December 14, 2001
Indiana's Recession Experiences Are a Mixed Bag
One of the few drawbacks of enjoying an unprecedented period of economic expansion since 1982 is that many of us have very little experience with recessions. Now that the hype of a recession-proof, "new" economy has been put to rest by the downturn that began last fall, its time to take a cold, hard look at exactly how this recession might unfold for businesses and workers in Indiana.
Talk to people in Indiana about recessions and you will quickly discover a generation gap. For some of our youngest adults, fresh out of college or high school, a rising unemployment rate is a completely new experience. Older residents will remember the deep, painful economic downturns that hit our state in the 1970's and early 1980's changed the economic landscape of dozens of communities forever.
But few will mention the recession of 1991, and with good reason. That downturn largely spared Indiana and other Midwest states. In fact, the 1991 recession only produced one year when the Indiana economy lost jobs, a fairly mild 14,600 employment contraction in 1991. Prior to the official start of that recession the Indiana economy was still growing, and eighteen months after the recession began our employment totals had bounced back to their pre-downturn levels.
That's a pale shadow of the events of the early 1980's, when high energy prices, inflation, and eye-popping interest rates combined to bring domestic manufacturers to their knees. In the three year period 1980-82 the Indiana economy lost more than 200,000 jobs, with three out of every four furloughed employees coming from manufacturing. To make matters worse, job losses in Indiana were piling up well before the official beginning of the national recession.
Which path will the 2001 recession follow? From the sketchy data available today, it appears that this recession will be the more shallow variety. But that's a bit like calling a baseball game in the third inning.
Since the U.S. recession officially began in March, job losses in Indiana have been slight, amounting to about 1 percent of total payroll. That's right about on track with where we were at the same point in the 1991 recession, and considerably better than the 5 percent decline in jobs that took place over the same number of months in 1980.
But it's risky to make that call for several reasons. For one thing, Indiana and most Midwestern states started suffering employment declines well before last March. If you go back to October of last year, state payrolls are down by 1.6 percent, with durable good manufacturing employment down 6.5 percent. Another factor to contend with is our ability to accurately assess statewide employment for recent time periods. Past experience has shown that job counts can be significantly revised -- up or down -- when more complete source data become available.
In the final analysis, the severity of the recession in Indiana will largely be determined by how, and how fast, the national economy recovers. If the eleven consecutive interest rate cuts by the Federal Reserve finally light a fire under business spending, and consumer spending at least stays afloat, the turnaround for Indiana will be just around the corner. With stable prices, reasonably calm energy markets, and prospects for an emerging calm in international tensions, the spark that lights that far may be upon us faster than some think.
About the Author
Educational Attainment, the 21st Century Fund and the Future of SchoolingIndiana ranks 42nd in educational attainment.
Big Savings for Ending Prevailing WageMy statistical models show that repealing state prevailing wage laws save taxpayers money.
Re-Thinking Economic Development A large share of the most mobile families—perhaps half—no longer need to live near where they work.
Money Illusion and InflationPrice fluctuation could cause inflation to last longer, but it didn’t cause the inflation, it simply extends the pain.View archives