lndiana Business Research Center, Indiana University School of Business
Indiana Business
VlCW
Volume 63. No. 2 J u l y 1 9 8 8 The National Outlook
Bruce L. Jaffee J. Fred Bateman R. Jeffery Green George W. Wilson Michele Fratianni Donald L. Tuttle
The Outlook at Midyear / 2 Consumplion Spending / 3 Investment Spending / 4
Government Fiscal and Monetary Policy and htlation / 4 The International Economy / 5
lnterest Rates and Financial Markets / 6 The lndiana Outlook
Morton J. lvlarcus Robert Kirk
Robert Jost
Ashton Veramallay Patrick N4. Rooney Thomas L. Guthrie
lvlaurice Tsai John E. Peck
Marvin Fischbaum Leslie P. Singer Fay Ross Greckel
Gilbert Crouse and Jerrald Fox Gerald J. Lynch
lndiana: Doing Better, and Hoping for Betler Still / 7 Indianapolis / 9
M u n c i e / 1 0
Richmond-Connersville-New Caslle / 1 3 C o l u m b u s / . 1 3
Forl Wayne / 15 Evansville / 16
South Bend-Mishawaka/Elkhart-Goshen / 1 7 Terre Haute / 18
Gary-Hammond-East Chicago (Calumet Area) / 21 Jettersonville-New Albany (Louisville Area) / 22 Anderson / 25
Latayetle / 27
2/ lndia.a Business Relicv
i n m e m o r i a m . . . The Outlook At Midyear
Gcorgc W. Starr served as Director ol thc Bufea ofBusiness Rcsearch in thc lndlana Urivcrsily School of Bnsiness longc. than anyone elso. From 1927 to 1954 Star., who came to I.U. fion1 Ohio Statc Unilersitl', molded the programs ol 1lo Burcau and helped edabljsh L}c l . a d i t i o n t h a t m a d c i t onc oflhe mosl respeclcd organir0d rcsearch rnits in tie
A c t i v e i n t h o U n i v c r s i t y a n d in t h c
! l l l o , G e o r g e S t a r r $ ! o t c a biwcckly c L r l ' r]:|,n fat lllc lldiottupolit S].t/, scrvcd or boards and curmitrccs wbere his advicc was vi,[rod, consr]tcd and airlcd lndiana g o v c r n o r s o f b o t h p a . t i o s , a r d t . L r g h l i D t h c S c f i o o l ' s g r o w i o g l f a n s p o r t a t i o n p r r g . r n r . A f t c r h o lc l i t h o ti L r f c r r i n l 1 ) 5 4 , h c c o n t i n u c d o n th c l. r c n l l y u n l i l h i s rc - t i r o n r c n l i n l 9 ( , 2 .
n fcrv wL'cks ago, at (hc rgo ol ()5.
( ; o o r g c S t r r r d i c d . l- l i s l r i c o d s a D d t h o s c who hrvo iihcritcd his logacy cxlor(l r h c i f s y m t ' a t h i o s t o h i s w i d ( n v , C l o c i l c , r n ( l fu m i l y .
Brucc L. Jaffee
Pnlessot ol Busrrcss Econontics stid Public Poliq, Indiatn Uni'etsitt School
Last Decenber we forecast thal lhs nationll economy in 1988 \rould narrowly avoid a recession. Spccificaily, wc pre- dicled that real (iNP lor thc yc r would i o c r c l s c b y l . ! ) ' - 2 . T h e e c o r o m y l u r c d i n .r surtrisingly strorg pcrlbfnrancc ru ca!ly 1988, howcvcr. and wc havc revised our forocasl ol rc!l (;NP upward to 2.5%,.
l h c c c o D o m y s c c m s t o h a v o s h a k e o l l ' t h c l c ! . s a n d u n c c | 1 a i n L y r c s r l t ; r e bo last Octubcf's stock nrrrkcl c(rsh.
A l t h o u r h t h o c r a s h ' s r r n i l i c r l i o s : r r o s ( i l l : r l t c c L i n g l i n r n c i a l n r i r k L x s . c o n s u n r c f s p c n d n r g l n d o v c m l l b n s i n c s s i n v o n t ] r c r r c o n t i r c to g f o w r$ if i l h u d n c v o r o c c u r r c d . A t thc end ol lr87 oLf con' c c h r s w c r o l h r l c o n s u n r c r s p c n d i n g r n d b t r s i D o s s i r v c s t n l o n L w o L r l d l u . r c r u t i o L r s . B u l constrmcfs c o D r i r l L l o t o i n c f o i r s c spending in fcal LcnDs on tlLrrablc goods, r n d b u s i r c s s i . v c s t n r e n t c s t o c i l l l y l o r conlpuler iz.rtion, tclccommLrnicrli(!rs eqLripneDr, rDd gencr:il nrodcrniTrtiur js continLring rpacc. Aulomobilc srles arc esFcially slrong. As t|e vcll| bcgrD, nr rcntory lcvels (Jl .rLrtonrobilcs wcre 1,ery high. However, ircrorsos in pcrsonrl incone, ligh levels ofconsuncr colrli dence, and najor rnd widosproad rcbate pfografls by doincstic produccrs hale led to sharp increases in auiomobilc salcs and resulting reductions in in!enlory
Our trade situatian cattinues to improve--u we lorecast. Tlrc dtiving Jbrce behittd this inprove- ntant $ the export sedor.
O u r t r l d c s ; l u a t i o r c o D t i n L r e s n r i n l p r L , r c r s r v c f o r c c a s t . T h c d r i r i n , j J l r i : b . h i n d r h i s im p r o v e n e n t is t h c . \ r . , l s e c l o r : A n r c r i c a n s c o n t i n u e l o b u r l r : - - anounts ol lorcign goods, in spitc oi c.t t i n u ; n g d c c l i n c s i n t h c l , a l u e o t t b c d o l l r r . c o \ c r n n r e n l n r o D c r r r y t o l i c y l u r n c d c r panlioDisr tollowin.q lhc cfash, bu r e c e n t l y h x s h c c r ) m c D r o | c c o n s o r \ a l i v c a s th e f . o d c r n l l r r s c n c B o i u d h l s s h o w n a c o n c c r n a b o u t in l h l ( r n . l h c u D c n r p l o l nrcnt rntc is al iG IL)\\'cst lcvcl ir this d e c a d c ( 5 . 4 t i , in A p r i l ) . ' l ' b c l a b o r li r r c c p a r l i c i p n l i u r t a l c h r s b c o n r l o r c r r rocord high lcvcls sinco the li)llrth qur.tcr oi 1()87. tlvoo lrrnr inconlos hrv!
s h o w D s o n c i n 1 p r ' ( ) l o r r r o n t i n t h o l a s t s i x n ( ) D l h s , N l i o r b c i n g in t h c < l o l d t u m s l i r r t h o I n s t l c w y c r r s ' l h c r l r o u g h t i s li k r l y t o r c v c r s c t h i r l lr c D ( i , h o w c v c l
Lvcn lhnt inr:rtnt'.s ltttvt: sltot,tt sotnc iDrpnv(Dt(nt itr th( lost.ti-\
,tontlt:;, ult1-lxiing itl the dol' (LtLutLt Ior tlle larl leir ),ear\. Tlk .lraugltt is likely to hle5e tl1
T h o r o n . o s c v c r r l f o i r t s o l c o n c c r D , horvcver, itl tlis midlcrLf look rt rhe 1988 ocolrolnv. cntaciry urilizaliorl itl rhc m a r u h c l u r i n g s c c l o r js q u i r e h i d r r i d s u g g o s t s t h i l t i D f l l t i o n i r r ! trcssur c ( . r . L \ build. with relatively loN stenling .D p l a D t c x p a D s i d r s , m r n ! d o m r s t i r m i l n u f a c t r r e r s h a ! c h w r c s o u r c c s t t r c l l . c l significant oLrtpur incr.rs.s in th. ne\t l c r v y c a f s . A s D r c n ( i o D . d a b o t e . im p r o v c : m c n t s in o u r t r a d c b r r l a n c . h a l e c o m e prnnarily frD ircrerses in the den1and lor our dxports. Proteclionist eltbrts or weakrcsscs in dcm:rnd for our products by our trading parmers woukl be cause for grcaL conccm. Ahhorgh $,e expect on1) nodest increases in intcfcsl rntes George W. Starr
and inflation dur;ng the remainder of 1988, the lrends are cerlainly opposite of whal we have secn ;n the last few ycars, and may lead to deter;orations in consumer and business confidcnce. On balancc, however, wc bclieve that 1988 will proceed as we lorccasted last Dcccnber: a year otvery modest but positive growth.
Consumption Spending
J. Fred Baletnan
Chaitplison and Prclassot of B ritrcss Econonic:i and Puhlic Palic\,, Itkliatn Univur\itt School ol Busircss
The other shoc has nol Yol droppod.
l f o u r o r i g ; n a l f o r c c a s t h o l d s 1 r c , it pfobably ncvc. wiu. Last lall's slock- markct crash was widcly antidpalcd 1o
!ltcr consumcr cxpoclations, rcndcring bnycrs morc pessinrislic and thereby rcduchrg thcir spcnding. Thc domoslic domino thcory hold thal knocking thc consumcr prop oul iionl under the len':t|v ccononic cxDansion would evc"ntriallv b.ing on i rocossion. After all, the glooDy forecastcrs proclaimed, tho nation-in bolh lhc private and public sectors"had been on an cxlcndcd spcDding sprec thal bad propelled tbo U.S. economy duriDg the Reagan ycars.
