May 17, 2002
Assessing Indiana’s Economic Status
There’s one office in the state of Indiana that probably has a better handle on how the state economy is performing than anyone else. That is the state treasury. And while the national economic news paints a rosy picture for the U.S. as a whole, the widening shortfall between forecasted and realized tax collections being counted in the state house tells us that the recession is still full blown in the state of Indiana.
But how bad is the recession here? That question has occupied the attention of more than just economists. In the high stakes wrangling over the pressing issues of tax restructuring and the state's deteriorating fiscal situation, advocates on all sides have tugged and stretched at the facts on our economic status to buttress their causes. The upshot is that the state of the state economy is suddenly front page news.
For those of us who work with economic data every day, the new attention is flattering. But it is also a bit troubling to see the conclusions being drawn getting ahead of the facts.
That was certainly the case in a widely circulated news story on job growth in Indiana since January 2000. Concerning the substance of the report -- that the state's job losses since that time have been substantial -- there can be no doubt. But the story's widely-repeated conclusion that the economic downturn in Indiana has been seven times worse than the national recession is, at best, misleading.
The fact that payrolls in the U.S. economy have actually grown since the beginning of 2000 makes this multiplicative comparison of "downturns" meaningless. But that's really just a minor quibble. More fundamentally, we should be more concerned with the data being used to draw our conclusions.
The recession of 2001 actually began in summer of 2000 as a manufacturing recession, spreading later to disrupt other sectors of the economy. Indiana, as a manufacturing-intensive state, felt that downturn earlier. If we start the growth comparison in January 2000, we find that 24 months later the Indiana economy has lost 3.1 percent of its jobs, at the same time as the national payrolls grew 0.4 percent.
But if we compare using March 2001 -- the official starting point of the national recession -- as a starting point, the picture changes. In the twelve months since the spring of last year, the U.S. economy has lost 1.1 percent of payrolls, while the Indiana jobs losses stand at 1.4 percent.
These changes underscore a fundamental fact about using monthly data to draw conclusions about the state economy. Since the figures for any given pair of months can fluctuate, we need to look at the entire trajectory of job growth to get a meaningful read on our economic health.
That picture is far from complete, but here's what it looks like so far. In terms of severity, the 2001 recession in Indiana has been very much like the recession of 1991, with two very important differences. Job declines began much earlier in the state during this recession, as they have in Michigan, Ohio, and Illinois. And the national economy is performing better in 2001-02 than it did ten years ago.
But the state economy has not turned the corner yet, so that story is subject to change. And the recession is not the only challenge confronting the Indiana economy. It’s certainly a critical time for the economy, a time when important decisions will have to be made. Let us hope that those decisions will be informed, rather than confused, by the information on our economic status.
About the Author
Educational Attainment, the 21st Century Fund and the Future of SchoolingIndiana ranks 42nd in educational attainment.
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