Author: Hall, Tanya
Date published: December 1, 2012
While 2011 was not marked with a dramatic improvement in the national economy, the Lafayette Metropolitan Statistical Area (MSA) regained its momentum with a slow but steady rise from the Great Recession. As we look to 2012, it appears that the area will continue to recover at a conservative rate. This recovery pace is on par with the expected rate of recovery throughout the nation, lacking the exuberant growth witnessed after the 2001 economic downturn.
To its benefit, the Lafayette MSA (which includes Tippecanoe, Benton and Carroll counties) is viewed as an attractive area to live and work- in part due to the presence of Purdue University. We see this optimism in the continued population growth that is expected for the next few years (see Figure 1). While the anticipated population growth for 2012 through 2014 (0.4 percent per year) is more docile than the surge seen in 2005 to 2006 (2.1 percent), it still bodes well for the area.
The Lafayette MSA had a lower unemployment rate than Indiana and the United States in the past year. As seen in Table 1, the Lafayette MSA consistently outperformed Indiana and the United States. The uptick in unemployment in June and July 2011 mirrors the trend seen in 2009 and 2010, which likely reflects of the change in the labor force due to students leaving the area during summer break. The spread in unemployment rates between the Lafayette MSA compared to the state and nation reflects the improved economy in the MSA. In conjunction with a decline in the unemployment rate and the number of unemployed, the number of employed workers and individuals in the labor force has increased- indicating individuals are finding work and have hope of obtaining a job.
Table 2 compares the employment between 2010 and 2011 in the Lafayette MSA. Last year it was predicted that all industries would increase their employment in response to an improved economic outlook and increased demand, with the professional and business services and manufacturing sectors having the strongest growth. This prediction proved to be right on target as nearly all industries have had employment growth thus far in 2011, and the professional business services and manufacturing sectors did report the strongest increase in employment levels (711 and 633 jobs, respectively).
The increased employment is due in part to large area employers hiring additional workers to fulfill large orders (Wabash National), seeing increased demand for goods (Subaru of Indiana Automotive), return to pre-recession levels (Caterpillar), and continued expansions (IU Health Arnett and Purdue Research Park). Two industries- information and government- saw declining employment in 2011. The drop in federal jobs locally mirrors state and national trends as government officials continue to grapple with budget woes.
In 2012, employment should continue to increase, although it will be at a slow but steady pace. The manufacturing sector is expected to lead this growth- particularly in fabricated metals and motor vehicles- followed by the health care, leisure and hospitality, and professional and business services sectors.
In conjunction with the increased employment within the Lafayette MSA in 2011, average weekly wages increased 6.5 percent. Thirteen out of the 18 major sectors with available data had a wage increase from the first quarter of 2010 to the first quarter of 2011 (not adjusted for inflation), as seen in Table 3. Noting that the largest wage increases occurred in management of companies and enterprises as well as manufacturing, it could be the result of "rewarding" business leaders for navigating through the Great Recession and its aftermath and the re-hiring of higher-paid workers (e.g., engineers) at the manufacturing plants. In 2012, it is expected that the wage increases will continue modestly, keeping up with the increase in employment and inflation.
The local per capita personal income (PCPI) is projected to grow 3.8 percent in 2011, followed by a more tepid 2 percent for 2012. Similar to the state overall, the Lafayette MSA's PCPI continues to lag behind the United States with the 2010 PCPI only 85 percent of the national figure. The difference between the U.S. and Lafayette MSA is likely attributed to the occupational mix in the MSA and the fact that Indiana's highest earning tier of occupations tend to be paid less than similar occupations elsewhere, regardless of cost-of-living factors.1
Residential construction peaked in 2000 with 1,830 permits issued for single- and multi-family building permits in the Lafayette MSA. Since 2004, there has been a dramatic decline in the volume of building permits filed, with 2009 only recording 486 permits. More permits were filed in 2010 (531) and 267 permits were filed in Tippecanoe County in 2011 as of August (see Figure 2).
Comparison of year-to-date (January through September) 2011 figures with 2010 finds that the Lafayette MSA real estate market is slightly behind 2010 trends regarding new listings and closed sales, which may be partially due to the reduction in the inventory of homes for sale. However, as of September 2011, the Lafayette MSA has a year's worth of housing inventory to sell (see Table 4). The decline in listings is spread across all counties; however, reduction in homes sold seems to be most prevalent in Benton and Carroll counties. Overall, the median sales price has risen in Benton and Tippecanoe counties, but declined slightly in Carroll County. The increase in "months supply of inventory" was evident in Carroll and Benton counties, indicating the increased length of time it takes to sell a home in these areas. In 2012, the housing market will likely continue to be languid, with foreclosed homes potentially accounting for a larger proportion of existing home sales. If this does occur, then prices will be pulled down further. At this point, the Lafayette MSA will continue to work off the excess inventory of houses to a more manageable level.
Overall, the Lafayette MSA is expected to show slight growth in population, employment, PCPI and wages, yet experience tepid activity in the housing market. As businesses continue to add to their employment rolls, it may help boost consumer confidence in the economy -thus spurring consumption. However, due to the severity of the Great Recession and the slow rebound, consumers and businesses alike may be adapting to this new normal and practicing a more frugal lifestyle, thus further compounding the slow economic growth.
1. For more research on the differences between the U.S. and Indiana PCPI, see Timothy Slaper and Ryan Krause, 'Occupational Hazard: Why Indiana's Wages Lag the Nation/' Indiana Business Review, Spring 2010, www.ibrc.indiana.edu/ ibr/2010/spring/articlel.html.
Tanya Hall: Economic Research Analyst, Indiana Business Research Center, Kelley School of Business, Indiana University