EYE ON THE PIE: State’s economy holds surprises

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Last week in this space, legislators were challenged to learn something about our state. This week, we will provide some data so our busy representatives do not have to do the work themselves. All our data are derived from the excellent States-in-Profile section of STATS Indiana, maintained by the Indiana Business Research Center at Indiana University’s Kelley School of Business, a service supported by the Indiana Department of Commerce.

The Indiana economy is the 15th-largest in the nation. Our gross state product, the value of all goods and services produced within our borders, was $196.6 billion in 2002. We ranked 41st among the 50 states, plus the District of Columbia, in growth from 1998 to 2002 and 46th from 2000 to 2002, which shows we were harder hit by the recession than other states.

Indiana ranks first in percentage of GSP originating in manufacturing (28.6 percent) with the ninth-largest manufacturing sector in the country. Our growth in manufacturing from 2000 to 2002 ranked 25th; this indicates manufacturing was outperforming our total economy relative to the nation. We are strong in a weak sector.

Indiana ranks in the top 10 in arts, entertainment and recreation (including gambling). Although this sector accounts for only 1.3 percent of our GSP, we are fourth in dependence on this sector, behind Nevada, where it accounts for a surprisingly small 2.8 percent of GSP.

Warehousing and storage accounts for just 0.3 percent of our GSP, but that puts us in 11th place in the nation and seventh in dependence on that sector. We have the 23rd-largest computer systems design and related services sector, but that ranks just 38th as a percentage of GSP.

Agriculture, forestry and fishing, about which we talk a lot, is just 0.6 percent of our GSP. Kentucky derives 1.5 percent of its GSP from this sector, while we are in line with Pennsylvania and West Virginia.

Our per-capita personal income was $28,797 in 2003, 33rd in the United States, on a par with Oregon and Tennessee.

Research and development expenditures in Indiana in 2002 ranked us 18th, up one place from 1987. If R&D is a key to economic success, we would have to wonder why we are not doing better. Where we were 11th in patents granted in 1983, we fell to 20th 20 years later.

Not only are we the ninth-largest in manufacturing as measured by GSP, but also in employment and in average wages paid in that sector. Yet Indiana is only 23rd in value added per hour of work. How can we expect to sustain a strong manufacturing economy when there is such a mismatch between wages and productivity?

Hoosiers probably think of this as a state of small businesses. Nothing could be further from the truth. We rank first or second in all categories of employment size for establishments with 250 or more workers.

At the same time, we are 49th in percentage of establishments with one to four employees.

These facts hardly begin to convey the realities of our state that are available from STATS Indiana. But they should start our legislators to wondering about the “truths” they believe and have been willing to support for too long.

Marcus taught economics at Indiana University more than 30 years and is the former director of IU’s Business Research Center. His column appears weekly. To comment on this column, go to IBJ Forum at www.ibj.comor send email to mmarcus@ibj.com.

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