ECONOMIC ANALYSIS: State employment growth is weaker than you think

August 28, 2006

There's a real buzz about job growth in Indiana these days. Announcements of job creation, big and small, are echoing through the business media, and many economic development officials tell us their phones are ringing with calls from new prospects at a rate they haven't seen in years.

Yet the data used by most of us to track job growth tell a slightly more sobering story. The 2.94 million workers on Indiana payrolls in July, as reported by the Department of Workforce Development, was fewer than 20,000 jobs higher than existed on payrolls in July of last year. That meager 0.7-percent increase puts Indiana among the slowergrowing states in the nation over the last 12 months. National job growth over this same period was 1.3 percent.

That's an apples-tooranges comparison, of course, for many reasons. First, job announcements are about the future, and economic data tell us about the past. The fine efforts of those who have helped bring jobs to our state will show up in future data releases. And experience has taught us all that actual hiring can deviate from previous announcements, in either direction.

Even in the future, we won't get a perfect picture, since those new jobs will be blended in with all the other economic activity that creates and destroys jobs. All we'll get from DWD are figures on the net result. As large and as important as the recent job announcements have been, it will be how the rest of the economy performs in the coming months that will largely determine that outcome.

And how is the Indiana economy performing these days? I've always advised against reading too much into the most recent state job-growth data, since slow growth reported in preliminary data in the past has turned into respectable growth when the data have been subsequently revised. And it can be even more dangerous to base an assessment on data from the month of July, when temporary shutdowns by manufacturers can cloud the picture.

I still have those misgivings. The preliminary data show recent growth to be particularly weak in the Indianapolis metropolitan statistical area, led by a decline in business services employers' payrolls. Given the other indicators available, and the tendency of preliminary data to underestimate job growth in the non-manufacturing sector in the past, my guess is revisions will again improve the picture for the state's largest MSA, when they eventually arrive.

But the evidence that overall growth has cooled in the last 12 months is becoming persuasive.

The Bureau of Economic Analysis released advance estimates of overall state output, known as gross state product, earlier this summer that depicted a marked slowdown in the state and the entire Midwest in 2005. Even though job growth here didn't pick up until 2003 in the wake of the recession, economic output grew an average of 3.6 percent in the years 2002-2004, even better than the 2.8 percent national average.

But in 2005, Indiana could manage no better than 1.1 percent growth in GSP, ranking 46th among the 50 states. The entire Midwest has lagged, but the slowdown in Indiana has been particularly marked.

That's only part of the picture, of course. The link between net job creation and overall output change is less than perfect. But the sense I get out of the most recent data on Indiana's economic performance tells me that, when and if those announced new jobs become a reality, we're going to be happy to see them.

Barkey is an economist and director of economic and policy study at the 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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