January 16, 2004
The Indiana Economy at Year's End
The Indiana economy experienced its third consecutive year of employment decline in 2003, according to figures on payroll employment at business establishments released by the Department of Workforce Development. While the monthly employment figures do show some recovery in seasonally adjusted payrolls since the year's low point in July, those gains were not enough to offset the losses prior to that point. Thus, on a calendar year basis, state employment was down by about 0.8 percent, or about 24,500 jobs, from 2002.
While state job losses again exceeded the 0.2 percent drop in national payrolls in 2003, at least we can take heart from the moderating direction of job loss, both in the national and the state data. In 2002, the state lost 1.4 percent of its payroll jobs, which amounted to 42,300 jobs.
It has been often argued that Indiana 's sub-par performance in the economic recovery traces back to its traditional reliance on manufacturing in its employment base. With nearly every Great Lakesstate now showing up at the bottom of the growth rankings, it’s a hard view to find fault with.
What is less well understood is the fact that Indiana's manufacturing employers have managed to protect their payrolls better than their national counterparts. In the last two calendar years, the state's manufacturers have eliminated about 37,900manufacturing jobs. But if we had lost factory jobs here at the same rate that manufacturing jobs were being destroyed in the national economy over the same time period, the losses would have been even more -- totaling 65,400 jobs.
Moreover, in Indiana in 2003 manufacturing was hardly the only sector in the red. Last year state employers in the professional and business servicesindustries, which includes the volatile help services industry, shed a nearly equal number of jobs. Those job declines reflected the cost-cutting efforts of companies of all sizes. More than 4 out of every 5 jobs lost in the state economy were in manufacturing or business services.
Some have argued that this kind of focus on payroll employment as a measure of job market performance is overly pessimistic. This is not only because such statistics do not count the self-employed, but also because the survey methods used to derive the data do not directly count new jobs created by business startups. Buttressing this case is the fact that U.S. data on so-called household employment, obtained through different methods, has been heading up for much of the time that payroll employment was stagnant in 2003.
Those arguments have some merit for the Indiana economy as well. In 2002, when payrolls reported from a survey of businesses fell by 42,200, a survey of Indiana households found that almost 14,000 more adults were working. Although we do not yet have twelve months of data available for last year, it looks like Indiana households will report job gains of about 26,000 for 2003.
It is unusual, but not unprecedented, for these two measures of job growth to produce this seeming contradiction. The data are consistent with a pattern of increased layoffs, higher self-employment, and lower counts of people holding multiple jobs, but this is only conjecture. Subsequent data revisions may reconcile these differences, but for now, we must live with the ambiguity.
With the pickup in the U.S. economy in general, and the manufacturing economy in particular, the prospects for improved performance in the state economy are reasonably good. That won't solve all of our problems, but it sure beats going in the other direction.
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