indiana economic outlook - in.gov · 12/15/2016 · indiana economic outlook presented to: indiana...
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© 2016 IHS Markit. All Rights Reserved.© 2016 IHS Markit. All Rights Reserved.
Indiana Economic Outlook
Presented to:Indiana State Budget Committee
December 15, 2016
Tom Jackson, Principal Economist, US Regional
© 2016 IHS Markit. All Rights Reserved.
President-elect Trump’s domestic policy platform
• Reform personal income taxation, reducing the number of brackets from seven to three (12%, 25%, and 33%)
• Reduce the corporate income tax rate from 35% to 15% and apply the 15% rate to pass-through businesses
• Repeal and replace the Affordable Care Act
• Increase spending on infrastructure and defense
• Freeze hiring of federal employees to reduce workforce by attrition
• Cancel executive actions taken by President Obama
• Ease restrictions on energy production, allow pipeline projects to move forward, and open federal lands for energy exploration
• Change Dodd-Frank financial regulations
2
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Policy changes in the December forecast
• Personal income tax reforms that lower the average effective tax rate from 21.0% to 19.5%
• A reduction in the statutory corporate income tax rate from 35% to 20%, the rate proposed by House Republicans
• A $250-billion increase in public infrastructure investments over 10 years, financed by tax receipts from repatriated corporate profits
• Federal Reserve policy rate increases of 75 basis points in each of the next three years, bringing it to a long-term equilibrium of 3.00% (an upward revision of 25 basis points)
3
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With productivity rising, real US GDP growth will outpace employment growth
4
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US real GDP and payroll employment
-9
-6
-3
0
3
6
2007 2009 2011 2013 2015 2017 2019
Perc
ent c
hang
e, a
nnua
l rat
e
Real GDP Employment
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Indiana’s real GSP growth also outpaces economic growth, indicating higher productivity and wages
5
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-6
-3
0
3
6
9
12
15
18
2010 2012 2014 2016 2018 2020
Real GSP Employment
Indiana real GSP and payroll employment
Perc
ent c
hang
e, a
nnua
l rat
e
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Key economic indicators for Indiana
6
Percent change
2015 2016 2017 2018 2019
Payroll employment 1.9 1.2 0.8 0.9 1.1
Unemployment rate (%) 4.8 4.7 4.3 4.1 4.0
Wage income 4.8 3.4 4.4 5.1 5.2
Personal income 4.0 3.4 4.2 4.8 4.9
Real gross state product 1.4 1.7 1.9 2.3 2.1
Personal consumption exp. 2.4 3.6 4.7 4.5 4.5
Housing starts (thousands) 16.0 19.0 20.6 21.9 22.7
Share of multi-family (%) 22.6 21.1 20.5 18.4 17.2
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Indiana’s job growth lags as some manufacturing gains reversed
7
Source: IHS Markit © 2016 IHS Markit
-3
-2
-1
0
1
2
3
2010 2011 2013 2015 2017 2018 2020
Indiana United States
Indiana employment growth vs. United States
Perc
ent c
hang
e vs
. yea
r-ag
o
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Higher productivity, fewer available workers will translate into higher wages
8
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-1
0
1
2
3
4
5
6
2010 2012 2014 2016 2018 2020
Indiana United States
Indiana wage growth vs. United States
Perc
ent c
hang
e vs
. yea
r-ag
o
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Health care a steady job provider, while manufacturing fell back
9
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-8 -4 0 4 8 12 16
ManufacturingProf. & business services
InformationUtilities & miningWholesale trade
Other servicesFinancial services
Federal governmentState & local govt.
Transport & warehousingEducation
Leisure & hospitalityConstructionRetail trade
Health & social servicesChange in Indiana payroll employment, Oct 2015-Oct 2016
Thousands
Job change = 30,200
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Peak in vehicle sales will limit further gains in auto manufacturing sector, a major Indiana employer
10
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US light-vehicle sales have peaked
0
4
8
12
16
20
1980 1985 1990 1995 2000 2005 2010 2015 2020
Mill
ions
of u
nits
, ann
ual r
ates
Total Cars Light trucks
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Professional/business services, construction will supplement further gains in health care sector
11
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-5 0 5 10 15 20 25 30 35 40
Other servicesEducation
Federal governmentRetail trade
Utilities & miningFinancial services
InformationWholesale trade
Transport & warehousingManufacturing
Leisure & hospitalityState & local govt.
