Indiana's outlook for 2015.

• Author: Slaper, Timothy F.

In the fall of 2013, when we were trying to forecast the year ahead, the country was swirling in uncertainty. There was a partial government shutdown, debt ceiling talks had turned acrimonious, the Federal Reserve was about to get a new chairperson, the Affordable Care Act roll-out was botched, and to make matters worse, it was getting really cold outside.

We expected real economic growth in Indiana to be about 2.3 percent for 2014, about the same as the growth rate of 2013. Now, at the close of the year, we expect 2014 growth in the state to close out slightly better--closer to 3 percent--and that even accounts for the big economic freeze in the first quarter of 2014 when output stalled.

GDP Growth and Employment

Indiana's gross domestic product (GDP) growth in current dollars (cu$) is expected to follow the nation in terms of direction, but at a slightly lower rate. Indiana's GDP grew about twice as fast as the U.S. in 2010. In the three following years, Indiana's economic output growth was similar to the U.S. with some slight variation. As Figure 1 shows, the 2013 growth rate was a tad behind the U.S. and 2014 is expected to close the year at just a fraction off the national rate. This trend--being just a step behind the national average growth rate--is forecasted to continue through 2017.

Forecasts are predicated on assumptions. Among other forces at play, two important drivers can make the state forecast either less or more rosy. Prospects of lower exports in 2014 and 2015--discussed in greater detail below--would reduce Indiana's economic and employment growth performance, while the persistence of robust auto sales would help to buoy the state's economic growth.

2014 turned out to be a great year for auto sales. At the time of this writing, the year is on track to hit over 16 million units. In August of 2014, monthly sales at the seasonally adjusted annual rate were over 17 million units, heights not attained since the middle of 2006. The prospects for 2015 look good as well. According to CNW Research, floor traffic for new cars in October was up 18.6 percent over October 2013. This indicates a likely jump in 2015 because shoppers typically don't enter a dealership until two or three months before making a purchase. CNW Research also points to a fall in their "Jitters Index" (which is like the flipside of a consumer confidence measure) and notes that subprime approval rates are also on the rise, juicing sales.

Having digested the good...