Many, in fact, notcd thc irony ofthis prcsidctrt's almost Kcynosian encollrage- ment ofdeficits and spending. With thc privalc consnmer pxlling out oflhe game in a post-crash daze, they argucd, the game would be over.
Many, it1 fact, noted the ircny af tlis president's almost Keynesian encouragement oJ det'icits and spendinS,
In our cvaluation last tall, we could not foresee this turn o[ events. Wc thought thal consumer spend;ng wo ld tall s bstanlially bclow its growth rate in the rcccnt past, but we did not envision its t rdng negalivc. Consnmcr spending wo ld slip from its role as tie pri ary economic cngine for glowth in 1988, we bcliovcd, yet it would still provide a pos;livo contribution to tho economyt continucd oxpansion. Wc conchded that consumcr dorablcs would b0 thc nost weakly porforming consu ption 0ompo- nent'-but not bocause of psycb ologically_
i uced events emanating lrom the stock markct. (ji'en thc mass;vc p rchasing oi durables during lhc past severalyoars and the possib;Uly olsharply rising priccs for froducls mrnufactured ovorscas, we simply lbrcsaw a red cscl appclitc for aLrlomobilos and olhcr dLlrablos. On t!c othcr hand, wo cxpocted consunrptjon 01 nondrrrblos and scrvic0s to rcmain rclirlivoly robrKl. Scrviccs, whoso spond' ing rrcnd has bccn upwa lbr ycars, was anticipalcd to bc thc strongcst o[ thc consunplion componcnts lhis yoar. In light ot thoso olfscttiDg forces, wo bclicvcd that consrflcr spcnding would not bccomc a nogative cconomic force.
Wc asserted that "consumpliotl's rolo in propelling nationaL growrh will be dirninished subst.rDtially dxring lhc coming ycar," but that il would not induce a recession. T|o other shoe would not drop h 1988.
Patlly as a c:onsequence of reduced s avings, c o nsu mption s p e nd in?
renlained strcng ea l in 1988.
At m;dyoar wc see no reason lo a1!er that concl sion. During fhe fourth quarter of 1987 iotal durable goods ex' penditures did drop, prinarily becausc ()1 a slorvdorvn ir spending rclaled to notor
vehicle pu.chases, but botb nondurables and sorvices spending actually hcreased.
Partly as a consoquence of rcducod savings, consumplion spending remained strong carly in 1988. As a result, our confidence in thc origjnal consumplior Iorecast for this ycar is still high. There is a growing bclict arnong economists that th;ngs rnay not be so .osy during 1989, but that the worsening will not havc been causcd by the October crash.
The real historical lesson seenls to be that our institutions differ substqntially today honx 1929, lurgaly ar a result of e\pe ence geined in the Grcet Depression.
Why did nany cxpccl a sevcrc drop in consunrplior as a conscquoncc of tho stock markcl's bohaviorJ Sonro appar- cntly posscssod a vague leel;ng that
"son1clhing has 10 h{rppen" aLior such a traulnatic linancial convulsioD. TLe real economy, lheyhypothcsizcd, simply had to bc affected adverscly. Others relied on a nore lactual lbundarion. Using historical analogy, they saw distLrrbing parallcls between 1929 and 1987. Thc real historical lcsson, however, seems to be lhat our irstitutions difcr substan- tially loday from thcn, largcly as a resull ofcxperience gaincd in thc Great Dcpression- Thc Crash ol 1987 was the strongest tcst ycl ofthese new instilutions and ofour new ccononic knowledge.
Thus far, they and we bavc pulormcd well. while we cannot lorctell events olcr a longer term, wc car at least proclaim that the financial lunult in 1987 }as nol destroyed lbc consumption underpinnirg of the current cconomic
4 / Indiana Busine$ Rc"iew
Investment Spending
R. J€fferJ Green
Prclcssor of Ecoinnics, Intdia aU iveryity Our 1988 oxtlook for business spending on plant and cqu;pmcnl called lo. modest groMh. The strongest
components were expected to be business spond;ng on computers and telecommu- nication equipmenl, whercas spcnding on both residential and nonrcsidontial constnrction and invonlory invcslment woro brecast to lack lustcr. So far in 1988, wilh thc cxcoplion ot invenbry i n v c s t m c n t , l h c d i r e c t i o n s o f t h e t r e . d s h a v c b o c n a s e x p e c t e d ; l h c n a g n i t u d c s o l some ol 1h0 changcs havo bccn rcmark-
lt is likely that there are still oppor"
tunities for expanding the rcle of camputers in nany husinesses.
ln the last s;x months lonrosidcDtial invcstmcnt spcnding in constant dollars has grown al an annual rate of l1.6qa--fal greatef than thc 3.3% growth experi- enced in 1987. Much of lhjs groMh has bocn concentrated in spending on computcrs and information processing cquipment, which has riscn at an annual ratc of20.4% (in constant dollars) over the last six nonths. That rate is cleariy not sNtainablc, but it is likely that there are still opportunities for expanding the role ofconpulcrs in maDy businesses.
Spending on industr;al machinery has been fairly flat for some time, but it may cxpffience some pickup as export markets improvc and capacity bccomes increasingly tight.
Investnent in nonresidential struc tures has bccn in a slnmp for several years as a rosult ot overbuilding and the problems in thc pctroleun ;ndustry
(wherc rigs arc countcd as structures).
Ta\ reform also lessened the ta\ adlan- tagcs oi somc conslruct;on projec!s.
Nonresidential investmcnt ;n struclurcs.
in constant dollars, fell at an annual ratc ofmore than 57o in the fi.sl quarlcr of 1988. The level at thc ond o[ thc qua(cr was nore than 157, bclow the peak reached in the second qrarter ot 1985.
we nay be near a turnarolod in invcst ment in slruclures, with oil priccs stabi lizing, but our torccast is that such a tum will not occur urtil 1989. Somo snrall add;l;onal dcclincs arc cxpected fbr the rest ot 1988.
negati\e governmenl purchases and in- crcascs in farm invcntories. Commodity pric.s in ihe nrst qLrarter were high r.lrri\. to support pices, so farners paid .,ti rhc ir lo.rns \rith thc anticipation of sclling rh. crofs. This is a temporary ph.n(im.non. horvever. and inventory i n \ e s r m . n r s h o u l d b e lo w e r i n c o m i n g q u a r t c r s t h i r n i l \ v l s in thc lirsl quarter.
T h c o \ . r a l l i n \ c s l n r c n t o u t l o o k i s m i x c d . S p c . d i n g o n h u s i n c s s c q u i p m e n t w i l l r c m a i n s t r o n g h u t s i l l b c p a r t l y o f f s e t b t - d e c l i n c s i n s t e n d i n g o n r e s i d e n - t i a l a o d n o n r c s i d c n t i i t l s t r L r c ( u r c s a n d in i n v c n t o r y a c c u n u l a t i ( ) n . \ \ ' . now crpccl l o t a l in v c s t n o n t s p c n d i n s l o r i s c r l o n 1 2 7 , a b o v o t h c lo v c l o l l 9 S t . p r o l i d i n g one ol thc nrrjor sourccs ot economic growlh lbr 1988.
Government Fiscal and Monetary Policy and Inflation
Distilguishcd Prolessat al BulinLt\ Ee nonlic! und PtLhli( Polk:\,, Itklktr| U,^4
sitt School ol B sitlt \\
The surprising srrcn{rh ol lhe cconomy. sho\vn b\ rh. firsL quartcr\
GNP growlh. is \\clcomc nc\!s irdccd.
T h c h u g c i n v c n t o r r h u i l d u p i n lhe last quartcr ot 1937. itnd rhc wide beliet in the negxtive rnd p..mrncnt inrpact of t h c O c t o b e r m r r l e r c r a s h n p o n c o n ' sumer stending x ;d overall unccrtainty and caurion. Ld ro cxpcctation! ol a sluggish lirst hrll, and certainlli a sluggish l i r s l q u a r r c r . o l 1 ! S 8 . T h e r e p o e d 3 - 6 % real CNP gro\\1h isjLrst slow cnough to allay leirs otgurhering inflation (it is belov lhe 3.8t;.5--1--'r, and,1.47. groMh ratcs for thc first quartcrs ot 1985, 1986, and 1987) and strong enough to reinforce the views that the economy is still on a bit of a ro1l. Ccrtainly it portends no reccs sion during 1988. Inlact it strongly altcsts
The outlook lor reside tiul invest- nent it not pqrticula y brigllt. We eryect housing sturts to decli a ir1 conlLng mantlrs Q, nonSqge rdlcs ntove higher.
