indiana economic forecast update - in.gov outlook - april 12, 2017.pdf · ihs markit economics. ......
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Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
Presentation
Indiana Economic Forecast Update
April 12, 2017
Tom Jackson, Principal Economist, +1 215 789 7432
IHS Markit Economics
Confidential. © 2017 IHS MarkitTM. All Rights Reserved.
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
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Changes to forecast since December update
Indiana Economic Forecast Update / April 2017
• 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
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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
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Indiana’s real GSP growth also outpaces economic
growth, indicating higher productivity and wages
5
Source: IHS Markit © 2017 IHS Markit
-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
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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
Source: IHS Markit © 2017 IHS Markit
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Indiana’s job market remains solid; service sector
growing more slowly than national average
7
Source: IHS Markit © 2017 IHS Markit
-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-
ag
o
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Higher productivity, fewer available workers will
translate into higher wages
8
Source: IHS Markit © 2017 IHS Markit
-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
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Revised historic data, improved outlook make
manufacturing the leading job provider
9
Source: IHS Markit © 2017 IHS Markit
-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
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Peak in vehicle sales will limit further gains in auto
manufacturing sector, a major Indiana employer
10
Source: IHS Markit © 2017 IHS Markit
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
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Professional/business services, construction will
supplement further gains in health care sector
11
Source: IHS Markit © 2017 IHS Markit
-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
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Home-building increasing steadily in Indiana, but
certainly not booming
12
Source: IHS Markit © 2017 IHS Markit
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
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Rocky Mountain, Pac Northwest leading the way in job
growth
13
Source: IHS Markit © 2017 IHS Markit
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
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Indiana population growth relatively slow, but outpacing
most neighboring states
14
Source: IHS Markit © 2017 IHS Markit
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
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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
Source: IHS Markit © 2017 IHS Markit
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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
Source: IHS Markit © 2017 IHS Markit
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US Economy Appendix
Indiana Economic Forecast Update / April 2017
17
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US economic growth will strengthen by spring
Indiana Economic Forecast Update / April 2017
• 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
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US economic growth rebounds in 2017 and 2018, as
investment leads the way
19
Source: IHS Markit © 2017 IHS Markit
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
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Job growth slows as US approaches full employment,
while inflation remains steady
20
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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
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Industrial production will rebound as domestic demand
strengthens and the inventory correction ends
21
Source: IHS Markit © 2017 IHS Markit
-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
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The US surplus in services trade partially offsets the
deficit in merchandise trade
22
Source: IHS Markit © 2017 IHS Markit
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
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Interest rates will continue to rise as the Federal
Reserve normalizes monetary policy
23
Source: IHS Markit © 2017 IHS Markit
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
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Prices in the oil complex continue to rebound
24
Source: IHS Markit © 2017 IHS Markit
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
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