ConstructionHealth & social services
Prof. & business servicesChange in Indiana payroll employment, 2016q2-2019q2
Thousands
Total change = 87,850
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Job growth concentrated in Southeast and West, following migration patterns
12
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Employment growth, 2017 vs. 2016
Percent-0.5 - 0.0 0.1 - 0.7 0.8 - 1.2 1.3 - 2.0 2.1 - 3.3
Indiana 0.8%US avg. 1.3%
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Continued economic growth will require more workers – many states need increased participation
13
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58
60
62
64
66
68
70
72
1980 1985 1990 1995 2000 2005 2010 2015 2020
United States Indiana
Labor force participation rate beginning to increase
% o
f pop
ulat
ion
age
16 &
over
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Indiana population growth relatively slow, but outpacing most neighboring states
14
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Population growth through 2021
Percent0.0 - 0.40.5 - 0.60.7 - 1.01.1 - 1.9
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Home-building increasing steadily in Indiana, but certainly not booming
15
Source: IHS Markit © 2016 IHS Markit
05
101520253035404550
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Multi-family Single-family
Indiana housing starts continue their gradual rebound
Thou
sand
s,an
nual
ized
rate
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Consumer spending moving away from items subject to sales and use taxes
16
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0
50
100
150
200
250
300
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018
Health care services Services ex. Health care Non-durable goods Durable goods
Personal consumption expenditures continue trend toward services
Bill
ion
dolla
rs
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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
• 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
• Manufacturing still a key component of state’s economy, but gains in output won’t translate into much job growth> Out-migration of jobs is one factor, but automation still looms> Strong dollar will weaken competitiveness in global markets
• Service sector can be supported by strong education system, attractive business environment> High-tech sectors showing growth and innovation
17
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Forecast track record
18
Percent change
U.S. GDP Indiana Employment Indiana Income
Forecast date 2015 2016 2015 2016 2015 2016
Dec 2014 2.7 2.5 1.7 1.3 4.0 4.5
Dec 2015 2.5 2.7 2.2 1.5 3.8 4.1
Apr 2016 2.4 2.1 1.9 1.7 4.0 3.7
Dec 2016 2.6 1.6 1.9 1.2 4.0 3.4
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US economy “appendix”
19
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US economic growth will strengthen
• A more-balanced US expansion is emerging in late 2016, with personal consumption, fixed investment, and government spending all rising.
• Consumer spending will increase at a moderate pace, sustained by growth in employment, real incomes, and household net worth.
• Business fixed investment has made uneven progress but could benefit from an improving tax and regulatory environment.
• With demand outpacing supply, housing markets continue to recover.
• Fiscal stimulus, accelerating prices and wages, and strengthening loan demand will lead to higher interest rates.
• With commodity prices recovering and labor costs accelerating, inflation and interest rates will rise.
20
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US economic growth rebounds in 2017 and 2018, as consumer spending and business investment lead
21
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Job growth slows as US approaches full employment, while inflation picks up
22
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Retail gasoline prices are beginning to recover
23
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Retail gasoline price and annualized spending on motor fuels
1.0
1.5
2.0
2.5
3.0
3.5
4.0
1.0
1.5
2.0
2.5
3.0
3.5
4.0
2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Thou
sand
dol
lars
/hou
seho
ld
Dol
lars
/gal
lon
Retail gasoline price Spending on motor fuels per household (right scale)
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Renewed strength in dollar will make U.S. exports less competitive in world markets
24
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Real trade-weighted dollar index peaks at end of 2017
0.6
0.8
1.0
1.2
1.4
1.6
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Inde
x, 2
009
= 1.
0
Major trading partners Other important trading partners
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Surpluses in services trade partially offset US deficits in merchandise trade
25
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US net exports, NIPA
-1000
-800
-600
-400
-200
0
200
400
1980 1984 1988 1992 1996 2000 2004 2008 2012 2016 2020
Bill
ions
of d
olla
rs, a
nnua
l ra
tes
Goods and services Goods Services
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Interest rates will rise as the Federal Reserve normalizes monetary policy
26
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Key interest rates
0
2
4
6
8
10
12
1990 1993 1996 1999 2002 2005 2008 2011 2014 2017 2020
Perc
ent
Federal funds 10-year Treasury 30-year mortgage BAA corporate