SEPTEMBER
2015

 

By
Larry DeBoer
 
Professor of
Agricultural Economics
Purdue University

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09-24-15

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Indiana's Economy: What Have We Got, and How's It Been Doing?


The gross domestic product of the whole United States gets the headlines. But the good old U.S. Bureau of Economic Analysis calculates GDP for each state, too. They add up the dollar value of cars, restaurant meals, doctor visits and all the other goods and services produced in Indiana by multiplying the amount produced by the selling price. For year-to-year comparisons they subtract out inflation. You can spend many happy hours on the Regional section of their website at www.bea.gov.

Adjusted for inflation, Indiana's GDP grew 9.8 percent from 2009 to 2014, just a little less than the U.S. rate of 10.1 percent. That's modest growth, but Indiana has kept up since the recession ended. A neat way to figure out how is to multiply the share that each industry has in the total economy by the industry's growth rate since 2009. That gives the contribution of each industry to total growth.

In other words, what have we got, and how's it been doing? Let's go down the BEA's list of industries:

Drive almost anywhere in rural Indiana and you'll see a whole lot of corn and soybeans. Indiana has about 50 percent more agricultural production per person than the U.S. average. But GDP is selling price times quantity, and compared with manufactured goods, corn and beans don't cost very much. It takes about 30 acres of corn to match the value of one Lafayette-built Subaru Legacy. Ag is important, but it just doesn't add up in the GDP accounts.

Construction hasn't added much, either. Indiana has about as much construction activity as the U.S., but it hasn't been growing anywhere since the end of the recession. Mining has added half a point to U.S. growth since 2009, with all that oil in Texas and North Dakota. Indiana doesn't have much oil, and you can't do anything about that.

That brings us to manufacturing. Manufacturing has contributed 5.8 points to Indiana's 9.8 percent total growth. It's been growing fast, about double the growth in the whole country, and Indiana has a lot of it. Almost 30 percent of Indiana GDP comes from manufacturing, mostly in the "motor vehicles" and "primary metals" categories. You know, cars and steel.

Indiana's economy has always been big in cars and steel, and we still are. We're the most manufacturing-intensive economy in the United States, first among the states in manufacturing share of GDP. Number two used to be either Michigan or Wisconsin, but not anymore. In 2014 it's Oregon, which has seen its computer parts manufacturing grow tenfold since the early 2000s. Intel has a lot of new factories there.

Indiana has a bigger share of transportation and warehousing, too. It's a much smaller deal than manufacturing at 3.3 percent of our economy, but that's more than the 2.8 percent share in the U.S. You will not be surprised that it's mostly truck transportation, a result of Indiana's central location and all those interstates. Transportation has added about half a point to Indiana GDP growth since 2009, a little more than in the U.S.

We've got a bit less wholesale and retail trade, and Indiana's is growing more slowly. That might be the result of slower population growth.

Now comes a series of service industries. Indiana lags in most of them. We've got 40 percent less per-person production in information, finance and professional services than the country has. Those industries have contributed four points to U.S. growth since 2009, but only 1.5 points in Indiana.

Last on the BEA's list is government. The federal government is less important in Indiana GDP, but then the U.S. includes the District of Columbia and all those southern military bases, so that's no surprise.

Indiana has made efforts to reduce the size of its state and local governments, and that shows up in GDP accounting. The per-person cost of our state and local employees, buildings and equipment is about a quarter less than in the U.S., and it has decreased since 2009. Indiana government is small and getting smaller.

What have we got, and how's it been doing? Mostly, we've got manufacturing, and since 2009 it's been doing really well. Even after all these years, what happens in cars and steel is what happens in Indiana.

 

 

Writer: Larry DeBoer
Editor: Keith Robinson