'l'hc outlook lbr rcsidontial invosl nrcnt is Dot parliculxrly bright. For several nonths. housing slarts hr\'c hovered a! an anDual rate in the ncigh- b o r h o o d o l t - 5 m i l l i o n , b c l o w t h c ic v c l rcached in 1987. Rccontlyj inLcrcst ratcs have begrn to move xp. We oxpocl housing starts to decline in coming monlhs as norlgagc ralcs movc higher.
lnvenlory irvestment lvas very strong in 1987, and lasl ycar ondcd with consid- erable excess automobilc invontorics. A(
a result, we expected invenlory invcsL ment to be much lower in 1988 than in 1987. The results for the firsl quarter oi 1988 show a substantial reduct;on in non- farm invcntorics, as cxpcclcd, brt in ad- dition show a large, uncxpcclod increase in farm inventories. This incrcasc is thc result of farmcrs' paying offgovernnent Commodity Credit Corporation loans and taking control ol tbe invcnlo.ies.
when such loans aJe nade they are counted as government purchases, and ii they are p.id off, they are counted as
to the fesiliency of the economy, which conlinues to grou dcspite the above- noted contract;onary forces and evcn rvith very largc aclual reductions in rcsidsnt;al constrrction and federal government sponding duing the quarlct.
The rcal market economy conlinuos to oulporforn its vacilatory, lvimpish financial counterpart.
Tlrc reportecl 3.6Vo real GNP gro\rtl1 is just slow enough b allay fectrs of gathe ng inflatio and slrcng enoutih to reinforce the
\tiaws tlut tlrc ccenotny is sti on a
W h a t t h i s a l l m c a n s ; s t h a t li s c a l policy..rr slay o. tho track outlincd hcrc last Dccombcr loward a tiscal ycar n o m i n a l d e t i c i t o f l c s s t h a n $ 1 3 0 b i l l i o n . This was based upon a groML in noninal G N P o l a t l c a s l 7 % t h a t s h o l d l r a n s l a l o into a ronghly cquivalenl incroasc in Icdcral governmenl rcvcnucs. Il olrtlayi can bc hcld to abont a 47, incrcasc, then a budger deficir oi$126 billion is achiev- able. 11 should be noted tbal lhis ligure js well bclow the (iRH targcl for 1988 ($ I4,l billion) and cvcn further below the OMB and CBO esiimatos of$147 bitlion and $157 billion. Yet the assumcd growth ratos of 7% and 4'l, sccm morc likely now, since federal spcndirg fell sharply during the firsl quartcr and nominal cNP has averaged more than a 7%
incfoasc over the last lwo quartcrs. In addition, dofcnse spending will grow morc slowly, in bolh nominal and real lcrns, from now tbrough the early 1990s.
With a litde lucli and some conscioxs ef' forls loward slowing enlillcmcnl outlays (espccially unemployment compcnsadon and larn price supports), i1 should be possible to contain outlay increases to tlc 3'57, range. If so, by fiscal 1993 lhe
federal brdget will be in balance. This is nol ncccssarily good news, but it ll make a lot ofpeople happy.I give one chocr lor fiscal "policy."
MonetarJ Policy ard Inflation
With the threal ol an imninent reccs sion fading, t! tcw signs yet olscrious inflationary prospccls, and evidence itr real te'ns that thc lrade deficit is in- proving, ths Fed nccd do little moro than walch cvents carefully ovsr l}o nerl scvcral months. The Fod's goal (an' nourced Feb.23 24) of targeting M2 and M] growth ralcs at bctwccn 4'87, to
"suppo( cconomic growth at a pacc tha!
is consist0nl with conl;nued exlcfnal rdiustmont and progrcss ovor limc loward price stabiiity" sooms rcasonabl0 o n o u g h .
T h u s , w h i l c r l l i s n o l r i g h t in t h c o c o - nolnic world, 1l)88 is slartirg out bc(cr t h a n m o s t o f u s th o u g h t . F o r t h a t I g rdgingly concodc rwo chccrs.
The International Economy
Michel€ l'ratianni
Prclessot oJ Busitlet.\ Etottonlics atd Pttblic Polic!, ttdilit1a Ulivenit! School ol Busircss
In 1fic Dccomber 1987 issuc ol the 18R, we wrotc tha( the sizeable incrcasc in U.S. ncl oxpo(s was causcd to a large cxtent by the depreciation oflhe dollar.
Wc also qucslioned whether tho cx chxnge rate by;tself could turn around thc U.S. currcnl acco nt. To quotei
"There are many econonists who arguc thai, given the slow progrcss ot interna- tional cooperatior! the dollar ought to be allowcd to seek ils natxral valuc -the valre that would rcslore equilibrium ;n the curreDl accounl. The difficulty witb this. . . is l}at cxpocled depreciations ol
thc dollar wo ld trigger sales of foreign' owrcd U.S. govornmcnl secudties, an action that would force interest rates to rise in thc United States. Another diffic lty with additional dollar devalu- ations is that the inflation rate would be advcrsely affected. The Fcdcral Roscrve Board would hav€ to lighton monclary policy to oflscl lho pricelevel conse- quences of the deprccialion."
The strength of the U.S. economy, coupled with a large Federal budget deficit, tnakes additional dollar devuluationti vitlually inevi-
Six monlhs latcr, tho analysis remairrs valid. Thc U.S. cconomy has rcmaincd sLrrprjsingiy strong. Tho uncnlployncnt ratc is approxinately 5.57,, a tull per- conlagc poinl below tbe levcl ofa year ugo. Economic acrivity is putt;ng upward pressurc on inlcrcsl ralcs. Despite a rcla- lively stablc paltorn of prices, thcrc;s a growing consensrs that thc dircction of thc inflalion rato is changing. According 10 a recent survey, purchasing managors are reporting highcr pricos, more
shorlagcs, and increasing backlogs.
The strength otlh{r U.S. oconomy, couplcd with a large Federal b dgel deficit, makes additional dollar devalu- ations virtually inevirabLe. The U.S. dollar has lost ground rolativc 1o major currcn cies, in particular the Deutsche mark and lhc Japanese yen, since the cnd ofthe year. Official interventions in the ex- chaogs narket will slow the doliar decline but cannot slop it. An average dollar depreciation of5 10% fron prosent \,ahes is probable.
New trade legislation would raise the ncertainly ofthe forecast- It is not clear that any proposcd bill, should the President sign il, would reduce the trade deficit. Foreig! investors may actually
6/ I.diana Busires Revlcw
Our expecLalions arc rhar thc prcsi- d e n t w i l l v c t o a n y Ii g h l ) tr,,rrclioni\r t r a - i s h t i o n , a s h c r i i L l c a d i c r rh,s y c i r , i,nd thal Congress will nol havc cnough votcs to ovcrfidc thc vclo. On this assumplion, wc rorccast nct cxpofts tn constut d o l l a r s a t il - 1 3 0 b i l l i o n l b r thc ycar.
place more funds in the United Srales to avoid thc costs of the added protection.
Thc nigher inliow of capilal wo d rcnd to apprecialc thc dollar and make the kade doficit largcr.
It ls not clear that u y proposed bitl, should the Presklent sign it, wauld rcduce the trude dertcit.
Interest Rates and Financial Markets
Don ld L.Tuttle
P,olexsot ol Fituncc, Itxlistru UtiNe\ity SchooloJ Busil,css
There is a consensus dcveioping rhal lhc U.S. slock market piunge in Octobcr had only a n1odcraling effccr on rhe cconony and ocononic grol}th. Thc wcallh loss and uDccrtainry gcnerarion thrr thc crash crcated only ssrved !o .llicr the economic posjt;vcs that wcre tr.qinning to bccome excessivc lasr fall.
Th. tcmporary respitc afforded by the slr fl oiisefting forces has run its coursc, h(\r.\er. and the economy is essentially hirck $her. it was in early Oclober.
ln mid \lav we raw low une ploy, .r:ni Dnd.rarelv high capacity utiliza- rL,,r. .r .rnrinuirg lrade deficir largely r t r . . . J h\ inrport p e n e t r a t i o n o f t h e i : . . , , r :nJurrrialized c o u n t r i e s , c o n ! i n u i n g _ : . . i : - r r . n c 1 r s . r n c r e a s r n g w a g e r a t c s ,
ncreasing restraint by the monctary aulhorities, and risins jnflarion. Thc result will iikely not be a reccssion dur;ng the lasl half of 1988, bur an cconomy rhai may approach 0% rcal growth by year's end and an inllation rals in the 5.5-67, r a n g c .
The downward novernent of rates anticipated f)r the :first qua er of
1988 has been retraced. Ile expect rates to mave lurther upwdrd.
N o t u n l i k c l a r c 1 9 8 7 , l h e y i c k l c u r y e lor U.S. govcrDn]cnr soc ril;cs in m;d- Spring 1988 rangcd liom abour 6.2% (lbf shorl tcrm) to abour 8.47, (for inrcrmc- dralc'tcrnt to about 9.2% (for lurg- tcrnr). Thc downwrfd nrovomcnl ol falcs
! n t i c i t u t c ( l I h r t h c ll r s L ! a r r e r u l i ' ) 8 8 h a s h e r n rctrJ((il. W < c\pi:cL r J r c \ ti, movc lu(hcr upwad, to about 6.5-7.57, f o r shorl-tern,8 5 - 9 7 , f o r in l c r m c d i { t c , tcrm, and 9.5-10o/, tor long-rerm Trctl.s- Lrries by thc end ol rhc year.
