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May 3, 2002

Reading Between the Lines on Indiana Unemployment Rates

If you are searching for good news about the Indiana economy, then take note of this. Unemployment rates in virtually every corner of the state fell in the month of March. Indeed, while the national jobless rate moved upward to 6.0 percent in April, in Indiana the seasonally adjusted unemployment rate went in the other direction, falling from 5.1 percent in February to 4.9 percent in March. For a manufacturing-intensive state like Indiana to maintain a lower than average unemployment rate in the teeth of a recession is a remarkable accomplishment.

For those who scan headlines, that's pretty much the whole story. Economic recovery and lower unemployment rates are easily understandable to the casual observers of the economy. But those of us who pore over every morsel of information on our economic health are apt to ask a few questions before making that seemingly direct connection.

For one thing, we've learned to be a little more skeptical of state and local unemployment rates in recent years. For reasons not perfectly understood, estimates have occasionally gotten out of whack with other economic indicators, particularly with the counts of people who file for unemployment insurance benefits. So the first question we ask is, do the jobless rates agree with other data we have on the economy?

For the two most manufacturing-intensive metropolitan statistical areas (MSAs) in the state, Elkhart and Kokomo, the answer appears to be yes. For both those cities, unemployment rates began a quiet slide at the beginning of the year, and have now fallen back to their levels of last spring. That coincides with the three consecutive months of expansion in industrial output in the national economy. It also agrees with data on jobless claims in both cities, which are at or below their levels of a year ago.

In other parts of the state, the pieces of the puzzle don't fit quite as nicely. In many areas, unemployment rates were rising slightly or simply treading water prior to March. The state unemployment rate has remained within one tenth of a percentage point of the 5 percent mark since last October. Thus to call the March decline a sign of improvement is much more tenuous.

But this quibbling over the accuracy of the numbers obscures the more important question about Indiana unemployment rates. That is, what do they tell us about the economy?

The one unchanging message in lower unemployment rates is heard by employers who are trying to expand payrolls. Lower jobless rates mean smaller applicant pools, and potentially higher hiring costs. But as an overall scorecard for how the economy is doing, unemployment rates are surprisingly ambiguous.

Indeed, unemployment rates in some of the fastest growing state economies in the nation are higher than they are in Indiana, which still counts fewer jobs in its workforce than existed two years ago. In March 2002, Indiana's unemployment rate was lower than 30 other states, yet when ranked by job growth over the most recent year, our state outperformed only 11 others. Unemployment rates are too skewed by population changes, labor force mobility, and a host of other factors to be used by themselves to judge economic performance.

The Indiana economy is getting better, and for at least some of its cities, the falling unemployment rate is a sign of that change. But for most corners of the state, it’s going to take more than one month of good news on joblessness to convince us that we're safely over the hump.

Link to this commentary: https://commentaries.cberdata.org/424/reading-between-the-lines-on-indiana-unemployment-rates

Tags: unemployment and the labor market, jobs and employment


About the Author

Pat Barkey none@example.com

Patrick Barkey is director of the University of Montana Bureau of Business and Economic Research. He has been involved with economic forecasting and health care policy research for over twenty-four years, both in the private and public sector. 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. He attended the University of Michigan, receiving a B.A. ('79) and Ph.D. ('86) in economics.

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