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ECONOMIC ANALYSIS: State's growth in incomes is still lagging the nation's

April 23, 2007

It was 1980 when then-presidential candidate Ronald Reagan asked audiences whether they were better off than four years earlier. It was smart politics-1980 was a recession year. But politics aside, it's always a relevant question. For if the economy is not growing the pie that we all share, then those who manage it, not to mention those in political leadership roles, have cause for concern.

But how do we answer such a question? With the due date for tax filings just behind us, one way immediately comes to mind-are you or your household making more money? When you add up what every one of us makes-not just in wages, but from all sources-you get something called personal income, which is closely tracked by our friends at the U.S. Bureau of Economic Analysis for states and major cities.

And even though it gets a lot less ink in the business media than the employment reports, personal income is the single most comprehensive measure of our economic performance at the state and regional level. It goes up when more of us are working, of course, but it also tells us something about the quality and the intensity of those jobs. And it reflects the fact that about 34 cents of every dollar of income American households receive comes from something other than wages and salaries.

There is mixed news on income growth in Indiana. Perhaps the most important thing to note is that if we use income to keep score on things, the state economy accelerated in 2006, registering an average 5.1-percent growth over the last calendar year. That compares well with the 4.2-percent growth registered in 2005.

Wage and salary income growth was also better in 2006, picking up to average 4.5 percent after managing just 2.9-percent growth in the previous year. Much of that increase was due to increased earnings in durable goods manufacturing industries in the first half of the year. But 2006 also was a good year for so-called unearned income, with dividends, interest and rent growing at a healthy 7.7 percent for the year.

That's the good news. Taking the glow off these upbeat findings are two sobering pieces of information.

The first is that the rest of the country, by and large, fared considerably better than we did, especially outside the Midwest. The fact that the United States' personal income growth, which averaged 6.3 percent in 2006, was more than a percentage point higher than Indiana's says the state is not fully participating in the current national economic expansion.

No surprise there, some would say. Indiana's slower growth has affected every economic indicator from population growth to percapita income. Yet less well known is the fact that personal income growth statewide actually was marginally higher here than the national average in the first two years following the 2001 recession.

Now that we have reverted back to the longer-lived trend of slower state growth there is a second concern raised in the BEA report. While overall growth improved in 2006, almost all that growth occurred in the first half of the year. Since that time, income growth has cooled considerably, with manufacturing earnings actually declining since March of last year.

While income growth in health care industries and, most notably, wholesale trade employers continued strong throughout the year, manufacturing earnings still dominate the state totals, not to mention the viability of countless Indiana communities. Declining activity levels-if not outright shutdowns-of manufacturing facilities around the state are beginning to be reflected in our collective pocketbooks.



Barkey is a research economist at Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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