Tho upward trond in ralcs is likely ro bc gfadual and sonrcwhar errarict oco- nomic growlh is nor expectcd to be strong, priv!{te credil dcmand is casing, md thc Fcderal Roscrve will likoly altcmpt to mainlain an cvcn keel bec.tuse oftlro clection and problcms in rhe banking system. Moreover, a sccond stock market lumbie couid lcnporar;lv (or longor, depending on irs nagnirLrde and causcs) relcrsc rhe expeclod gradu.rl
Thc lbrecast for rhe stock narket is lor lackluster relufns lbr much oi the balanco of 1988, prinarily bscause market partidpants do not kDow how ro price th( percej!Ld hiaher risk erowina u u t o f L r 5 r O c t o b e r ' s c - r a s h . F a v " m b l e "
effects from corporate acquGition r c t i r i t v , a n absence o I r e w e q u i r ) \ u p p h . n o r m m e d r J l e r e c e s $ u n $ o r n e \ , bc[!r- than-expected corporare earnings,
lmproving monetary indicalors, and a stabilizirg dollar should not bc enough rc, overcome nce(a'nty worflcs. Shoutd intorest ratcs move ro tho high ond ofrhr projcctod ranges and therc be stronq cxpectations of a rcccssion in 1989,;roct prices could becomo cxtrerncly wlncr- able as thc cnd of 1988 aDoroaches. For this forecasr to be mor0 ;ptinr;slic,lwo things musl happen: thc eiolomy woul<1 have to cxhibit a stablc low-growth (appfoximately 1.5%) scenario inctud;ng s l u w e r c o n s u m e r - s p r n r J i n g . l o w i , r e n r r g y f c ( s , s u n s L a l l r r J r r ! e d \ r e r m , r n c L J r y poticy and lower intcfcst rarcs abrofld, a n d h i g h c r d o l l a r c x c h a n g c . a t e ; a n d the stock Drarkel wonkl Iavc 10 expsri, onco signilicantly Lrgcr corporale a c q u ; s i l i o n c t i v j t y .
Sltoukl ittterest rates nlove to tlrc high etd of the praiected runges anl there be strong crpectatians of a reccsrian in 1939, stock prices couh[ hecottte cx:cedingly
The resulr is x lbrocasr, in relurn/risk tcrnls, lhat is relirti!c1y tavorablc for nlonc! marliet rnstrumenls and hjgh, g r a d c . s h o n - m r t u r i t y ( 2 - a y e a t bonds, and relattrcly unfavorablc lor long- maturilv bonds and comn1on srocks. The rccommendcd asset allocation for the t y f i c a l b d l a r c . d a c c o u n r r e m a i n s 3 0 % in uish eq u iulen rs. 309.i, in shoffrer , highesr qu.riitJ- bonds, and only 40q,;n
Indiana: Doing Better, and Hoping for Better Still
Morton J. Marcus
Dircctot, lndiana Busine$ Research Cen ter, Indiana Unive\ity
The past year has been good for the Indiana cconomy. The rate ofincrease il1 employment in the state outpaced that of thc nation, as seetr itr Figne 1. While the nation has enjoyed emplolment gains of 3To,Indiana's rate of growth topped 47,.
ln each major catcgory ofemploymont except governnront service, the Hoosier stale has increased employment at a better'than-averago ratc.
These employmcntgains havc bccn translated into superior incomc growLb.
Indiana's ;ncreaso in personal incomc ;n the fourth quartor of 1987 (the last quaftcr for which we have data from the U.S. Bureau ofEconomic Analysis) was bcttor than the nation's and greater than tha( of any othor slate in the region (see Figore 2). ln fact, lor thc ycar from fourth quarlcr 1986 to tourth qua(er 1987lndiana also outporformod both thc nation and othcr statcs in thc rcgion.
In four ol the last five quatters, Indiana's personal income has isen faster than the nation's, a majar imprcvement from the preceding seven years.
In four ofthe last five quarters, lndiana\ personal income has risen faster than the nation's, a major improve- ment from the preceding seven years.
During those 28 quarters, lndiana's rate toppod the natioral growth rafc only fi\ro tirnes (see Figure 3). This sad record forced Indiana to trail the nation's progress both in the long recession of 1979 1982 a,rl in the recoveryperiod from 1983 to the present. ln Figure 4 ad the Tabl€, we can see that nominal personal income in the natior grew by nearly 40% in each phase of the business
Figure I
Percent Change in Employment 1986 to 1987
Figure 2
Growth Rates in Personal Income One yerr and one quarter
! 5
@l tesl,+iute,+
I rerr,+rresr,r
United Stales lndiana Illinois Kentucky Michigan Ohio Wiscon$n
8 / I n d a n a B u s i n c s R * l c w
Figure 3
Indiana Personal Income Growth Compared with the U.S.
Differences in percent chang€
cycle. ln the recession phase Indiana grew by lcss than 25%;in the rccovery our advance has been more in line th lho nalion's-a 367, increase in nom;nal
The result of these differential gro*lh rates was a decline of lndiana\ sharc oi the nation's personal income fiom 2.389:
i n 1 9 7 9 t o 2 . l l % i n 1 9 8 2 . S i n c c l h e n , during th€ long cxpansion! our sha(e has fauen 1() 2.04%- and it bit a ncw low ot 2.03% during thc third quartcr of 1987.
I
- t . 5
l 9 l l z l 9 8 l l 9 N : l
Tabl€
N o m i r a l G r o w l h R a t e s i 0 P c r s o n a l Inc0mr.
Rt.rt:ktt Hf.dr.,\
tr79 t9il2 J9U.t t9i17 t t . 9
l l : I 1 1 2 1 l I N D I A N A
-12,4 , 1 1 . 1
l igure 4
(lrowth Paths of Personal hrcom€
Recession and Recov€ry
T h i s y c r r s h o u l d s o c c o n l i n u c d g a i n s in the IDdiana econony. Total employ- ment should advanco by ncarly 8(1,00{) iobs, with norc than 80% of rhc gairs m a d c i n nonmarulrrcLuring b u s i n c s s c s . Real personal incone will also rise, l€d by gains in rcalwaecs and salarics.
These gains, howelcr, will not be sul' licient lo slop thc dcclinc in Lhc Hoosier slate's share of U.S. personal income.
Dcspitc gains expected here, the naliont economy will expand cven faster becausc nany ol tbc cxporl soctors curroDtly finding succcss in Ioroign markors, snch as computor and conrmunications e q u i p m o n t , a r c n o t h o a ! i l y r c p r c s e n t c d in I n d i a n a .
Thc picture for the state is cloudcd by the uncertainties created by the droughl conditions, whicb appoar to havc had a disproportionately adverse effect hcrc.
High farn.omnodity prices do not promise higher incomes, especially ifthc crop damagc cuts scvcrely into yiclds.
Farn proprietors' incone, nearly $1 L.t0
t 1 0 t : 1 5
r05 R
100
\919 19ri0 t 9 E I t 9 8 2 1 9 8 3 r 9 r J 4 1 9 8 5 1 9 8 6 1 9 8 7
billion a ycar, is no longer a najor laclo.
in ths state's total personal inconc (approaching $80 billion), but total larn sfiending rcaches into many sectors in many parls of Indiana. In addition,lhe high p.ofile of farm distress tempo.s the outlook held in manv businesscs and county seats across the stalc.
Becausc the state is composed of d;l lcrcnt areas subjoct to widsly d;verse in' iluonces, we oflor the follo\yj.g tog;onal r e p o r t s . I l i s our lopo someday t o h r \ ' c comprohensivc co!crage of thc slirlo.
Each issue ol Lhis outlook od;tion brirqs lctlcrs tiom readcrs who protcst thc c x c l u s i o n o f l h c i r c o u n t i c s a s ourwriters f o c u s o n th o m r i o r m c l r o p o l i t a n r r c l s . Wc rrc working t vrrd thc day lvhcn all a r c l s r v i l l b c i n c l u d c d , a n d rv c b c s c c c h t h c p r t i c n t i n d L r l g c n c c o l t h o s o c l l r r c D t ] y noglcctcd.
some oflhc forces tbat prevailed during tiro carly 1980s is possible. Thc dollar's apprccialion led to a ncccssary corporate restrucluring in nanuitLcluring; consunr- ers raised thcir standard oiliving by importing goods; omployment growth, basically in thc nonmanrfacturing seclor, also increascd. Thcse trcnds helped pus!
lndianapolis (along witb tbe Elkha(
l r c a ) t o t h e lc a d ; n p o p n l a ( i o n . e r o w l l , u t part by drawiDg Hoosiers froltr other
Since the dollar has now dopreciarcd against many forcign currcncies, infla- tionrry lorccs mry bcconlc stronger, m a n u l a c t u i n g li r m s w i t h c ) i p o n D r a r k e t s w i l l c x p c r i c n c c g a i n s i n p f o f i l s , t r n d t h o ratc ol lotal crutk)ynrcnt g(trvlh may l)o s l ( r w o d . l t i s o r s i o r t o r l t i $ o o u t l n r l v i a t ( x h c l i v i t y g f o w t h i n n l r n u l c t u r i n g r I i i i r i s ; o lh c s c f l i c c i D d t s l r i o s . A s d c - m a n d l i n m , r n n l l c t L l I c d c x p o r t s u n d c l p i t r l g o o d s i n c r c a s c s , ( ) U l p t r t ( r u l)o
;Dcrclscd via bolh p.oductivily growth r n d c m p l ) y n r o n t i n c r c a s c s . S t c c l a n d autos xro good oramplcs ol ildustrics lhrt havc rniscd laboL prodLrclivity s;gnili- c r n t l y d u r i D g t h c l ( l s l j s .
