Published: October 21, 2009 01:41 am      

MARCUS: Today’s data tell yesterday's story

Most economists are of the opinion that we have seen the bottom of the recession and are in recovery mode. However, the evidence is scarce to support that position.

There are signs here and there, fragments of data, and stories galore. But solid evidence has yet to arrive.

We are finding out what the bottom looked like, assuming that the second quarter of this year was the bottom. This is like getting the pictures of your vacation a few months after you enjoyed the experience. So let’s take a walk down memory lane.

Last week the U.S. Bureau of Economic Analysis released the latest personal income estimates for the U.S. and the 50 states. The second quarter of 2009 — known to friends as ’09.2 — showed an increase of 0.2 percent for the nation. This infinitesimal increase was far better than the 2.3 percent drop in ’09.1 and was most welcome after three consecutive quarters of decline.

Indiana fared well in these data. At 0.5 percent we ranked 16th in the nation among the 37 states that saw personal income rise in ’09.2. But don’t break out the champagne yet. For both the nation and Indiana these data are correct but illusory.

Personal income includes unemployment compensation. This is a good idea if you want to measure consumers’ buying power. In ’09.2, unemployment insurance payments — known as UI among those who care — in the U.S. and Indiana rose by 45 percent as more people lost jobs. This made UI in Indiana — $3.6 billion at an annual rate — greater than the contributions to personal income from farming and mining combined.

It was that 45 percent growth in unemployment compensation that accounted for the advance in the nation’s personal income. If our interest is economic activity, then earnings — what people are paid working for themselves or for someone else — is probably the best measure we can get at the state and local level.

Since 1997, earnings in Indiana and the U.S. averaged 76 percent of personal income. Where personal income rose slightly in ’09.2 at the national level, earnings fell by 1 percent; Indiana saw a decline of 1.2 percent. Over the past year, earnings in the U.S. fell by 4.2 percent; 5.7 percent in Indiana. That decline left the Hoosier State fifth from the bottom among the state, just ahead of Connecticut.

Earnings peaked in Indiana during ’08.1 whereas the national peak was two quarters later. We entered this recession half a year before the nation did. There were nine other states that peaked when we did including none of our neighboring states. Florida, Idaho and Nevada, where housing speculation was rampant, peaked one quarter before Indiana. Michigan peaked before all other states in ’07.3, a year before the nation. Twenty four states combined to give the nation its peak in earnings during ’08.3 and nine peaked a quarter later.

This pattern of scatted peaks is important because it shows how dissimilar the states are. We may expect to find scattered starts to the recovery. Not that Michigan and Indiana will recover before the nation, but that many states will rise before the mass of states and a few will trail.

That same disparity will exist among sectors of the economy. Some will lead and others will follow. The result is that many people will not see the recovery in its earliest stages and will deny its existence. Those who witness a change in the economy before others are the true-believers. The rest remain agnostic for a few quarters longer.

Morton Marcus is an independent economist, speaker and writer formerly with IU’s Kelley School of Business. Reach him at mortonjmarcus@yahoo.com