Evansville Economic Outlook – 2007

by Mohammed Khayum

Speech given November 14, 2006

The Evansville economy continues to exhibit positive year-over-year growth. In 2006, personal income is estimated to increase by 5.75 percent compared to an average annual growth rate of 4.25 percent between 2001 and 2004 (see Figure 1). Economic performance in 2006 was driven by job creation in professional and business services as well as in the leisure and hospitality industry. The manufacturing sector continues to be an important base to metro area household incomes and consumer spending activity even as the economy adjusts to an ongoing diversification away from manufacturing-industry dependence (see Figure 3)

Although the Evansville economy is one of the most manufacturing-dependent among metro areas in the nation, it has not experienced the same degree of hardship as other manufacturing-dependent Midwest metro areas. Since 2000, Evansville’s manufacturing workforce has fallen by 7 percent or about 2,500 workers, compared to the 16 percent reduction in Indiana’s manufacturing workforce over the same period. At the same time, manufacturing earnings as a share of total earnings has remained stable at about 29 percent between 2001 and 2006 in the Evansville metro economy. The resiliency of Evansville’s manufacturing sector is explained in part by the growth of the auto industry headed by top employer Toyota as well as to the strong demand for primary metals in recent years, which has kept Alcoa among the largest local employers.

During summer 2006, the hospitality and retail sectors have benefited from a number of conventions that resulted in bookings of about 12,000 hotel rooms and an estimated $7.8 million boost to the metro area economy. The increase in tourist-related activity provided added momentum to the near-term services-led expansion, particularly aiding investment and hiring activity in the leisure/hospitality and retail trade industries.

Current efforts to attract future high-tech related industry via the creation of a downtown technology park, an emphasis on workforce development, and relatively low office rents that on average are 50 below those nationally, are sources of momentum for economic expansion in the next few years. The outlook is for increased momentum in the Evansville metro economy as a result of hiring and investment activity in the service sector.

In 2007 output is forecasted to increase by 2.7 percent, the number of jobs is projected to increase by 2,400 and the forecast for personal income growth is 5 percent. Figures 1 and 2 provide a comparison of forecasts for the Evansville economy and the state of Indiana for the 2005-2008 period.

An ongoing challenge for the Evansville economy is the adjustment away manufacturing-industry dependence, particularly in nondurable manufacturing (see comparison below).

Comparative Employment  (% of Total Employment)

                                    Evansville Metro                       U.S.                 Indiana

Manufacturing               19.3 %                                     10.7 %             19.3 %

     Durables                  54.6 %                                    62.9 %             73.3 % 

     Nondurables            45.4 %                                    37.1 %             26.7 %