S o m o o l l h c r t l i n s i D hbor producli!- ity in mrnultcluirlg.rrosc fi,rm mrnulac' t r i n ' t li r n r s c o D r r r c t i r g ( m t scrviccs t o spociilizcd firffs tlut hr(l trkcn ldvrn- Lagc of cconomies ol scale and mrrkets r h i r h a d re t ' c h c d r l h r e s h o l d s i z e . l h u s . s o m c o f t h e d e c l i n c i D n a n u l a c t u r i n g enploymen! was oillct by incrcascs in tbo scrvice sector, parlicrlarly ir brsirtcss scrvices. Aus;ncss se.viccs tend to lro located in Lrrban areas; this sector has been a primary contribulor to Indianapo' lis' employnent growth.
whilc tIc nanni.tcludng sector was undor p.essxre to rcstruclurc under an appreciating dollar. firms in the servicc seclor may comc under incrcas;ng pfessurc to restructure unoor a oeprecl ated doilar. ll is possible that (hc service sector tnay Dot be as strong an crgine ot employmcnt gro\th in the short lcrm as ir li.d heen carlier in thc 1980s. For Indi anapolis this point ;s inportanl, becaxse thc cityt employment growlh has come liom non anufactLrring-primarily
business serviccs, health serviccs, constrnclion, and retailiDg.
Construction
Major construction proiccts sched- uled to bogin drri'g tho sccond halfof 1988 include thc Chclc Centre (down town) Mall, lbc Srate (Xfics Building complcx, and thc El; L;lly & Co. Labora tory. Maior ongo;ng projects will also contribulc lo conslructbn e ployment.
A ajor quosli()l] is $hethcr thc o l f i c c b u i k l i n g s w i l l b e o c c u p i c d . E x p a n - s i o n o f l o c a l fi n r s r v i l l n o t fi l l t h c c x i s l i n g spacc plLrs thc ncw spacc bcilg cur- plot!d; cllinls ufo hoing nrr(lc to lttracl l c n a D t s l r ' ( t D o u t s i d c o l l n d i a n a p o l i s . A n r l ! ' s i s o l I n d i a n a p o l i s o m p l o y n r o n l c h a n g c b y o c c u f a t i o n i n r i i c a t c s t h a t th e g r o w l h o l froloss;on r I o c c u p t r l i { ) n s , s u c h rs onginccrs, arch;1oc(s, physicirins, d c n l i s l s , l a w y o r s , r n d p u b l i c r c l a t ( ) n s s p c c i r l i s t s . h s b c c n L r t i d . H o w c v o r , cmploy cnt growth in lhc cxecutivc, Inanagcrial, and dnrnristral;vc occLrpr' l i 0 d s h r s b o 0 n s l o w c r . T h o s c a r c th o lvp,rs ol o{cupirtions associalod with corpoi'to hoadq xrtcrs. Sl. Louis, dn a r o i r t h r t h t l s n o l donc r s r v c l l a s I n d i a n irpolis in pcfsonal inconrc, has cxpd.!
e n c c ( l a n u c h la r g c , i D c r c a s c i n o m p l o y ' n c n t i n t h o c x c c u l i v c , n r a n r g e r i a l , a n d rdministrativc occupalions. Thcfo arc tcn major national hcadquarters in St. Louis.
Moreovor, fims are ;ncrcasingly evalLrat- ing rhc oxlent to which w91"1 h"l! . acccss to exccut've or prolcssronalJoDs tn mctropolihn arcas. St. Louis, Circinnati, and Columbus have cxpcfiiinced iarger c plotmcnl ircreascs in execntive occu- pirtions lor wonen than has I lianapolis.
As high-risc office buildings havc bccn conslrucled (parlicularly down- town), a need for nultistory auLolnobilc tarking struclurcs haq ariscn. Rcsponses to this noed have bccn given. Dcvclopcrs have takon into accoutit the verlical movencnl ofpeoplo in office towcrs via clevators and the verlical novenrent of cars vir garage ranps. Hotvevor, at ccrhin timcs of day poople and cars exlt thcsc struct fcs in largc numbers. Since
I n d i a n a p o l i s
Robrrt Kirk
Iaalcs\t ol Ecatnntics, ttldiatw u"niwr' I i L')- laotlrc U n ivu! ity o I I n di 4n a t)o I i r' Duta assistancc |nided by Ron ^'ldttil, Itulia d Dctd nntt of ED4noynknt atkl Assuming that thc Fcderal Rcscrvc takes an acconmodativc position toward the nrtional econony, the lndianapolis metropolitan cconomy should expand at a 3 47, enploynent growth rale. lf the Federal Rclerve shifts 10 a restr;ctivo policy,lhcn interesl ratc sectors, srch as housing, world bc negativcly affected, and the rate ofcxpansion could fall to lhc 2-3% range. Thc inventory ofhousing to bc absorbed is at its highost level of thc
1q80s. For mullifamily unils the rate is abole 10%. The singlc-family rate to bc absorbed is increasing, but fron a nuch l-ooking further ahcad. a reversal of
1rl / Indiana Busidcss Rcvicw
there is no pr;ce-ralioning mecianism to allocate the scarce street spacq the result can be (and usually is) t.atfic conscstion.
Thc cost to the automobile occupant is the opportunity cost olhis or her limc which varies among persons. As commer- cial and residential areas have developed.
farm'to-markct roads have beon con- verted to commuter highways. Neighbor hood residents are becoming increasingly vocal about the evolving traffic pal(erns.
One funct;on of an urban area is to promote contact and communication.
Citizens are beginning to cxpross conccrn abo t thc location and inlcnsity ot
developmcnt, and prossuro lor inlraslrLrc- ture rmprovomcnts contlnucs lo mount.
A dsl;calc balanco musl bc slr'uck bctwocn thc benefils and costs of
Comparativ€ M€tropolitan P€rformanca Recenl U.S. Doparlmcnt ol Com- mcrcc csrimatcs ofpcrsonai iDcome by mctropolitan arca arc prcsonlcd in thc Tabls. It indicatcs lbat lDdianapolis has done well within its region. In fact, cvcn h;gh-growth san Jose has nol donc much bcltcr in terms of rates of change. San Jose is a netropolitan area in which high Iand costs have iorced land-using pftxluction lacilitics 10 relocate outside
the arca rvhilc lcaving research and product development within the city. In- dianapolis does not havc thal problen, but strong commercial and residential conslruction growth has rcduccd thc supply of prirne, highly accessible sites.
The Table also illxstrates the varial;on in thc way urban arcas arc affccted by na- tional economic change, as woll as thc way they respond given differcnt mixcs of industries and competitive positions.
It must be remembercd that the national economy rcmains tlrc driving force behind the lndi.an- apolis economy; we are not self- sufficient.
As Indianapolis ovolvcs as a statc, rc- gional, and nalioual ceflter, it takcs on ncw lypcs oi activitios tlat providc now visibility and vitality. Howevcr, it mnst bc rcmombcrcd that tbo national ccon- omy rcmains tbc dr;ving forco bchind tho lndianapolis econony; wc aro no1 soll' snfficicnl-
Chansc, 1981-86, for Areas by Rank
M u n c i e
Robcrt J"st
ProJessot of Econoniict, Ball State Uni- Muncic rsccntly cclcbralcd thc grand opsring ot t|c downlowi l-lorizon Con vontion Ccntcr. Arch;lecturally atlractivc ili its own r;9h1, thc present Horizon Contor was transiormed tronl r formcrly vac..rtcd post officc building located in the hira( ol tho ci!y. Acrcss thc stroct lronl lbo Horizon Ccnlcr, thc Rad;sson Hotcl (formcrly thc old Robor(s l{o(ol), alicr s o v o r a l l a l s c s t a r t s a r d a r c c c n t f l i f t c l i o n w;1h brnkruplcy, is linally conlplcting its Iong-planncd cxplnsion that will cnablc it to adeqnateiy complonront thc Horizon Convcntion Contcr.
Two years.rgo, whcn thoso proposals wcrc boing mado (scc thc /an, July 1t86), this obsorvcr indicatcd thar rhc venlures werc rclativcly risky, but thal a success|trl ontroprcnourirl city mrst bc willing to takc tho risks associatcd wiLh imovalion and share powe. with the pri' v a t c s c c t o r t o I a c i l i t a t c c c o n o m i c d c v e l - opmcnt ol tho dccaying downtown area.
These developmcnts do roprcsont a monumcnt to whal busincss, govcrnnent, and labor-h short, lhc cotl1munity can accornplish by working togclhcr.lD the judgrnent of this wr;ter, even assrning good nanagenent they still renain isly l'entures, and only time will provide thc final answer as to their viability. Without these atlenpts, bowovcr, Muncic lvould end up a suburban spra\a'l around a decaying city center.
The netarnorphosis of the downto(,n silhouette is quitc imp.cssile. The Min- neldsta Cultural Center, linaDced by thc Ball Brothers Fourdatiorl, ii locatcd on a bluff overlooking the white River near thc norl|crn cnd ofthe downtown area.
