Indiana's outlook for 2017.

AuthorSlaper, Timothy F.

If there is a common thread through our economic forecasts over the last few years, it has been uncertainty. Since the Great Recession, the national economy's performance has been anything but vigorous. But, whether the economy has been weighed down by uncertainties--government shutdowns, the effects of the Affordable Care Act (Obamacare) on small businesses, the effect of Federal Reserve interest rate policy, the economic slowdown of large emerging economies like China--we'll leave to the historians. But one thing is certain: The national economy has had a series of unexceptional (to put it gently) years of economic performance.

That's the bad news.

The good news, at least for Indiana, is that this last year or two have been pretty good, especially compared to our neighboring states. Over the last six years, 2009 to 2015, Indiana's average growth in chained-dollar, or "real," gross domestic product (GDP)--also known as gross state product (GSP)--was only barely edged out by Michigan's average for the same time period, 2.2 percent versus 2.3 percent. Indiana's current-dollar average GSP growth surpassed all neighboring states, although by a mere 0.1 percentage point relative to Michigan and Ohio.

Since the teeth of the Great Recession in 2009, we have also seen Indiana's unemployment rate fall more quickly than neighboring states, except for Ohio. Indiana's and Ohio's unemployment trajectory since 2009 were similar. At the time of this writing, Indiana's current unemployment rate was about equal to that of Michigan's, a state that took the greatest economic hit among Indiana's neighbors, but has enjoyed an economic bounce thanks to robust auto sales in the last couple of years.

In terms of GDP (or GSP) growth, 2016 looks to reverse the trend of Indiana underperforming the overall nation. We currently forecast that 2016 will close out with real economic growth of 3.0 percent, compared to 1.6 percent nationwide.

GDP growth and employment

Indiana has trailed the U.S. in GDP growth for four out of the past five years, but is expected to grow at a slightly faster rate than the U.S. through 2018. Figure 1 shows the relationship between Indiana and U.S. GDP growth since 2006. We expect Indiana's annual rate of real GSP growth in 2016 to be 3.0 percent, and the forecast for 2017 is 2.8 percent.

GSP is an aggregate of the value-added totals--mostly compensation and returns to capital--from many different industries, each with a different performance profile. Some industries or sectors may prosper, while others may not. In 2014, the GSP increases in manufacturing of both durable and nondurable goods were above the statewide growth rate. These increases, however, were offset by double-digit percent GSP decreases in mining and agriculture.

Indiana's economic growth is greatly affected by the demand for Indiana's goods and services internationally and from elsewhere in the country. That demand for the products and services that are produced in the state will drive growth in employment, compensation and overall economic output (GSP). Assumptions, therefore, of continuing strong...

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