Indiana's outlook for 2009.

• Author: Conover, Jerry N.

November 2008, updated December 2008

Indiana is not immune to the forces shaping the national and global economies, so its outlook for the year ahead is similarly cloudy. At the same time, certain aspects of Indiana's economy cause the Hoosier State to perform in idiosyncratic ways. This article briefly overviews several dimensions of our state's recent performance and its outlook for 2009.

Overall Economic Output

The broadest measure of our economic activity is gross domestic product (GDP) at the state level. Indiana's GDP grew very slightly (0.3 percent) in 2007 following two years of small declines. Although these three relatively flat years followed several years of 2 percent to 4 percent annual increases, the rest of the nation has seen stronger GDP growth; since 2000, only Ohio and Michigan have had slower GDP growth than Indiana.

Indiana's manufacturing output has decreased over the past three years, but manufacturing's share (28 percent) of Indiana GDP is still the largest of any sector; only one state (Oregon) is more reliant on manufacturing. Indiana sectors with GDP that has grown in recent years include retail; transportation and warehousing; arts and entertainment; health care; technical services; and administrative and support services.

The outlook for 2009 calls for limited growth in GDP, given the weak national and global economies on which so many Indiana firms depend, coupled with weakness in the consumer sector and the automotive industry. There is some potential for further downward momentum (depending in part on the speed and effectiveness of federal stimulus actions), although late in the year we may see some GDP growth return.

[FIGURE 1 OMITTED]

Exports

Indiana exports reached a record $26 billion in 2007, up 14 percent from the previous year. Led by vehicles and parts, industrial machinery, electronics, and pharmaceuticals, this performance moved us up to twelfth place among the states (see Figure 1). Key factors in this growth have been booming economies overseas and a weak dollar. The dollar's recent strength, however, coupled with slower economic growth abroad presages slower export growth in 2009. This should contribute to weak GDP growth for Indiana.

Employment and Unemployment

In all but one month from December 2003 through April 2008, Indiana's payroll employment showed year-over-year gains. Starting May 2008, however, we've had five months in a row of job losses compared to a year earlier (see Figure 2), the...