Indiana.

• Author: Smith, James C.
• Position: Economic forecast for 2002 - Brief Article

Indiana was hit hard by the recession in the early 1980s. From peak employment in mid-1979 to the low point in first quarter 1983, the number of jobs in Indiana fell by 14 percent. The state unemployment rate reached 12.7 percent by Christmas 1982 (see Figure 1), well above the national peak of 10.8 percent.

[FIGURE 1 OMITTED]

It was three years--1986--before employment in the state climbed back to 1979 levels. The state's unemployment rate stayed above the national average until 1986, too.

As Hoosiers now battle the recession of '01-'02, the situation for Indiana does not look as bad as it did in 1982. Interest rates today are at historical lows instead of at historical highs as they were in the early 1980s, and oil prices are relatively low and stable.

Ironically, one factor that appears to be working in the state's favor is the relatively slow population growth rate of the last decade. The rate of people moving into Indiana slowed markedly in the last few years. The result was a population increase from 1990 to 2000 of only 9.7 percent. Since the average in the nation was 13.2 percent, our relative decline cost Hoosiers a seat in the U.S. Congress.

With the slow growth in Indiana's labor force came labor shortages during the boom years of the 1990s. Demand for more employees in a tight labor market drove the state's unemployment rate to the record low level of 2.7 percent in late 2000. By comparison, the lowest rate that year for the country as a whole was 3.9 percent. As a result, Indiana enters this period of economic weakness with a comparatively healthy employment picture. Our unemployment rate in late 2001 remains near 4 percent--still not bad by historical standards and still below the national rate.

There is another factor that may protect the state from the worst of the recession. Indiana now possesses a more diverse mix of industries compared to 20 years ago. In 1981, 31 percent of all jobs in Indiana were in manufacturing. By 1990 that was down to 25 percent, and this year the percentage is just 22 percent. Even within the manufacturing sector, Indiana's mix has broadened. United States-headquartered auto manufacturers continue to face market share problems. But many jobs in Indiana are now at plants supplying Japanese-owned car companies (whose sales have held up well this year), or at medical device manufacturing firms with growing demand.

And despite widely publicized programs aimed at bringing more "dot.com" business to...