Indiana’s Economy Ranked #47th in 2008 Recession

How Indiana’s economy lost $27bn during the 2008 Great Recession

The Real Gross Domestic Product of the national economy had peaked in 2007 Q4 before the 2008 financial crisis precipitated what has become known as the Great Recession. $634bn was wiped from the US economy between its peak in 2007 Q4 and the trough in 2009 Q2, a decline of 4.3%. Indiana’s economy was the 16^th largest in Real GDP terms but over the same period it fell by 9.5% and $27.2bn from $285.6bn to $258.4bn, a performance that ranked 47^th when compared to the other states. Employee income fell by 5.1% between 2007 and 2009.

The Bureau of Economic Analysis (BEA) publishes data on Real Gross Domestic Product by industry and by state on a quarterly basis. Six of twenty economic sectors managed to increase their Real GDP during the 2008 recession at a national level, but in Indiana’s economy seven sectors increased their Real GDP. This would suggest the economy should have achieved a higher ranking than 47^th, but due to the dominance of the manufacturing industry in Indiana’s economy (in 2007 Q4 it was larger than the combined Real GDP of the next four sectors) and the fact that it fell by 22.5% meant that good performances  elsewhere would not change the overall picture.

Twelve states managed to avoid a technical recession by increasing their overall Real Gross Domestic Product.

A common feature of these states’ economies is that they tended to have a large mining sector, a large finance sector, a large government sector, or a disproportionately large combination of these.

Indiana’s economy did not fit this profile.

The Great Recession Growth Index Table for 19 Private Sector Industries in Indiana

The Great Recession commenced at the end of Q4 2007 and ended in Q2 2009. Using Real GDP in Q4 2007 as Index 100 the following table shows how the nineteen industries changed over this 6 quarter period.

Nationally the six industry sectors to increase their Real GDP during the 2008 recession were:

• The mining sector, which increased by 18.7%. This sector benefited from a boom in commodity prices as investors switched to them from property assets. Indiana’s mining sector increased its Real GDP by 8.2% and $111m to $1.47bn, a performance that ranked 21^st when compared to other states. Employee income fell by 5.5% from 2007 to 2009;
• The agriculture, forestry, fishing and hunting sector, which increased by 16.4%, again thanks to a boom in certain commodity prices. In percentage terms this was Indiana’s best performance during the recession, increasing by 17.7% and $460m to $3.1bn, a performance ranked 22^nd when compared to other states. Employee income fell by 1.1% from 2007 to 2009;
• The finance and insurance sector, which increased by 9.5%. The sector that caused the recession avoided one itself, thanks to a bailout by taxpayers of an industry too big to fail. In Indiana though, the finance and insurance sector did fall by 5.2% and $744m to $13.6bn, a performance ranked 47^th when compared to other states and the District of Columbia. In neighboring Michigan the sector fell by 4.4% and by 23.7% in Iowa, but Ohio’s sector increased by 6.6%. Employee income fell by 6.8% from 2007 to 2009;
• The educational services sector, which increased by 7.5%. The Indiana educational sector increased by 7.7% and $185m to $2.6bn, a performance ranked 20^th compared to other states. Employee income increased by 15.8% from 2007 to 2009;
• The healthcare and social assistance sector, which increased by 6.1%. Indiana’s healthcare and social assistance sector only increased by 3.6% and $734m to $20.9bn, a performance ranked 46^th when compared to other states. Employee income increased by 8% from 2007 to 2009;
• The government sector which increased by 1.7%. This was the second largest sector of Indiana’s economy and it increased by 4% and $1.1bn to $28.1bn by 2009 Q2, a performance that ranked 16^th when compared to other states. Employee income increased by 7.1% from 2007 to 2009.

Indiana’s Private Sectors that increased Real Gross Domestic Product during the Great Recession

The two sectors of Indiana’s economy to increase their Real GDP during the 2008 but declined nationally were:

• The real estate rental and leasing sector, the third largest in Indiana’s economy in 2007 Q4, increased Real GDP by 2% and $509m to $25.8bn by 2009 Q2. Nationally the sector fell by 1.9% so Indiana’s performance ranked 16^th when compared to other states. Employee income fell by 4.8% from 2007 to 2009;
• The professional scientific and technical services sector fell by 2.4% nationally but increased by 0.2% in Indiana, increasing by $23m to $10.3bn by 2009 Q2. The performance ranked 16^th when compared to other states. Employee income increased by 2% from 2007 to 2009.

