Indianapolis-Carmel-Anderson forecast 2023.

• Author: Powell, Phil

The U.S. is expected to post real GDP growth of 1.7% in 2022, followed by even slower growth of 1.2% in 2023. The same is true in Indiana, with 2.6% growth expected in 2022 and only 0.4% in 2023. The Indianapolis metro area expects 2.7% real GDP growth in 2022 and 0.8% in 2023. In a normal year, real GDP grows between 2.0% and 3.0%. An expected rise in the federal funds rate from 0.8% in the second quarter of 2022 to 4.5% through the fourth quarter of 2023 will dampen demand and severely slow growth within the economy. Spending on goods will especially decline and have a disproportionately negative impact on regional economies that rely upon manufacturing. As a percent of real GDP in 2020, manufacturing was 11.5% of the U.S. economy, 26.7% of the Indiana economy and 18.2% of the Indianapolis economy. (1) These comparative shares explain why 2023 growth in Indianapolis will be slightly better than the state, but slightly weaker than the nation.

Employment and wages

The September 2022 unemployment rate in Indianapolis was 2.1% (not seasonally adjusted), at the time of this writing. This beat the state rate of 2.2% and the national rate of 3.3%. Between September 2019 and September 2022, the Indianapolis labor force grew 2.3%, whereas the state labor force declined by 0.4% and the national labor force only grew by 0.3%. (2)

Average hourly earnings for all private sector employees in Indianapolis fell 2.5% between September 2021 and September 2022. This contrasts with a statewide increase of 4.2% and national increase of 5.0%. (3) Indianapolis as a positive outlier in labor force growth and a negative outlier in hourly earnings suggests disproportional growth in low-wage employment. Just under half of employment growth in Indianapolis between 2019 (pre-pandemic) and 2022 (post-pandemic) occurred in trade, transportation and utilities as the region's warehousing cluster expanded to accommodate unprecedented growth in online retail (see Table 1). Average hourly earnings in trade, transportation and utilities in Indiana were $2.28 (or 7.9%) less than the private sector average of $28.83 in September 2022. (4)

With a forecast of slower growth, unemployment is expected to increase to 4.2% nationally, 3.4% in the state and 3.0% in Indianapolis during 2023. Historically, during periods of economic retrenchment, unemployment trends in Indiana typically lead the rest of the country, which means Indiana's unemployment rate rises and falls before...