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June 21, 2014

EYE ON THE PIE: The ups and downs of the Indiana economy

TERRE HAUTE — You probably did not notice it last week. Perhaps the World Cup or the early summer weather absorbed your attention. Nonetheless, the U.S. Bureau of Economic Analysis published the latest data about Indiana’s Gross Domestic Product (GDP).

Yes, just as there are quarterly GDP estimates of the value of all goods and services produced in the United States, so too we have annual GDP figures for Indiana. Those data, adjusted for inflation, indicate Indiana’s economy grew faster than the nation in 2013 (2.1 percent compared to 1.8 percent). It’s not a major triumph, but it is consistent with our improving employment situation.

The energy producing, smaller economies of North Dakota, Wyoming, West Virginia and Oklahoma led the nation in growth last year. Indiana’s growth rate ranked 19th in the country.

What was moving the Hoosier economy forward last year? Indiana’s private sector, growing by 2.5 percent, accounted for all of the growth and then some, as the public sector declined by 1.7 percent. While the private sector’s share of the state’s output grew, there was a corresponding decrease in Indiana’s governmental output (federal, state and local). Is this the retrenchment earnestly sought by a large number of Hoosier politicians and voters?   

The decline in Indiana’s government services of 1.7 percent in 2013 was greater than the national 0.9 percent decrease. It was also four times greater than our own average annual decline from 2003 to 2013 (0.4 percent). This shrinkage occurred while the nation recorded a 0.4 percent average annual increase in government services over the decade.

Within the private sector, where was the growth in Hoosier GDP last year? Nearly 59 percent of that growth occurred in manufacturing, but not in the steel mills, auto factories, or electric equipment plants we think of when manufacturing is mentioned. More than 4⁄5 of that 59 percent growth was in chemicals, plastic and rubber products, as well as food and other non-durable items.  

In addition, professional and business services accounted for 18 percent of the total Indiana GDP growth, while health care and social assistance added 12 percent to the total. Finance, insurance and real estate contributed another 9 percent of the Indiana total, where nationally this sector equaled nearly 20 percent of the nation’s GDP growth in 2013. Indiana also lagged the U.S. in retail and wholesale trade, transportation and information.

One final note: The data released last week included revised numbers for the compensation of workers. Although 2013 data are not yet available, we have fresh figures for 2012 and earlier years. Those data show Hoosier workers were paid $51 of each $100 of GDP in 2012 compared to $55 in 2003. As such, our rank in the nation fell from 31st in ’03 to 37th in ’12. All states in the Great Lakes region, plus Kentucky, out-ranked Indiana.

What is it about business in Indiana that our workers contribute less to total output than the workers in our neighboring states?    

Morton Marcus is an economist, writer, and speaker who may be reached at mortonjmarcus@yahoo.com.

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