T a b l c I Per Capita Pcrsonal IDconrr Sclected Metropolitan
INI)IANAPOLIS Chicdgo
Sl. Louis Dall.s
l9lJ.r
:llJ 1 0 3
\ 2 2 5 2 2l) 1 9
til 3 1 l 0 l
54 1 5 2 8
5
r 2 . 0 t 3 . 6
1 6 . 2 l 2 l i 1 7 . 2 1 5 5 1 5 6
t 5 0 . 5 0 . 7 ) 4 0 . 1 7 . 8 t . 1 s.rtu.: U S D.t.flh.nr nl Cotun.t.c 8ur.tu.l L..r."tn Anal\\L
T|is nagnificent strrcture is nownearing completion. Also near;ng complction is rhe attraclivc downtown office building rhat will house the businoss otficcs oilhe BallB.others Foundation and the (jeorgc and Franl Ball Foundation.
T h c construclion o f a n e w j a i l a n d just;ce center now has a green light, and tlans fbr a new city hall, a profcss;onal otfice building, and rivcrfront devclop' nrcnt are in the nak;ng.
l)cmogrrphic Trctrds and Prqiections Bclwecn 1980 and 19tJ5, the Muncic MSA cxtoricnccd a nc1 oucmigration l h . l m o r o t h a n d o u b l c d i t s lo w n a l u r a l r a r c o i i n c r c a s c , r c s u l t i n g i n a 4 1 % t J c - c r c a s c i n p o p L r l a l i o n . A s bstantial porti0n ol this dccrcasc was in thc rcl.rtivcly high-carning35'4,1 rnd 45'54 rgc grcLrls. Andorson sulfcfcd r coDrfir rablc out-nigrrti(D during thc saDrc p c r n and r consoqucnt 3 . 9 % p o p u l a t i r ( l c c l i n o i t h c s t a l c o t l n d i a n a n r a n a g o d l o rchicvc a nrcrgcr .257, iDcfeasD d ring l h i s p c r i o d .
Basollon sonrc ralher prinitivc id vancc itulicrtors ol popnlalion changc, l h i s a n a l y s l r c f o r l c d in l 9 U 5 t h a t th c g a p bctwccn the net our-nligrafion and thc natrral rale ofincrc.rsc appcarcd to be cloling. However, these indicators trrned ncgrlivc again in 1987, aDd roccnt topu lation data sulgcsts thal somo cxodus continucs- altbough it is bclow lhc ratc ol dccroase in the 1980-85 period. Recent data provided by the Indiana arsjness Rescarch Center and the lndiana Srate Board ofHealth pfoject a 1.67o loss of population for the Muncie MSA benveen
1985 and 1990. Figures for Anderson lir the sane period project a 1.3% decrease.
As 1990 is relatively close at hand, one Nould evect these projections to be close to the act al mark. The Anderson population total in 1990 would thus cxcccd Muncic's bv 11,000. On thc othor hand, the far more risky long-range proicctio. to 2020 has the Muncio populalion surpassing that of Anderson.
NlLrncie's population is projected to dccline by 1.6% betrveen 1980 and 202u,
whcrcas Andsfson is projccted to er?edence a 10.7% popuiation decline.
Wlil{r one must treat such projcclions with great ca tion, the direction oI the cbangcs if not thc aclual nagnitudes- dovetail with the concern er?ressed by 1|is aoalyst that Anderson wiU bc unablc to find conpa.ablc rcplacomcnljobs for the high-paying m anutacluring jobs being lost al its Gencral Molors planh.
E m p h y m € n t r n d I n c 0 m c
LIsing the ore reliablc cstablish n r o n l c n r p l o y m c n l d a l a , F i g r r c I i n d i - c a t c s l h a t s m p l o y m c n t i n Mundc porkcd i n 1 9 7 9 a n d (r o u g h c d i n 1 9 8 2 . P r c j o c t i I g lfi 1988 lrom lirst qr.r cr data, totrl cnploymcnt will probably sxcocd ihc
1 9 7 9 p c a k ! h i s y c a r . A n d c r s o n o p l o y ' m o n t r o n a i n s s u b s t a n t i a l l y b o l o w i l s 1 9 7 8 p o a k . a n d c u r r c n t d . r t a p r o v i d o s l i l t l c ovidonco ol inrprovcnionl. On tho othor
hand, Figur€ 2 rnakes it obvious that for the state of Indiana as a whole, establish- ment employment already subslantially excceds its 1979 pcak.
As the Tabl€ indicates, personal incomc gains tor Muncio and Anderson MSAS were subslantially below thosc of the state. There is m ch more variation between pcrccntags changcs in the payroll and personal income figures than one might be inclined to er?ect.ln the December 198718R, this analyst rsed thc tbcn-ava;lablo pryrdl data as a prorf i o r thc 1t85 and 1986 p 0 r s o n a l i n c o n e d a t a . U s ; n g a c t r a l p e r s o n a l i n c o n l c d a l a significantly altors tho findings oflfic
Dcllating the above pcrsonal ilrcomo l l g u r c s ; n l o c o n s t a n t d o l l l r s a n d c.lculat ing thc annualiTcd roal ratcs ol growth l b r 1979 8 6 r c s u l t s i n r linp.9% growlh por yoar lir l,o1h Muncic and Andcrson.
T h c s t a t c o f l n d i a n a , o n lh c o l h c r h a n d , F i g r r c I
Andcrson and Muncir MSAS
|]strblishment liNployn)rnt
! 1 8
97lt 19110 1 9 8 2 I 9 8 4 r9ri6
Sour..: tntirita D.pdnrt nt.fEurkrheht: 193tililutr art h^t quoficr tr. 1(^
t 9 E 8
12 / hdiana Busincs Reviev
Table
Indiana, Dclaware, and Madison County I'ersonal Income and Payroll (in $000,000$)
Crcrrh ln.atn. Arcvh Crofth lnton? Cro||th
r 9 7 4 1 5 9 1 0 . 6 r 9 7 5 1 6 2 t 1 . 6 r 9 7 6 1 8 t : 9 5 t 9 7 r 2 0 5 6 2 . 9 t 9 7 i J 2 5 1 1 t 2 . 8 t 9 7 9 2 8 0 ? 8 . 1 t9u0 2118.15. I l 9 l l I 1 l l l i 5 . ' 1 t 9 u t I r ) ? 1 . 6 t 9 8 l r 2 4 4 5 . 5 t 9 r i 4 3 5 5 1 3 . r l
2 7 1 1 6 . 0 r 9 7 . 2 9 8 1 5 . 7 r 2 . . 1 % 3 . 1 2 0 5 . 1 r 2 . E , n t 7 0 ? . 1 . 9 2 1 . 1 * . 1 t 2 9 , 1 . . , 1 l0 6ri .1573: 5
2.1..t ,l.9234.6 l J . l ' . 1 5 , 1 l l l o -0.4r{ 5648ri r)
5.5.X 1121\21
3 8 . 1 . 6
3 1 1 . 9 L 1 . , 1 4 t 0 . 3 t 0 . l % .161 7 12.5c/a 6 0 1 . 0 I 1 . 0 , [ 022.3 I 5'l.
6 5 r i . 7 5 8 % 611.6 :l.rl,/.
u t 5 . 0 6 2 . / ' il.1l.7 3 3t,i
6 t 2 . 1
7 0 2 . 5 E . 8 7 7 9 8 . 8 l 3 . 1 r / a 9 6 6 . 0 1 0 . 2 9 t . t 0 5 r l . 5 9 6 t 1 1 1 4 2 . 0 1 9 r , 1 1 0 . 0 - 1 . 1 %
| r J 9 . 0 5 2 t f 1 4 9 5 2 5 h ' h
492 8
4 8 6 9 - 1.27 5 6 8 I t [ 1 . n 6 3 1 5 | r . 5 % 7 1 0 . 2 r 5 . : l %
7afi 5 5.0?1
720 2 - 6.0.1
7ir5 | 9.07.
716.5 6.2./.
f r , 1 5 l l . 6 ' / a 1 0 0 8 . : 6 . 5 . ' z 1 0 2 9 . 6 2 . t ' t ; l 0 0 r 9 - 2 . 7 , i {
7 2 5 8
l 1 2 A 6 4 % 8 6 8 I 1 2 5 % 963 2 l0 9./.
1 0 3 , 1 9 1 4 ( / r t l z | 0 8 3 % t 2 9 0 9 | 6 % l:61 0 2 3"/"
1 5 9 . 1 4 l l l 6 % t 6 7 l 7 1 9 t f t t t l 2 0 1 . 6 9 ? I | 7'/r
I 1 . 4 . 1 ) 0 . 7 . 1
1 0 . 1 9 ?
5 . 5 7 grcw at an annualized 1.26oh taal lalc, roughly half the nalional growth ratc.
what doos this dcmograplric, employ- mcntj and pcrsonal incomc daLa tcll us?
Fif(, ;1 makcs it cloar that cmploymcnt numbers do not constitulc an adcquat'j proxy ior cconomic growth. Mundo lost roughly 5% ofits population belween 1979 and 1986, yct its omploymcnt figures are about to cxcced their 1979 pcak. But rcal pcrsonal income has cxpcricnced a ninusculc ratc ofgrowth. Clcarly Lhc lwo-breadwinnor fa ilies must havo grown at a prodig;ous ratc, and porsibly the numbcr ol individuals holding lwo job as well. Ho\\,ever, the new scrvicc jobs arc not payine ncarly as woll as the old manulacluring ones. Bctwcon 1979 and 1986, Muncic and Andersont manuf acluring cnplo',i1ent decreascd 28'/a and24% respeclivcly morc lhan doublc thc decline erperienccd by thc state. There apparcntly has been a rclati!'e real declinc in the well-being of a Iargc scgnent of the Muncrc and Ande.
