Economy and Government

ECONOMIC ANALYSIS: State economy began year with an impressive spurt

August 13, 2007

The economy constantly is serving up complex puzzles for us to solve. Have energy prices peaked? How much longer will mortgage markets continue to bleed? How will the dollar's decline affect the low prices for imported goods?

These are complex issues, and some of us actually earn a living trying to sort them all out. But sometimes we need to step away and address the simpler questions-such as: How does the economy grow?

Of course, some might say "not at all," particularly in a state that has been besieged at times by headlines reporting economic setbacks. Yet the data clearly show the Indiana economy is growing. In fact, the news from the latest Bureau of Economic Analysis report on state personal income says the state enjoyed its best three-month period of growth in the first quarter of 2007 since the beginning of 2006.

Those who only look at employment growth may be surprised by that, since the state's job total hasn't shown much growth at all in the first half of 2007. But those job counts miss a lot of things that factor into the prosperity of communities around the state.

There are at least three that come to mind. First, there are expansions and contractions in hours worked occurring independent of job counts, which cause significant swings in income that employment tallies miss. Second, there are important movements in forms of income-and spending power-that come from sources of income other than wages and salaries. These include dividends, rents and transfer payments received from government-funded pensions.

And finally, there is the money earned by workers who are not on payrolls. These are family workers, the self-employed and those who receive non-employee compensation. And they are particularly important in agriculture.

The more comprehensive Bureau of Economic Analysis data tell us that things have been going very well on the farm of late. Of the 1.8-percent gain in statewide earnings in the first quarter of 2007 paid by all industries, 0.4 percentage points-almost a quarter of that overall gain-were due to income gains in agriculture.

And when you factor in so-called nonearned income, the growth for the state looks even better. The 2.1-percent growth in total income Indiana experienced in the first three months of the year puts an end to an unhappy streak that saw personal-income growth fail to exceed 1 percent for three consecutive quarters at the close of 2006. That dismal growth record should give pause to those who are eyeing the state's meager budget surplus as a means of paying for more property tax Band-Aids.

But the final piece of the puzzle comes from hours worked that unfold between the lines of the job reports, particularly when overtime is involved. The continued decline in Indiana durable-goods employment into 2007 was offset enough by rising wages and hours worked to make durable-goods earnings actually rise in the first quarter.

The bottom line is that 2007 has been a better year for Indiana thus far than the job figures, by themselves, would suggest.



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