Indiana's outlook for 2012.

• Author: Conover, Jerry N.

The Great Recession took the wind out of Indiana's economic sails, and the path to recovery has led our ship of state across uneasy seas. Here is an overview of the state's recent performance and its economic outlook for 2012.

Employment and Unemployment

Indiana lost 8 percent of its workforce--more than 240,000 employees--by the end of the recession in mid-2009. The first year of recovery then looked promising as we added 55,000 jobs, but for the last year-and-a-half our labor market has meandered with no real traction; we're now down 200,000 jobs from the pre-recession peak.

Job recovery has varied widely across sectors, as seen in Figure 1. The only sector with more workers now than before the recession is private education and health care, adding more than 36,000 jobs. This sector's growth has slowed during the past several months, however. Government jobs held their own until mid-2010, but then state and local governments were hit by budget cuts and the sector has lost 30,000 jobs in the last year and a half.

The other major sectors all experienced substantial job losses during the recession, with trade, transportation and utilities now at its lowest employment level in decades. Manufacturing, on the other hand, while still down 98,000 jobs from its pre-recession peak, has grown during the recovery. Construction, the hardest-hit sector in relative terms, has only recently started to climb out of its hole and has added 11,000 jobs so far this year.

Indiana's unemployment rate rose by 6 points during the recession, followed by slow improvement since early 2009. However, it's been rising gradually the past several months as more Hoosiers re-enter the labor force looking for work.

In 2012, we expect about 1.5 percent growth in Indiana employment--roughly 40,000 payroll jobs, spread across most sectors. The unemployment rate will wind down very slowly, ending 2012 near 8 percent. At this rate, it will be years before we return to pre-recession levels.

Overall Economic Output

Following a year of strong Indiana gross domestic product (GDP) growth (4.6 percent) led by a manufacturing rebound, the state's GDP is growing less than half as rapidly in 2011--expected to end the year up 2.2 percent. The main contributors to this slower pace are weakness in the construction sector, decelerating manufacturing growth and shrinkage of the government sector.

For 2012, we anticipate negative state output growth in the first quarter payroll tax followed by...