Indiana Economic Forecast Update - IN.gov Outlook - April 12, 2017.pdf · IHS Markit Economics. ... Indiana Economic Forecast Update / April 2017 ... Unemployment rate (%) 4.8 4.4

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Presentation

Indiana Economic Forecast Update

April 12, 2017

Tom Jackson, Principal Economist, +1 215 789 7432

[email protected]

IHS Markit Economics

mailto:[email protected]


US policy assumptions in the March forecast

Indiana Economic Forecast Update / April 2017

• A reduction in the statutory corporate income tax rate from 35% to

20%, partially offset by fewer tax credits, starting in 2018

• No border adjustments

• No expensing of capital expenditures

• Personal income tax reforms that lower the average effective federal

tax rate from 20.7% to 19.7% in January 2018

• An increase in public infrastructure investments totaling USD250 billion

over 10 years

• Federal Reserve policy rate increases of 75 basis points in 2017, 2018,

and 2019, bringing the rate to a long-term equilibrium of 3%

• * - No noteworthy changes in April forecast

2


Changes to forecast since December update


• Higher manufacturing employment, production

• State-level employment data revised higher for Indiana

• National outlook has improved

• Demand for durables is improving, especially from fixed business investment

• Inventory over-hang has been mostly worked off, so more product needed to meet

current demand

• U.S. corporate profits around 5% higher

• Revenues about the same

• Interest, wage expenses lower

3


With labor productivity rising, real GDP growth will

outpace employment growth

4

Source: IHS Markit © 2017 IHS Markit

Real GDP and payroll employment

-9

-6

-3

0

3

6

2007 2009 2011 2013 2015 2017 2019

Perc

en

t ch

an

ge,

an

nu

al

rate

Real GDP Employment


Indiana’s real GSP growth also outpaces economic

growth, indicating higher productivity and wages

5


-6

-3

0

3

6

9

12

15

18

2010 2012 2014 2016 2018 2020

Real GSP Employment

Indiana real GSP and payroll employment

Pe

rce

nt

ch

an

ge

, a

nn

ua

l ra

te


Key economic indicators for Indiana

6

2015 2016 2017 2018 2019

Units: Percent change

Payroll employment 1.9 1.6 1.1 1.1 0.9

Unemployment rate (%) 4.8 4.4 4.1 4.0 4.0

Wage income 4.8 4.2 4.6 5.0 4.9

Personal income 4.0 3.9 4.0 4.7 4.8

Real gross state product 1.4 1.9 1.8 2.3 2.0

Personal consumption exp. 2.4 3.6 4.8 4.3 4.4

Housing starts (thousands) 16.5 19.2 21.4 21.9 22.6

Share of multi-family (%) 22.9 20.9 17.7 18.0 17.2



Indiana’s job market remains solid; service sector

growing more slowly than national average

7


-3

-2

-1

0

1

2

3

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Indiana United States

Indiana employment growth vs. United States

Pe

rce

nt

ch

an

ge

vs

. ye

ar-

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o


Higher productivity, fewer available workers will

translate into higher wages

8


-1

0

1

2

3

4

5

6

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020

Indiana United States

Indiana wage growth vs. United States

Pe

rce

nt

ch

an

ge

vs

. ye

ar-

ag

o


Revised historic data, improved outlook make

manufacturing the leading job provider

9


-8 -6 -4 -2 0 2 4 6 8 10 12

Transport & warehousing

Information

Leisure & hospitality

Wholesale trade

Utilities & mining

Federal government

Financial services

Education

Retail trade

Construction

Other services

State & local govt.

Prof. & business services

Health & social services

Manufacturing

Change in Indiana payroll employment, Feb 2016 - Feb 2017

Thousands

Job change = 39,500


Peak in vehicle sales will limit further gains in auto

manufacturing sector, a major Indiana employer

10


US light-vehicle sales have peaked

0

4

8

12

16

20

1980 1985 1990 1995 2000 2005 2010 2015 2020

Millio

ns o

f u

nit

s,

an

nu

al

rate

s

Total Cars Light trucks


Professional/business services, construction will

supplement further gains in health care sector

11


-5 0 5 10 15 20 25 30

Federal government

Education

Transport & warehousing

Other services

Financial services

Utilities & mining

Retail trade

Information

Wholesale trade

Leisure & hospitality

State & local govt.

