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 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.

The U.S. Bureau of Economic Analysis just released the latest personal
income estimates for the nation as a whole and each of the 50 states. The second quarter of 2009 showed an increase of 0.2
percent for the country. This infinitesimal increase was far better than the 2.3-percent drop in the first quarter 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 and were among the 37 states that saw personal income rise in the second quarter. 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 the second
quarter, unemployment-insurance payments in Indiana and the country overall rose 45 percent as more people lost jobs. This
made unemployment insurance 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 nation as a whole averaged 76 percent of personal income. While personal income
rose slightly in the second quarter of this year at the national level, earnings fell 1 percent; Indiana saw a decline of
1.2 percent. Over the past year, earnings in the nation fell 4.2 percent, and 5.7 percent in Indiana. That decline left the
Hoosier state fifth from the bottom among the states, just ahead of Connecticut.

Earnings peaked in Indiana during
the first quarter of 2008, whereas the national peak was two quarters later. We entered this recession half a year before
the nation did. Nine other states peaked when we did, but none of them were neighboring states. Florida, Idaho and Nevada,
where housing speculation was rampant, peaked one quarter before Indiana. Michigan peaked before all other states—in
the third quarter of 2007, a year before the nation. Twenty-four states combined to give the nation its peak in earnings during
the third quarter of 2008, and nine peaked a quarter later.

This pattern of scattered 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.•

__________

Marcus
taught economics for more than 30 years at Indiana University and is the former director of IU’s Business Research Center.
His column appears weekly. He can be reached at mmarcus@ibj.com.