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ECONOMIC ANALYSIS: Will state's job growth always trail nation's?

June 18, 2007

You usually have to swallow your pride when it comes time to forecast the growth of the Indiana economy. That's because no matter what your heart says, your head tells you what the best forecast will be. That is the one that pulls up well short of growth in the rest of the country.

There are a lot of talented people working hard around the state trying to change that. And if the full truth be told, most of our Midwestern neighbors are in the same boat. But none of that changes the depressing fact that Indiana never seems to get the same boosts in jobs and income that many other parts of the country receive.

At least most of the time. There are occasional years when Indiana does better, relative to everyone else. For a year or so after the end of a recession, when there is some catch-up spending by businesses and households after a period of belt-tightening, we can see income growth in the state at least keep up with the rest of the nation. And for a period of about six years that began in the late 1980s, as the steel and auto industries made huge new investments in the state, the slide in our relative prosperity was again halted.

But as the U.S. economy enjoys longer and longer periods of sustained growth, those brief episodes of parity fade in significance, and it becomes more apparent that what's fueling the national growth engine is less abundant here. And despite the easy answers you may hear to this riddle in your break room or hallway, getting at the reasons is harder than you think.

An examination of employment growth in our state over the last two years gives a good take on the situation. With the recession officially ended in December 2001, the years 2005 and 2006 fall squarely in what might be called the mature phase of the economic growth cycle. This is the period when catchup spending is over, and overall growth is increasingly driven by technology change and the growth in new markets.

It is a time of the economic cycle when the state has fared relatively poorly, and this time has been no different. Over the calendar years 2005 and 2006, when the nation was adding 2.5 million jobs-a 1.9-percent increase-Indiana could manage to grow its payrolls only 0.6 percent. Preliminary employment data available for the first months of 2007 continue to portray state employment growth as weak.

For some, this is a story of manufacturing's continued slide. Yet the growth numbers don't bear this out. In 2005-2006, Indiana lost only 5,700 factory jobs-about 1 percent of the base-only slightly

worse than the 0.8-percent manufacturing job loss suffered nationwide.

The disparities between state and nation show up most dramatically on the growth side of the equation, particularly in industries connected to housing. The last two years were a boom time for the construction industry. Nationally, nearly 680,000 jobs were created, a 9.8-percent increase. Likewise, the U.S. banking and insurance industries ramped up their payrolls, adding 3.7 percent more jobs in 2005-2006. That kind of growth didn't happen here. Construction payrolls statewide grew only 1.6 percent in the last two calendar years, while finance employment remained essentially unchanged.

That's only one of the sparks lighting the national economic fire that missed us. Growth in the leisure and hospitality industries, as well as government growth propelled by investments in defense and homeland security, was harder to find here in 2005-2006 as well.

How to make that growth happen here hasn't been an easy problem to solve. But it's clear state job growth will continue to fall short until we do.



Barkey is 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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