A positive outlook for the region's economy in 2014.
by Michael J. Hicks
The end of the Great Recession has seen dramatic growth differences across industrial sectors in Northwest and North-Central Indiana. From the end of the recession there has been significant growth in transportation and warehousing, utilities, administrative services (most likely employment services), all of which have seen growth during this period of more than 10 percent.
Manufacturing growth in the region was slower, with growth at roughly 2 percent. Construction recovered more than in other regions in the state, rebounding by 6 percent, though still not back to pre-recession employment levels.
Declines of note occurred in wholesale and retail trade, information services, finance and insurance, professional and scientific services, arts and recreation, and government. The declines in these areas weighed heavily upon growth in the region, but it was really in information and wholesale trade where double-digit declines occurred during the recovery.
Within manufacturing, the overwhelming majority of durable goods manufacturing growth within the region is concentrated in primary metal production. The remainder of growth has been in fabrication of metals, and production of machinery and electronic products, motor vehicles and transportation and the production of nonmetallic minerals (sand and clay). Other sectors have experienced a decline. Changes in nondurable goods manufacturing in the years since the recession have been remarkably small, ranging from -0.05 percent to 0.29 percent.
The composition of local economic activity is heavily tilted toward government, education and health care, which together comprise more than a third of incomes. The difficult fiscal environment facing state and local governments, declining student populations in most school corporations within the region and the impacts of the Affordable Care Act combine to dampen growth prospects for the region, despite stability in the past years in these sectors.
Though the recovery has thus far been rocky, I believe the region will grow strongly through 2014. We project this region to see GDP growth of 3.1 percent. Personal income will grow by 2.3 percent, led by growth of durable goods manufacturing, construction, finance, transportation and warehousing and trade. Both health care and government services will see declines. In terms of overall economic performance, the northwest portion of Indiana looks much like the state as a whole.
The post-recession period in Indiana is marked by a significant manufacturing rebound, and examining that rebound and trend yields insight into the future of manufacturing growth in the state. In Northwest Indiana, durable goods manufacturing now exceeds its long-term trend. This suggests that significant new growth in the sector is not likely and that the recession rebound has run its course. New income and job growth in this sector will be due to longer-run effects, not the lasting consequences of the great recession in Indiana.
Northwest Indiana has continued to grow well, with population growth spreading past the traditional suburban areas and small towns surrounding Chicago. Strong post-recession manufacturing recovery along with growth in transportation infrastructure, which accommodates greater movement of goods, will continue to boost the economic performance of the region. However, major challenges await the greater Chicago area in 2014. Significant public debt problems plague municipalities in both the Illinois and Indiana portions of the MSA. In June 2014, changes to the Government Accounting Standards Board requirements on pension funds and other public sector debts will reveal the extent of fiscal challenges facing many communities. Chicago's fiscal environment will likely dampen economic prospects for the municipality of Chicago. Effects on surrounding areas are uncertain, as this could result in the relocation of some economic activity into Indiana.
Michael J. Hicks is a professor of economics and director of the Center for Business and Economic Research at Ball State University.
