Indiana's outlook for 2013.

• Author: Conover, Jerry N.

A year ago I predicted that Indiana's economy would improve only modestly in 2012, and I'm glad to report now that I underestimated the state's rebound. Indeed, in some respects we've made quite notable progress. Here is an overview of Indiana's recent performance and its economic outlook for the year ahead.

Employment and Unemployment

At the bottom of the recession, Indiana payrolls had shed nearly a quarter million jobs in just a year and a half. As Figure 1 shows, however, employment has grown steadily during the subsequent recovery. So far in 2012, payroll employment is averaging more than 50,000 jobs above last year's levels. Moreover, the pace is accelerating, with September's count up 65,100 from a year earlier--a rate of job creation comparable to the high-flying days of the late 1990s.

[FIGURE 1 OMITTED]

Job growth has been spread across nearly all sectors. Following a huge recession plunge, employment in manufacturing has grown consistently during the recovery, adding nearly 20,000 jobs over the past 12 months; to date, however, the sector has regained only about half of the jobs it lost. Jobs in private education and health services grew throughout the downturn, with sector employment now more than 30,000 above pre-recession levels.

Professional and business services jobs are up about 7,500 over a year ago, but the sector's growth rate has slowed during the last couple of years. The only major sector to experience a decline in employment is financial activities, which has shrunk by 16,000 jobs since a year ago. Revealing a clear long-term trend, Indiana's financial sector has contracted in all but three years since the late 1990s.

Indiana's unemployment rate rose greatly during the recession, topping out at 10.8 percent. The rate has declined relatively steadily since then to 8.3 percent, which is still well above "normal" and represents a quarter million Hoosiers looking for work.

In 2013, we expect Indiana payroll employment to grow by more than 50,000, with gains spread across most sectors. The unemployment rate will descend very slowly, ending 2013 near 7 percent. At the current pace, we won't be back to the pre-recession level of around 5 percent for two to three more years.

Overall Economic Output

In relative terms, as shown in Figure 2, Indiana's gross domestic product (GDP) was hit much harder than the nation's during the recession, but it also rose more quickly as the recovery began, led by a manufacturing rebound. The...