Indiana’s Private Sectors where Real Gross Domestic Product decreased during the Great Recession

Indiana’s manufacturing sector loses $20bn in Real GDP during the 2008 recession

The four sectors hardest hit by the 2008 recession were the construction sector (down 18.8%), the wholesale trade sector (down 16.5%), the manufacturing sector (down 12.9%) and the transportation and warehousing sector (down 11.3%).  Industrial economies suffered the most and Indiana’s was no exception as these sectors were the four hardest hit in Indiana also.

It is worth putting some perspective on just how dependent the Indiana economy was in 2007 Q4 on the manufacturing sector, compared to neighbors Ohio and Michigan.

The size Indiana’s Real Gross Domestic Product in 2007 Q4 is just over 2/3^rd’s the Michigan economy and just over half the size of Ohio’s economy, yet at $87bn its manufacturing sector is of similar size, and made up 30% of Indiana’s Real GDP before the recession started. Michigan’s manufacturing sector did fall by 37% and Indiana’s by 23%, but both are equivalent to 7% of the total economy in their respective states.

Overall the Michigan economy fell by 12%, Indiana’s by 9.5% and Ohio’s by 6.6%. One in six Indiana jobs were in the manufacturing sector and the bulk of the sector was supporting the auto industry. Employee income fell by 17.8% from 2007 to 2009.

The other three sectors performed as follows:

• The construction sector was the seventh largest in Indiana’s economy in 2007 Q4 and it fell by 18.1% and $2.2bn to $10bn by 2009 Q2, a performance that ranked 34^th when compared to other states;
• The wholesale trade sector was the fourth largest in Indiana, and it fell by 17.1% and $2.9bn to $13.9bn by 2009 Q2, a performance that was ranked 38^th compared to other states. Employee income fell by 8% from 2007 to 2009;
• The transportation and warehousing sector fell by 14.4% and $1.5bn to $8.7bn, a performance that was ranked 37^th when compared to other states. Employee income fell by 7.3% from 2007 to 2009.

The 2008 recession performance of six sectors of Indiana’s economy ranked in the bottom 10 when compared to other states

In addition to the health sector (ranked 46^th), the finance sector (ranked 47^th) and the manufacturing sector (ranked 45^th) a further three sectors of Indiana’s economy ranked in the bottom 10 when compared to other states. They were:

• The administrative and waste management sector, which fell by 10.7% and $784m to $6.5bn, compared to a decrease of 8.8% nationally. This performance ranked 45^th when compared to other states, and employee income fell by 7.6% from 2007 to 2009;
• The other services except government sector, which fell by 9.9% and $$684m to $6.2bn, compared to a decrease of $2.4% nationally. The performance ranked 42^nd when compared to other states and employee income fell by 1% from 2007 to 2009;
• The management of companies and enterprises sector fell by 9.8% and $319m to $2.9bn, compared to a 9.1% decline nationally. The performance ranked 40^th when compared to other states. Employee income fell by 7.3% from 2007 to 2009

Indiana’s retail trade sector’s 2008 recession performance ranked 16^th when compared to other states

In 2007 Q4 the retail sector was the 5^th largest in the Indiana economy with a Real GDP value of $16.6bn. The sector fell by 7.4% nationally but in Indiana it fell by 3.8% and $622m to $15.9bn, a performance that was ranked 16^th when compared to other states. Employee income fell by 5.9% from 2007 to 2009.

Indiana’s small information sector also did relatively well, falling by 1.7% when nationally the sector fell by 4.3%. Real GDP declined by $116m to $6.7bn, in a performance ranked 17^th when compared to other states. Employee income fell by 2% from 2007 to 2009.

The utilities sector fell by 6.4% in Indiana compared to 9.4% nationally. Real GDP fell by $355m to $5.2bn in a performance that ranked 21^st when compared to other states. Employee income increased by 8.9% from 2007 to 2009.

Employment market

Indiana’s potential labor force at the end of 2007 totaled 3,209,098 with 3,056,613 in work and 152,485 unemployed, equivalent to 4.8%. Unemployment increased to 342,376 in June 2009, equivalent to 10.7%, but it continued to rise and did not peak until February 2010 at which point 344,319 were unemployed, equivalent to 10.9%, and 191,834 jobs had been lost since December 2007. By June 2009 Indiana’s labor force totaled 3,200,147 and 2,857,771 were in work.

By April 2017 the number unemployed fell to 118,635, equivalent to 3.6% of the workforce.