Indiana.

• Author: Conover, Jerry N.

The outlook for Indiana's economy in the year ahead presents a mixed picture, not unlike that of the nation. We should expect more ups than downs, but unsettled economic forces at work beyond our borders make it difficult to hit this moving forecast target. Let's take a closer look at several key indicators of Indiana's economic health.

Jobs: Slowly but Steadily Improving

After a rough start with two months of job losses, Indiana employment in 2007 has resumed the long-term recovery trend that it has generally followed since July 2003, when it reached its lowest point of the decade. By late summer, total payroll jobs had climbed to within just 13,000 of their all-time high, but September's count gave up some of that momentum. Even with that slippage, the state had 18,000 more payroll jobs than it did a year earlier. The general upward employment trend, evident in Figure 1, should keep employment rising by approximately 15,000 more jobs in 2008.

However, not all sectors will share this growth equally. The manufacturing sector in particular is still undergoing a long-term employment decline in our state, just as it is throughout the nation. We expect Indiana will have about 11,000 fewer factory jobs at the end of 2007 than it did at the start, but the rate of shrinkage should abate considerably in 2008, perhaps even leveling off once some large new factory projects come on line. Additionally, Indiana remains the nation's most manufacturing-intensive state: the sector accounts for 18.9 percent of all our payroll jobs.

Meanwhile, construction has grown substantially in 2007, and the sector should add another 4,000 jobs in 2008. Also, we forecast growth in various service sector jobs: health care (+9,000), professional and business services (+5,000), leisure and hospitality (+5,000), and state and local government (+3,000).

[FIGURE 1 OMITTED]

[FIGURE 2 OMITTED]

Figure 1 shows that the unemployment rate has been slowly declining in Indiana for about three years, and it often has been below the U.S. rate during this period. Though the rate tends to fluctuate from month to month, it's expected to generally hover in the range of 4.5 percent to 4.8 percent through most of 2008.

Income: Still Growing but Losing Ground

Economists' most widely watched income measure is personal income, which includes earnings from employment, income from investments and rental property, payments from governments (e.g., veterans' and social security benefits), among...