Indiana's Outlook for 2016.

• Author: Lynch, John

Last year, in the fall of 2014, when we were forecasting the year ahead, the world and nation were being contorted by several forces. The Ebola outbreak in West Africa caused panic and galvanized a global response. There were border confrontations between Ukraine and Russia reminiscent of the worse Cold War tensions. And the wars in Afghanistan, Iraq and Syria provided a constant dental-drill drone. The engines of global economic growth--the BRICS (Brazil, Russia, India, China and South Africa)--were slowing, and no one was looking to Europe to provide any buoyancy to the global economy.

Domestically, the politics of race once again became part of the country's consciousness, daily conversation and recriminations. The Republicans took control of the Senate in midterm elections. Closer to home and just a few months later, Indiana gained unwanted attention with the passage of the Religious Freedom Restoration Act, which many believed would place the state at an economic disadvantage.

Last fall, we expected economic growth (measured in current dollars) to be close to 4 percent in Indiana for 2015, slightly higher than the (then) expectations for 2014. Expectations can disappoint. Turns out that 2014 did not end as well as anticipated, with Indiana's economic growth at 2.1 percent, nearly half of the national number of 4.0 percent. Indiana is likely to reverse that trend in 2015. At the time of this writing, we forecast current-dollar economic growth to be 3.7 percent in Indiana compared to 3.4 percent nationwide.

GDP Growth

Indiana has trailed the U.S. in GDP growth for three out of the past four years, but is expected to grow at a slightly faster rate than the U.S. through at least 2017. Figure 1 shows the relationship between Indiana and U.S. GDP growth since 2003.

As GDP is an aggregate of the production totals from many different sectors with mixed performances, some sectors prosper while others don't. In 2014, the increases in manufacturing of both durable and nondurable goods outpaced the overall growth rate. These increases, however, were offset by double-digit percent decreases in mining and agriculture.

While Indiana-specific conditions can affect economic performance, Indiana's economic growth can also be affected by the outside domestic and international demand for Indiana's goods and services. To that end, the assumptions of lower or higher exports can have a big influence on the forecast. Given Indiana's status as a manufacturing...