Gary forecast 2013.

• Author: Pollak, Micah R.
• Position: Economy and employment Metropolitan statistical areas - Gary, Indiana

As the economy goes through periods of expansion and contraction, two natural questions are "What factors are driving these changes?" and "What can they tell us about the future?" At the state and national level, economists have developed economic indices to gauge the pulse of the economy and address these questions. While these indices are certainly useful, they do not necessarily reflect the economic wellbeing of individual regions.

For example, in September 2012, the national unemployment rate was 7.6 percent and the unemployment rate in the state of Indiana was 7.5 percent (not seasonally adjusted). Within the state, however, the unemployment rate in the Southwest region (Evansville) was under 7 percent while it was over 8 percent in the Gary metro division. (1) Because of the potentially large variation among regions within a state, there is a need for some measure of the economic condition of an individual region.

In response to the demand for better information on the Northwest Indiana regional economy, Indiana University Northwest professors Bala Arshanapalli and Donald Coffin, with the support of a Lilly Sustaining Grant Fellowship, developed and released the Northwest Indiana Coincident Index and Leading Index. (2) The first index gauges the current and past condition of the region's economy, while the second provides a six-month forecast of the growth rate of the regional economy. These indices are useful for consumers (to alter consumption behaviors), businesses (to adjust investment patterns) and governments (to choose policy issues) by providing advance knowledge of impending economic expansion or contraction.

Figure 1 shows the Northwest Indiana Coincident Index, along with the state and national coincident indices since 1992. The regional index reveals several issues. First, after significant expansion in the 1990s, the region's growth has been stunted in the last decade. The current level of Northwest Indiana's index is approximately the same as in 1992. Second, in 2000 the regional economy began to slow down earlier than the state and national economy and experienced a deeper and longer recession. Finally, the region's last downturn is roughly similar to that of the state and nation in timing but significantly worse in magnitude. Despite some improvements since then, the regional economy is today at roughly 70 percent of the level it was...