Forecast: Indiana’s economy will outpace nation in 2015

Topic: Miller College of Business

December 4, 2014

Indiana added roughly 100,000 net new jobs this year as many of the state’s business sectors expanded at surprising rates, and such growth should continue in 2015, says a new report from a Ball State University economist.

Speaking at the 2014 Economic Outlook Luncheon on Dec. 4, Michael Hicks, director of Ball State's Center for Business and Economic Research (CBER), predicts the state’s gross domestic product (GDP) will grow by 3.2 percent in the coming year, about 0.5 percentage points higher than the nation’s GDP.

“Having been very close with our national predictions of growth, my 2014 forecast for Indiana proved far too pessimistic,” he said. “I predicted employment gains of more than 57,380 new jobs — a number that was exceeded at midyear. At current rates of growth, Indiana will see almost 100,000 net new jobs in 2014, with a labor force growth of almost 70,000.

“I expect that Indiana will see record all-time employment in December of this year — a welcome holiday gift to Hoosiers. Next year will bring record numbers in Hoosier employment and labor force."

Hicks’ model for 2015 anticipates that personal income growth in Indiana will increase by 3.4 percent, slightly higher than the national increase, and he expects the income gap between Hoosiers and their counterparts around the country to shrink.

At the industry level, Hicks’ forecasts continued growth in manufacturing (durable and nondurable), logistics (transportation), retail, and utilities, and a rebound in finance/insurance and information services. Health care will recover slightly from its 2014 pause, but growth will slow through 2015.

Indiana faces challenges

Despite the positive data, Hicks points out that the Great Recession weakened parts of the Indiana economy.

While some areas have seen a price and sales rebound, much of Indiana — like much of the nation — has yet to see a surge in new home construction, which remains stuck at near-record lows, he said.

“If we were to judge the economy by new home construction, we would currently be stuck in the post-war recession,” Hicks said. “This has several implications. Household consumption is heavily influenced by the wealth effect, which is at its core a measure of how much better off households feel themselves to be. The largest contributor to this is the growth of home values, which has not broadly recovered to 2005-2007 peaks. This dampens consumption here in Indiana, as it does across much of the nation.”

He points out that the construction industry employs large numbers of low-skilled young workers, but the sector’s collapse means there are perhaps 40,000 fewer jobs. As a consequence, there are greater demands for retraining and alternative employment than would otherwise have been the case.

Sluggish growth for nation’s economy

Hicks’ model suggests the U.S. will see improved conditions in 2015, with real GDP growth in the United States averaging 2.7 percent through the year. Unemployment will drop to about 5.7 percent by the end of the year as monthly job creation will range from 90,000 to 120,000.

He points out that while this is one of the longest-running economic recoveries, there are risks that could bring expansion to a halt, including slowing of Asian and European economies — especially a recession in northern Europe.

“We anticipate 2015 will be the best year of economic performance since 2007, but overall growth will remain slower and levels of employment relative to population will be far below the three decades prior to the recession,” he said. “While it is far from certain, it is likely the United States is in a lengthy period of slower and more uneven economic growth than we have seen in several generations.”

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