J. Indiana
T
Morton Marcus Director, Indiana Business Research Center and Co-Director, Center for Econometric Model Research, Kelley School of Business, Indiana University, Bloomington
he last recession ended, and the current expansion began, in the second quarter of 1991. Since then the U.S. and Indiana economies have been expanding. In constant (1996) dollars, Indianas economy has grown by $39 billion, an average rate of 3.3 percent per year (see Figure 1). As this remarkably long expansion has continued, two distinct periods can be identied. In the rst period (1992 2nd quarter to 1994 1st quarter), Indiana advanced more rapidly than the nation. In the second period (1994 1st quarter to 2000 2nd quarter), the
Hoosier state trailed the nation in growth of personal income. Figure 2 shows the difference between Indianas growth rates and those of the nation. In 18 of 37 quarters Indiana grew more rapidly than did the nation. But notice that nine of those positive quarters came in the rst 12 quarters under consideration. In the last 25 quarters, Indiana also had nine quarters with faster growth than the nation. Hence the frequency of positive differentials has been cut in half. Also notice that the highs were higher in the early years and the lows lower in the later years.
Figure 1
155
billions of 1996 dollars
150 145 140 135 130 125 120 115 110 1991.1
Real personal income for Indiana
3.3% average annual growth rate for Indiana (U.S. = 3.4%)
1993.1 1995.1 1997.1 1999.1
quarterly data seasonally adjusted at annual rates
Figure 2 Personal Income Growth Rates, Indiana Vs. Nation, 1991-1999
percentage points
6 4 2 0 -2 -4 -6
Indiana outperformed the nation in 18 of 37 quarters
1991.1
1993.1
1995.1
1997.1
1999.1
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Indiana Business Review
Winter 2000
The result of these differential growth rates was a dramatic rise in Indianas share of U.S. personal income in the early period, with an equally dramatic fall in that share since 1994 1st quarter (see Figure 3). In historical perspective, the rising period was an anomaly, interrupting a fairly steady decline that began in the late 1970s. Figure 4 summarizes the two periods very clearly. As the U.S. picked up steam in the last six years Figure 3 Indianas Share of U.S. Personal Income
2.10
from a slow start in the rst four years of the decade, Indiana slowed down. Where the nations growth rate accelerated from an average of 2.1 percent to a robust 4 percent, Indiana slipped from a respectable 3.6 percent to a still honorable 3.2 percent average annual growth rate for personal income.
2.05
percent
2.00
In 2000.2, the difference between 2.0798% of U.S. Personal Income and 1.9734% was equal to $876.6 million or $1,460 per Hoosier. 1.95 1991.1 1993.1 1995.1 1997.1 1999.1
Figure 4 Average Quarterly Growth Rates of Total Personal Income
5.0 4.0 3.6 2.1 3.2
4.0
percent
3.0 2.0 1.0 0.0
91.2-94.1
Indiana
94.2-00.2
United States
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Indiana Business Review
Winter 2000
A Regional View Indiana was not alone in this swing of fortune. As Figure 5 shows, Indiana was one of 14 states that had a deceleration in growth between the two periods. California, with approximately 13 percent of U.S. personal income, had the greatest acceleration at 4.69 percent (from 0.05 percent to 4.74 percent). The Golden State moved from slowest growing state in the nation to the 11th fastest growing state in this transition. At the same time, New York, New Jersey, Figure 5 Growth Rate, National Comparison
E
NGL
2.7 3.7 3.6 2.8 1.8
and Massachusetts also had major accelerations in growth rates, pushing the nation forward. Among the Great Lake States, Indiana and Michigan decelerated, while the region as a whole accelerated. But, the acceleration of our region was the smallest improvement of any of the nations eight regions (see Figure 6). At the same time it can be seen that the Mideast was the only region that failed to achieve the national growth rate in both periods while the Southwest and Rocky Mountain regions exceeded the nation in both periods.
A
ND
RO
0.4
-0.5
1.8 2.2
1.5
FA
R
1.1 4.7
1.3
AIN
2.2
1.8 0.7 1.2
0.3
1.3 0.6
L A KES
-0.4 -0.3
ID
W
ES
T
-0.8
P
1.4
-0.1
LA
INS
0.6
2.6 0.4 -0.6 0.4 -0.6 1.8 -0.1 1.8
S EA T
2.6 2.2 2.0
M
1.4
2.4 -2.1
S O U T -0.5
FA
HW
SO U T -0.2
-0.9 -1.0
R
ES
HE
T
2.2
0.1
AST
1.5
W EST
-0.4
1.7
U.S. change in growth rate = +1.9 2.0 to 4.7 (14 states) 0.1 to 1.9 (22 states) Negative (14 states)
Figure 6 Average Percent Change in Personal Income
6.0
5.0
1991.2 to 1994.1 U.S. = 2.1% 1994.2 to 2000.2 U.S. = 4.0%
percentage points
4.0
3.0
2.0
1.0
0.0
New England
Mideast
Great Lakes
N
EW
2.5
CK
OU YM
NT
GR
EA
T
Plains
Southeast
Southwest
Rocky Mountain
Far West
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Indiana Business Review
Winter 2000
The result of these different patterns of growth shows up in the changes each region had in its share of the nations personal income. In Figure 7 those changes are shown with the Mideast losing 1.6 percent of the nations personal income to the Southwest and the Rocky Mountain regions. Of particular interest to Hoosiers is the dramatic change in the Great Lake States where a 0.4 percent share gain was turned into a 0.7 percent loss of share. This -1.1 percent shift was exceeded only by the +1.4 percent turnaround in the Far West. All other regions had more moderate share changes. Figure 7 Changes in Personal Income Shares
1.0 0.8
0.6 0.4 0.0 0.1 -0.1 0.3 0.2 0.7 0.7
percentage points
0.5 0.3 0.0 -0.3 -0.5 -0.8 -1.0 New England
-0.7 -0.9 -0.2
0.3
-0.1
-0.7
1991.1 to 1994.1 1994.1 to 2000.2
-0.7
Mideast
Great Lakes
Plains
Southeast Southwest
Rocky Mountain
Far West
Figure 8 Changes in Sector Growth Rates, 91.2-94.1 and 94.2-00.2
Indiana -16 Construction Manf- Durables Manf- Nondurables Transport & public utilities Wholesale trade Retail trade Fin, ins, & real estate Services Federal, civilian Military State & local govt -12 -8 United States 8
percentage points -4 0 4
Origins and implications What happened between the rst and second periods in the 1990s? How was growth in the rst period (1991.2 to 1994.1) different from the growth of the second period (1994.2 to 2000.2)? The differences for Indiana and the nation are reported in Figure 8. Two major events stand out. First, Indiana had a signicant slowing of growth in earnings derived from durables goods manufacturing. Where we had had been growing at an average rate of 7 percent, we slowed to a 1.1 percent rate. That shows in Figure 8 as a decline of nearly 6 percent in durable manufacturing. At the same time, the nation had a very moder...