ECONOMIC ANALYSIS: New data gives economists a new way to gauge state

July 4, 2005

Ask any economic developer what he or she is expected to produce, and the answer is a single syllable: jobs.

Sure, there are a few qualifiers. We want good jobs, which generally means highpaying, secure, or even non-polluting jobs. But high-profile announcements of business expansion or recruitment always lead with the projected effects on employment-often spelled out to the last digit.

It's hard to see anything wrong with that. Job growth is easy to grasp and even if we're not looking for a new job ourselves, increased demand for workers across the economy gives us confidence, just as the recessions and downturns that destroy jobs give us pause.

But zeroing in on job creation alone as the bottom line for our economic health gives us a distorted view of the economy. According to job-counting calculators, trends like rising productivity or wealthinduced early retirement have been bad things. The job counters will tell you the steel and auto industries are a shadow of what they once were in Indiana. Or they might even say manufacturing is disappearing before our eyes.

Nothing could be further from the truth. If we can pry our eyes away from job totals and consider a different way of keeping score, a picture of the state economy emerges that may surprise you.

Thanks to the efforts of the statisticians at the U.S. Bureau of Economic Analysis, that just got a little easier to do. The BEA just released estimates of economic output for individual states-known as gross state product-a full year earlier than their old schedule. Now we have a comprehensive measure of Indiana's economic performance that is available in time to help those who are charged with leading its course.

According to the GSP data, the expansion in the Indiana economy accelerated slightly in 2004, posting a 3.6-percent increase in output over 2003. That was better than any other state in the Midwest, but still less than the 4.2-percent rate of expansion enjoyed nationally. Nonetheless, coming off the 2-percent contraction suffered in 2001, the state economy has seen rising growth in each successive year.

That's in close agreement with other, more familiar, measures of economic well-being, like employment growth and tax collections. But here's an insight from the GSP data that is not: Manufacturing is leading the way.

In every year since 1999, the growth in manufacturing output in Indiana has been higher than the state's overall growth. In one year-the recession year of 200-both those numbers were negative, and the state's 9.4-percent contraction in factory output was higher on the downside than the overall economy. Outside of 2001, however, manufacturing here has outperformed everything else.

In fact, the data show that the state economy, as measured by output, is more concentrated in manufacturing today, after a painful recession, than it was before. In 1997, 27.6 cents of every dollar's worth of output in the state came from manufacturing. In 2003, the most recent year available, that fraction stands at 29 cents.

That probably says as much about the non-manufacturing side of the state economy as much as anything else. For while Indiana's manufacturing sector has held onto or even increased its share of the national pie, our financial, information and professional services industries have not.

That's something policymakers should know.



Barkey is an economist and director of economic and policy studies at the Miller College of Business, Ball State University. His column appears weekly. He can be reached by e-mail at pbarkey@ibj.com.
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