Indianapolis-Carmel-Anderson forecast 2021.

• Author: Anderson, Kyle

Last year's forecast stated that 2020 "could be quite volatile economically." That statement turned out to be both true and a significant understatement of what has actually played out over the past year. There are two pieces of optimism for the Indianapolis metro area heading into 2021. The first piece of good news is that the area continues to outperform other areas of the state, albeit by a smaller margin, even in this challenging economic environment. Secondly, 2021 will likely be a year of economic recovery, with increases in job creation and economic growth.

The Indianapolis-Carmel-Anderson MSA makes up 29.0% of the state's population (or about 1.95 million people), but accounts for 33.5% of the state's employment and 34.0% of the state's income. So Indianapolis will continue to be a driver of the state's economic activity.

Economic forecasting is always a challenge, but this year is especially difficult. The uncertainty created by the COVID-19 pandemic leads to a wide range of potential economic outcomes. We are not forecasting the types of widespread government-mandated business closures that occurred in March and April 2020 to happen again--but that is certainly a possibility. The baseline forecasting in this article assumes that Indiana will essentially remain at Stage 5 or better for 2021. A significant worsening of the pandemic, which seems more likely to occur in the first quarter of 2021, will likely lead to a weaker economic situation than is outlined in this forecast. Further, economic stimulus is badly needed to protect businesses and households until the worst effects of the pandemic are dealt with. As of this writing, it is unclear whether and what forms any stimulus will take. We are modeling a "most likely" outcome that there will be a modest stimulus package that will have beneficial effects in the first quarter of 2021. The absence of any stimulus will likely lead to a slower recovery than laid out in this article.

Employment and wages

The Indianapolis-area economy will have lost an estimated 43,000 jobs over the course of 2020. This represents an annual 3.3% decline in total employment. Based on estimates from the Indiana University Center for Econometric Model Research (CEMR), (1) we forecast that these jobs will largely be recovered in 2021, leaving the total employment numbers by the end of 2021 very close to where they were by the end of 2019. While this sounds like a strong recovery, this essentially means we...