June 14, 2002
Indiana's Economic Recovery is Still in the Future
To borrow an expression from the U.S. Secretary of Defense, we have no "hard evidence" that the economic recession in the state of Indiana is ending. But we do have a few pieces of intelligence that show some daylight peeping through the darkness. Until we get some solid signs of recovery, those will have to suffice.
There is, of course, little reason to expect that the state's economic fortunes will continue to tumble at the same time as national economy takes off. Our self-flagellation notwithstanding, the recession was, after all, caused by national and international factors that lie largely outside our leaders' control. When the national economy stops contracting and starts adding productive capacity, the order books for Indiana's core businesses will, almost by definition, begin to fill as well.
But the timing of the whole process is a bit more dicey. The new hiring, greater use of overtime, and new capital spending that are all part of the script for a normal economic recovery in an industrial-based state like ours are really part of the second act. What's playing out right now is the less dramatic upward creep of production to replenish depleted inventories.
That hasn't been enough to alter the alarming trajectory of state tax revenues. Over the course of this fiscal year, the state's total take from sales, individual income, and corporate income taxes is now $353.1 million less, or 4.7 percent, than what was forecasted just six months ago. What is more unsettling is that almost 30 percent of this total shortfall, or $103.4 million, occurred in the month of May alone.
But even in this rising tide of red ink, there are a few glimmers of hope. The tax shortfall actually reflects a plunge in income-based taxes only. The revenue forecast of 2.5 percent growth in sales tax receipts for this fiscal year is turning out to be almost exactly on target. That means that Indiana consumers, much like their counterparts across the country, have done their part to keep the economy rolling. That, in turn, bodes well for a impending turnaround in our collective fortunes.
It's too early yet to find such a change of direction in the statistics on the state economy. Part of that is simply the lag in availability of such information at the state and local level. We know, for example, that the industrial output of the U.S. has grown for the last five consecutive months, but we can only guess about whether or not that growth has favored our state. There are a few clues, however.
One is in the behavior of manufacturing-intensive areas of Indiana, such as Kokomo. The average work week of manufacturing workers there has been moving up dramatically since last fall, and now stands at 48.7 hours. That's 15 percent higher than last year at this same time. Increases in other manufacturing cities, however, are much more tepid. The Elkhart and Fort Wayne metropolitan areas (MSAs) have both seen a rise of only 2.4 percent in work weeks over the last 12 months, with the Gary-Hammond and Indianapolis MSAs still realizing small declines in average factory hours worked.
Then there are the changes in important industries to consider. Prospects for domestic steel production, in the wake of import restrictions recently imposed by the Bush administration, have brightened considerably. And while the auto industry is not looking forward to paying higher prices for steel, it can at least take some comfort in the weakness of the dollar, which reduces the cost advantage of its own offshore competitors.
But it all adds up to a state economic report card that still falls short of a passing mark. The stage is set for recovery in the state's economy, but the curtain has yet to rise.
About the Author
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