Figure 2
lndiana Establishment Employmenl
-
r
: : 3
1 9 8 0 1 9 8 2 t 9 8 4
t.t\(: hklnttur D.radtt.nt .J E,trl.r,rent; tqas kur? i d\tt.r. .Ilnst qrtnct
Bichmond-Connersville- New Castle
scclor..lhc cconomic backbone of RCNC. Most local activity in this scctor generates basic components ior the lranspo ation ind stry.Ifthis induslry experisnccs a slowdown, adverse effects on regional employment, in€omo, and output will inevitably fbliow.
Desp;tc thc rclativs back{o-normal patterns in the consuming and producine scctofs, povcrty has incrcased in RCNC.
A b o u l 3 8 t , ol tls lamilies e a r n l e s s t h a n
$15,000 pef yenr; only 29, mlkc !i50,000 or more. Most ol the familios orrn between $15,000 and $35,000I ycar.
(jiven the high dcpcndcncy .atio, these poverty stalislics Nusl bo roversed ii the rrca is to l]void tho long-lernr conse qu{jncos of transfcr payments. Morcovor, aboLrt 407, oflhc .cgio s pop laliot 25 yoars and oldor do not havc a high scbool oducalion, which wiU uD(loublcdly J r n s t r a l c c c o n o m i c d c v c l o p D r o n l . I n l h e shorl run, howovcr, lhis phcnomcnon rvill nol hnvo ilny pcrccptitto olloct or thc ni.lycar cconomi. outl(Jok.
Columbus
Patrick M. Rooney
Assistant PtoJessor of Econonlits, IUPUI
Fourlh quartcr data (IV Q) revealcd a slight dcler;oralion in local economic condirions fiom tbc third qua{o. (IIl O), bu1 1987 represcntcd an improvomcnt over 1986 in n]ost arcas (sco lhc Tablr).
Thc numbor olporsors employed locally has rcnraincd fairly slatrle, growing only 1nh frcrn 1986 and3r/o tiofl III Q. Whilc both thc numbcr ol porsons uncmpkrycd ard thc uncmphynrcnt rato incroascd s o n r s w h a ! l i o n I l l Q to lV O, thcy bo(h loll try one'fourth liom ycar-cnd 1986- Additiorally, thc just fclcased unemploy- nent ralo for March was 4.8%, down
n
Ashton V€ramallaJ
Dicctor, Cctietfot" Econoni. Edrcatit l.
InLliana Univeryiq, Easl
The Richmond-Conncrsvillo Nc$, Clstlc (RCNC) arca cconomywill con' t i n u o i t s s l o w l o - m o d e r a t e g . o w l h r a l c in the renr ainin€i qu artcrs ol 1988. Thc ox' pcclcd shock wavss of last Octobor's stocl-markcl crasb havc not matcrial- izod. As thc national cconomic cxpansnm rolls on, RCNC will lollow in ;1s pa1h.
N,rtionally and locally, c([snn]or con' fidcncc is on thc r;sc. Cons0nrcrs arc not c u r t a i l i n g s p c n d i r g o n b i g . 1 i c k c l i t c m s such as automobilcs, homcs, appliances, cntcrlainnen( sets, and lurnituro. Thcir rccntry into thc narket angun wellfor tho rctail sector, which cmploys a signili- cant propo(ion of lhe local labor force.
F u r t h e r , r e a l p e r s o n a l i n c o m c g a i n s a n d tax rcfunds, along with a "no-recession"
syndfome, will enhance cons mcr spcnding. As Hoosicrs pursue the
"Wandcr Indiana" and "Back Ho e Again" slogans, thcir sponding will hclp thc rclail sector, especially catering and recreational oullcls.
Consumers' reentry into the merket auguts well for the rctail sector, t\)hich emplays a significant prc- portion of the local lahor force.
Producer confidence is also rising. In- vestment in plant and cquipmcn! may nol be as strong as it was in the early phases ofthe currenr rccovery, but it will still add to stability iII the manutacturing
' I a b l o Columbus'Area Date
1 9 8 7
No. ol Pu{ins Ei'do}.d Nd. ol PcNlrs Uncmdoycd tJncntkiynrcnl Rrl.
( l n r r i n u c d U n c D p o y n r c n l I n \ . New UncDrpkiyfrcnt In\.
lndustrial Elccrriciry Salcs (nrillnnr Kjlowrtt hours) flouslng Con(rucrion Da
E \ u D a r c d V a l u c . l P c r m l r s No .l Fermirs Is\ucd Avs. valuc I'ef Pcmir (000 9 ResidenLidl Reli Eslarc Datal
No. of Actile Lisrings Avefagc Dals Listcd Gold9 Are..{e Markct P.icc
IV Q, NI QTR
. 1 0 . t 6 ? 2 9 , 2 1 1 t , 5 6 7 t , 4 l l
I V Qr. 19,\7 1 9 8 6
29.81t 1./,,
1 . 1 0 0 t 5 t 1 i 2 . 5 2 1 4 l %
496 26rr
l.:l,1lJ
2 t , t ) 1 i 973
t 2 I J I , I
| ] 0 6:t.762
4 t 7 2,1].42
1 . 2 8 7
25,40.i 2.469 5 5 520 t : t 6 62,921 602 2 . 8 t 7
3r.
4 q 5'la 49q,
18./.
8 tq . l5'/.
l 9 , l t 2
36.6 112c,i'
t21 2lo
58,566 1./,.
14 / Indiana Busines Review
ftom 6.57o a year ago. Unemplqnent insurance claims-both new ard continu- ing-efibited similar trends. More worrisome is that both measurcs of unomplo,,rnent insurance claims contin- ued to increase in first quarter 1988 (I Q). However, these figures arc still wcll below lV Q 1987.
The local economy largely depends on manufacturing jobs, which tend to be pro-cyclical. That is, when the national economy is doing well, Columbus docs even better;as the national economy suf- fers a slowdown, Columbus is hurl cvcn worse. As can be seen in the Figure, during the recession local unemploymcnt rates far exceeded the national and state rates. As the national cconomy has recovered, however, the local economy has prospored, with uncmploymcnt ratcs tall;ng bolow both thc national and statc rates during the past year.
Although housing constnction was down in IV Q, 1987 represented the peak of housirg conslruction sincc 1979. Along with the increascd supply ofnow homcs, howcvcr, Bartholomew County residents have been confrontcd with a 22%
increase in the averagc pricc o[ ncw homes in the past year and a 61%
incrcasc sinc€ 1980. This increase can be linkcd 10 intcrest rates and consumers' willingnoss to buy bigger, more erpensive homes. Although the overall supply of residenlial real estate was down 36%
trom IV Q 1986 to lV Q 1987, the 7%
incrcase in average market price of l;slings sold indicates that local housing dcmand romains strong.
Both the estimatod valuo ot and nun]- ber ol pcrmits issucd lbr now-hom0 con- struclion arc down significantly from b o t h ll l Q 198? a n d IV Q 1986. T h c dcclinc from III Q i937 largcly rcllcds
seasonal \rarialions, as the lll Q was up s bstantially from both the II Q 1987 and III Q 1986. The decline from Iv O 1986 to IV Q 1987 can be attributed to the facl that the lV Q 1986 fell fa;rly carly h thc local residential boom. Although dcmand
;s s(ill strong, the IV Q 1987 results probably rollcct a slowing ofthe frenctic pace established earlier in lhe rccovery.
As long as the Federal Rcscrve Board continues to walk the tightropc bclween inflation and recess;on, Columbus can cxpccl conlinucd good fortune. The an- nouncomonls by sovcral firms 10 either bu;ld ncw plants or expand cx;sting facili- ties bodcs well for our continuod growth and prosperity. As new firms build and olhor firms oxpand, thc d;vorsificaliol1 w i l l d i m i n ; s b ( s o m c w h a l ) t h e lo c a l s c n s i t i d t y t o n a t i o n a l a n d in l c r n a t i o n a l I i u c t u a t i o n s .
Wagcs in {hc so.vicc scctor, both na' rionally rnd locally, arc Iikcly to bc bid up I[r thc rccovcry contin cs. Firsl, servicos c a n n o t b o s t o c k p i l c d , n r a k i n g i t m o r c difficult lir thcsc lirms to thstand a strikc. Sccond, scrvicc wages have to compclo (ro somc dcgrcc) with manufac, ruringjobs thar otfcr higbcr pay. Third, nrost scrvice firDs do not face intcrna- tional conpel;lion 10 kccp wages down.
Thcrcforc, wago prcssurc may bc strongcr ;n thc scrvicc scctor than in nanuiactLrring. This is best exemplificd by tho "Massachusclrs Miraclc." The economy of Massachuselts has improved greatly from the days ofdying firms and plant closings, but its tery groMh has led to a 2.9% unenploynent rate and a labor shortage. Now short-order cooks and counter help receive $10 per hour-twice what they were paid only two years ago.