Construction

Health & social services

Manufacturing

Prof. & business services

Change in Indiana payroll employment, 2016q4-2019q2

Thousands

Total change = 75,700


Home-building increasing steadily in Indiana, but

certainly not booming

12


0

5

10

15

20

25

30

35

40

45

50

2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Multi-family Single-family

Indiana housing starts continue to rebound

Th

ou

sa

nd

s,a

nn

ua

lize

d r

ate


Rocky Mountain, Pac Northwest leading the way in job

growth

13


Employment growth, 2017 vs. 2016

Percent

-0.7 to 0.0

0.1 to 0.7

0.8 to 1.1

1.2 to 1.9

2.0 to 3.1


Indiana population growth relatively slow, but outpacing

most neighboring states

14


Population growth through 2022

Percent

-0.1 to 0.2

0.3 to 0.6

0.7 to 1.2

1.3 to 1.9


Bottom line for Indiana

• Wage and salary income growth gets a boost from higher average wages, even

as job growth slows, as productivity increases

• Manufacturing still has some room to grow, even as auto sales level off

• Out-migration of jobs is an ongoing risks factor, while automation looms

• Continued increase in labor force is key to attracting and retaining employers

and sustaining state economic growth

• This is difficult for states with slow population growth

• Achieved through in-migration and increased participation

• Service sector can be supported by strong education system, attractive

business environment

• High-tech sectors showing growth and innovation

• Some sectors are dependent on local population growth as demand base

• As with all of our state forecasts, keeping an eye on policy developments at the

national level

15



Bottom line for Indiana

U.S. GDPIndiana

EmploymentIndiana Income

Forecast date 2016 2017 2016 2017 2016 2017

Dec 2015 2.7 3.0 1.5 1.2 4.1 5.0

Apr 2016 2.1 2.8 1.7 1.3 3.7 4.6

Dec 2016 1.6 2.3 1.2 0.8 3.4 4.2

Mar 2017 1.6 2.3 1.2 1.0 3.8 4.0

16



US Economy Appendix


17


US economic growth will strengthen by spring


• Consumer spending will increase at a moderate pace, sustained by

robust gains in employment, real incomes, and household net worth.

• Business fixed investment will benefit from an improving tax and

regulatory environment, along with a recovery in energy prices.

• With demand outpacing supply, homebuilding continues its slow

recovery, even as interest rates rise.

• The revival in industrial production will gain momentum as the inventory

correction nears completion in mid-2017.

• Fiscal stimulus, accelerating wages, and strengthening loan demand

will lead to higher interest rates.

• In response to the dollar’s appreciation, real import growth will outpace

real export growth.

18


US economic growth rebounds in 2017 and 2018, as

investment leads the way

19


Real GDP and its components

Percent change 2016 2017 2018 2019

Real GDP 1.6 2.3 2.6 2.3

Consumption 2.7 2.8 3.3 2.9

Residential investment 4.9 4.2 3.5 2.2

Business fixed investment -0.5 4.7 4.8 3.4

Federal government 0.6 -0.2 -0.9 -1.0

State & local government 1.0 0.2 2.1 1.7

Exports 0.4 2.6 2.0 2.6

Imports 1.1 5.3 6.2 4.7


Job growth slows as US approaches full employment,

while inflation remains steady

20


Key indicators

Percent change 2016 2017 2018 2019

Industrial production -0.9 1.9 2.9 2.2

Payroll employment 1.8 1.6 1.3 1.0

Light-vehicle sales (Million units) 17.5 17.4 17.6 17.6

Housing starts (Millions) 1.18 1.26 1.32 1.38

Consumer Price Index 1.3 2.5 1.9 2.4

Core CPI 2.2 2.4 2.0 2.1

Brent crude oil price (USD/barrel) 44 58 57 64

Federal funds rate (%) 0.4 1.0 1.7 2.6

10-year Treasury yield (%) 1.8 2.7 3.2 3.8


Industrial production will rebound as domestic demand

strengthens and the inventory correction ends

21


-2

-1

0

1

2

3

4

2012 2013 2014 2015 2016 2017 2018 2019

Year-

over-

year

perc

en

t ch

an

ge

Industrial production Manufacturing production Real GDP

Industrial production and real GDP


The US surplus in services trade partially offsets the

deficit in merchandise trade

22


US net exports, NIPA

-1,250

-1,000

-750

-500

-250

0

250

500

1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020

Billio

ns o

f d

ollars

, an

nu

al

rate

s

Goods and services Goods Services


Interest rates will continue to rise as the Federal

Reserve normalizes monetary policy

23


Key interest rates

0

2

4

6

8

10

12

1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020

Perc

en

t

Federal funds 10-year Treasury 30-year mortgage BAA corporate


Prices in the oil complex continue to rebound

24


0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

0

20

40

60

80

100

120

140

2006 2008 2010 2012 2014 2016 2018 2020

Crude oil, WTI (left scale) Average retail price of gasoline (right scale)

Crude oil and gasoline prices to rise from recent lows

Do

lla

rs p

er

ba

rre

l

Do

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Indiana Economic Forecast Update - IN.gov Outlook - April 12, 2017.pdf · IHS Markit Economics. ... Indiana Economic Forecast Update / April 2017 ... Unemployment rate (%) 4.8 4.4

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