By Michael Hicks
Guest Columnist

The U.S. Department of Commerce is reviewing the National Income Accounts, which measure the size and composition of our economy. This process is undertaken every few years, as better measurement tools are available. Right now, the data only extends back to 2017, but it tells a few interesting stories about the Hoosier economy.

Michael Hicks

From 2017 through 2022, the Indiana economy grew more slowly than the nation as a whole. In inflation-adjusted terms, the Hoosier economy expanded by 10.8%, while the nation as a whole grew by 11.3%. That trend continues our long-term underperformance. But, the dismal growth of 2017 through 2020 accounts for all the lagging performance of the Hoosier economy. The expansion from 2009 to 2019 was the worst relative performance of our economy in state history. By 2019, the Indiana economy was slipping into recession due primarily to the tariffs put in place by the Trump administration.

During the post-COVID period, Indiana’s economy has grown steadily. No matter which period you examine from 2020 to 2022, we ranked among the top six states for economic growth post-COVID. There are two clear reasons for this.

The first is the American shift of consumption towards manufacturing. From 2017 to 2022, American household consumption of durable goods grew by 316 billion dollars, or 17.7%. All of this shift occurred from the start of the pandemic through late 2022. This shift is partially attributable to the low levels of travel and tourism the nation experienced in 2020. But, the vast majority of increased demand for manufactured goods came from federal stimulus payments in the CARES and Pandemic Recovery Act.

A whopping 46.4% of Indiana’s GDP growth since the pandemic comes from the manufacturing of goods. However, almost all of that growth was due to federal pandemic spending. That spending boom ended in mid-2022, and the Indiana manufacturing sector has actually shrunk over the past six quarters. In fact, most of Indiana’s economy shrank over the past 18 months, since the pandemic stimulus spending ran out.

In fact, just four sectors account for 85.8% of our state’s growth since the end of stimulus. These are retail, transportation, information services and professional and scientific services. Taken together these data tell a pretty clear story. Indiana’s slow growth during the last expansion from 2009 to 2019 hit a tariff wall in 2018. That pushed us into an early recession. Then COVID hit, and the U.S. economy slumped to Great Depression levels of joblessness.

The quick rebound was concentrated in the manufacturing sector. Some of that shift was due to consumers substituting RVs, patio furniture and new carpet for the Disney vacation they couldn’t safely take. The largest causal factor in Indiana’s rapid post-COVID growth was the series of federal government stimulus checks. Those stimulus payments have been spent, and the result was a shrinking manufacturing sector since mid-2022.

The Hoosier economy is now returning to a more pre-COVID trend, with growth that is slower than the nation as a whole. A more interesting story is where that growth is occurring. Before COVID, the geography of economic activity continued to occur overwhelmingly in the Indianapolis metropolitan area. So far in this century, Indianapolis and its suburbs have captured 82% of the state’s population growth and 105% of its jobs. Over the last year for which we have data, that has fallen to 70% of population growth and 50% of job growth.

The post-COVID world is one in which remote work is now common, and as many as one in three Hoosiers have some remote work options. That allows families far more flexibility in their choice of locations. This has meant departure from the largest city centers, for suburbs and smaller towns.

From 2000 to 2022, Hamilton, Hendricks and Marion County alone accounted for half the state’s population growth. However, from 2020 to 2022, Marion County was one of 34 Hoosier counties that lost population. According to the IRS files from 2020-2021, Hamilton County was the number one destination of previous Marion County residents. In fact, the growth in Hamilton and Hendricks counties were so strong, that together they accounted for more than half of all the state’s new residents since 2020.

The other counties that accounted for more than 5% of the state’s population growth were Allen, Johnson, Boone, Clark, Hancock and Tippecanoe. Altogether, eight Hoosier counties accounted for 97.2% of post COVID population growth. Five of these were in the Indianapolis metropolitan area.

The new GDP data offers some tantalizing evidence that we are seeing an increasing separation between businesses and household location. The Indy metro area is the perfect place to explore this. From 2017 to 2022, the period of revised data, the Indy metro area claimed 38.3% of the state’s GDP growth. Marion County alone collected a quarter of the state’s GDP growth, along with 7.1% of the state’s population growth. But, since the COVID downturn, Marion County continued to hold 25% of the state’s total GDP growth while losing more than 7,000 residents.

I apologize for all the data here, but a quick narrative summary might pull it all together. Since the end of the Great Recession, the Hoosier economy has performed poorly, growing slower than the nation. This left us slipping farther and farther behind in terms of income and prosperity.

The one astonishing bright spot has been the performance of the manufacturing sector in the first 18 months after COVID. This burst in manufacturing production was caused primarily by the federal government stimulus, which was exhausted by the middle of 2022. In the six quarters since, Indiana’s manufacturing sector shrunk modestly.

At the same time, population growth is happening in a modestly broader set of counties. The shock of the pandemic is too recent to make clear if this is a permanent trend, but it does suggest that as Indiana returns to a pre-COVID economy, more Hoosier counties might expect to pull in a larger share of new residents. This of course means places must becoming more like the successful counties of Hamilton, Hendricks, Allen, Johnson, and Boone.