Firally, the aDlicipated furlhcr decline of the dollar relative to the yen and the currencies ofnost of our trading partners should help local manufacturing firms recovcr and cven expand tbeir sharc ol thc markct botb donestically and abroad. ln fact, this may be a good time for local firms lhat havc lost market share to foreign producers !o go back to wholesalcrs, rcta;lcrs, and producers to ask for a second ciance. To retain this
1 l
e
i'isurr
Unemployment Rstc$:
National, State, and Local
l 2 t 8
t.1
1 9 8 2 r 9 8 3 1 9 8 5
Thc ndt? M!np|.\nut rak: l.)r 1982 t. 1985 ri. ).dtlt rtatr.
1 9 8 6
competitivc ddvantage in th€ long run, ho\ ever, domestic producers must invest not oDly to expand prodrctive capacity but also to enhance productivity and quality. Iflocal firrns make such invcsl- menls, then they will be able to capitalize on rclatively cheap labor (given the value ofthe dollar) that is also highly produc' tive. This winning combination could generate an industrial renajssance both locally and throughout the United States.
Fort Wayne
Thomas L. Gulhrie
Diectot ol tlE Conrruutity Relearcll lttsti utte and Associale Pmlesror ol Bttsiftss and Economict hldiatra Utivenity-Pur due Utiwniry at Foft Walt1c
The original 1988 economic forecast for thc Fort wayne mcfopolitan area (/AR, December 1987) was for payroll enployment to er?and 2'37o, with all of the incrcase coming in the last halfol lhis preside al election ycar.
The forecast was painted on a back- ground of the Octobcr 1987 stock-market crash. Currently the crash darnage appears to havc been limited to the fi' nancial markets-an outcome I did not foresee last October.
Conseque ly, thc Fort Wayne area economy continues to cxpand. Seasonaily adjusled nonagricullural paltoll employ- ment increased from 189,,100 last Decem- ber to 194,400 in May. The outlook for
€ontinued increascs in enplo'.nent though the remainder ofthe ycar remains a mired bag. On the ncgative sidc, area construction activity remains high, but is not likely to be a source of
!'igure
Nonagricultural Psyroll Employm€nt United States, Great Lakes Stat€sl and Fort Wayne
:
s
1 vtt
1 9 1 9 9 N 0 t 9 8 | t 9 8 2 r !
lllit.i\,lntlntut. MhhiNrt Ohb rnl Wi!rnln
r 9 8 6
increased economic aclivity givcn the current trend in intcres! rates. Dilto fbr lbe transportalion seclor: to li)rocast further incrcascs in auto and truck sales against a backdrop of rising interest ratos and a four-yoar bu!,ing sprec appears cuphoric. Defensc related employment ln the arca rcmains on thc defensive, bccar.rse of seemingly intractable icderal budgct defi cit problcns.
On the plus side is the aroa's continu- ing success in cconomic deveiopment.
For the 1982-1987 porjod, Fort Waync area employmenl grcw at a 5.27, annual rate, conpared with 3.27, an<12.a% for the Unitod States and the Great Lakes .egion (see the Figure).
As detailed in thc odginal forccast, the drarnatic drop in the foreign'ex change value oI the dollar will continue
to bcncfit the Fort wayne area substan- tiaily.
Onc caveat relativc to increasing ex- ports locally is the need to hale local, efhcient acccss to world markcls. This is why the debate ovcr the refurbishing and upgrading ofthe Bacr Field facilities is so critical to the long-run economic health
In summary, the initial emplolment lorecast for tho Fort wayre area in 1988 appears likely to bc low, given a brighter frst-half economy nalionally than origi- nally forecast- Employment grofih for the year oI4 5% is more likely.
However, the fragility of the forecast resulting fron economic crosscunents and presidential election-year rhetoric re-
16 / Iidiaia Busine$ Rcview
Evansville
Maurice Tsai
Prcfessor ol Ecotlonlict, Univetsitf ol Evalsvi e
ln 1987, the Evansville economy re- mained active but did not perform better than in 1986. The original projection of 1.47, growlh d;d not matorial;zc; instcad, thc Evansville Area Business Index (see thc Tablc) dropped .57,. The decline was causcd by a slowdown in bolh public and rcsidcntial construclion, Howcvor, two major scctors--industriil production and tradc and scrvices-showed solid im- prcvcmcnt, thereby offsetting nosl ofthc slowdown causcd by construction.
Public construction, including the Lloyd Exprcssway and a new airport lcr-
minal, is currentlv going strong in thc rcgion. Both projects are expected to be completed in tbo lattcr part of 1988. T}c dccline in residential constructjon, beein- ning in the rniddle of 1987, was tr;ggered by higher mortgage rates. Thns the con- struction index in 198? stood at 131.46, which still is bigh compared to rnost otber years in the 1t80s. A futher lapering-off in construction activities is a n t i c i p a l c d ; n 1 9 8 8 .
I n d u s t r i a l p r o d u c t i o n w a s o n c o f t h c strong scctors jn 1987.Its indox rosc 3.9%, rhc largcsl gair in thc 1980s. No labor djspulcs occurrcd in thc ycar.
M a n u f a c t u r i n g c m p k ) y n l o n t i n p r i m a r y n,etals, chemiq s, and rubber and plastics incrcascd, while enlploynrenl i'r t h c f t r r n i l u r o i n d u s l f y d c c l i n c d . T o t a l maoufacturing cmpbymcnl romaincd aboLrt thc same as in 19iJ6, but thc actility lcvcl rosc bccausc of iruprovcd cflicicncy.
M a n u f a c t u r i n g c m f lo y m o n t ' s s h a r c o l thc labor torcc droppod to24.4q.lionl 1q86's 2,1.9% lignrc. Trxde.nd sofficcs gaincd in 1987, posting a 4.1% growlh in its ;ndcx. Trade enploynen! increascd 7 . 5 7 , , w i t h a n r a i o r i t y o t t h c ; n c r c a s c ; n
retails. Employmont in the service sector gained 6.2%. The health-service sector, wbich suitercd an overerpansion and layoffs a few years ago, showed 2.2"/o employment growlh. Thcrctore, indus- trial production and trade and so.vices, which together comprise aboul 70% of the iocome generated in the reg;on.
pertorncd strongly to sustain thc .egion's economy in 1987.
The transportation sector wcaft cncd somewhat in l{lil7. Air-passcngcr loading r c m a i n c d a t t h c s a m e l c \ ' c l a s i n 1 9 8 6 . T h c l i n a n c i a l s c c t o r b c g a n w i t h a strong pcrtorrn;rncc. but it slorvcd down in lhc s o c o n d p . r t ol thc lcnr as intcrest r a t c s
T h c r c g ; o n a l c m p l o y n ] c n t p i c t u r o w a s mixod in les7. Thc hbor nrcc and em- t l o y m o n l b o l h d c c l i n c d . w h i l c t h c u n e t n - f l o y m c n t r a l e rcsc. \ o n r g r i c u l t r r a l w a g c ' r n d - s r l a r \ , c n r p l o y c n t in c r c a s c d from lll.l00 in ll)Sa to l?5,300 ir li)iJ7, w h ; c h c ! r s c d th r c m p l o y m c n t ; n d c i to r i s c b! I0";. Thc dcclhc in onploymcnt t u n d t h c in c r c a s c i n nonrgricultural plv.oll cnrploynrenl mcrns th.rl agricul- t u r r l a n d s c l l c m f l o y m c n t d e c l i n e d b y ' l a b l c
nransville Area Business lndex { 1 9 7 7 = 1 0 0 ! R o v i s e d )
Crneutittt Tint\,,latitrl
r 9 N 7 r Q 2Q :]Q t98,1 t 9 8 5 l9lt7 l 9 l j B ( p r o t . )
AMutl G )\rh Rat.\ ((n) t 9 l t 5
r 9 8 6 t 9 8 ? t 9 8 8
t22 2t) l 2 t . 2 l 120.41 I l 8 3 ?
| . 1 . 9 C : 1 . 4 2 t 2 0 . 5 1 I 2 4 0 0
2 . - 1 . l . 9 3 l )
t : l t 4 15 ,12 t 5 . 1 7 t 7 . l l 0 6 0 l
t 0 . 7 0 l5 2.,1 N . ? 0
2 7 l . ? 4 . 1 l . ( l
1 3 4 9 8 l l 9 t t o 1 3 . r . 5 0 1 0 1 . 6 6 1 0 8 . 7 0 l 3 l : 1 6 i 2 0 0 0
2 4 . 6 9 . 0
9 7 . l 3 9 7 . 9 7 9 8 . r i 6 9 8 . 0 2 9 5 . 0 1 99.:18 98.0:l 9 9 . 5 0
: l . l
t 5
t 0 8 ! |
r 0 t ll t . 9 l 1 0 5 t 9
t . 5 0
0 l
l0rr lll t 0 ? 1 6 t 0 9 . 5 1
. 0 0 t 9 0 . i 2 . 0
1 6 4 2 t ? . . 1 t 1 6 . 9 1 t 5 5 6 0 ? . 9 5 09 .11
1 1 2 1 t 6 5 8 1 8 . t 0 '1 | 0 . 5
t . l
Srurt(: SLh..l.l Bu\n|.s, Uhi\r^i1\ .l E utrill..
