most recent twelve month period now shows neighbors Illinois and Ohio to be worse off, in terms of job growth, than Indiana, with Michigan's performance to be nearly the same as us.
The bad news, as many individual Indiana communities have sadly discovered, is that many existing jobs here remain at risk. Indeed, lurking behind the figures that show zero net job loss are equal numbers of jobs created and destroyed. Manufacturing jobs, in particular, have suffered under the brunt of both the recession, and the trends in technology and trade that were already well underway.
And state legislators should please take note. The growth ahead for the Indiana economy will pale by comparison to the 1990-style boom that was so good to the state treasury. But it will at least get us on the right track.
About the Author
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