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Harsh winter to blame for stalled economic progress

Businesses along Lincolnway in downtown Valparaiso, shown here, and around the region had to deal with their share of snow and below-zero temperatures this winter. Every component of the Northwest Indiana ndex fell during the first two months of the year, when Northwest Indiana residents and businesses were grappling with the effects of the extreme winter weather.

A key economic indicator showed Northwest Indiana's economy contracted for the first time in a year in January and February, but – before anyone panics – it was due largely to the worst winter in decades.

The Northwest Indiana Index, which Indiana University Northwest economists use to track the local economy, declined by 0.6 points in January and another 0.5 points in February. The index dropped to 136.2.

"The two month fall in the index is primarily due to the unusually severe weather conditions during these months," wrote economics professors Bala Arshanapalli and Micah Pollak in their monthly report. "Despite these declines, the forecast for the index over the next six months remains somewhat optimistic with weak growth of about 1 to 2 percent."

Statewide, the Leading Index for Indiana dropped from 101.64 to 101.08 during January and February, according to the Indiana Business Research Center. 

Over the last six months, Northwest Indiana's economy has declined by 0.47 percent, while Indiana's economy grew by 2.44 percent. The national economy also outpaced Northwest Indiana, growing by 1.36 percent.

"We are lagging behind the state and nation,"  Arshanapalli said. "Our real estate prices also are not growing as much as the nation as a whole."

Indiana University Northwest economics professors developed the Northwest Indiana Index to fill a void of data about the local economy.  The index tracks several metrics, including steel production, the unemployment rate in the Gary metropolitan area and national indexes.

Every component of the index fell during the first two months of the year, when Northwest Indiana residents and businesses were grappling with near-record cold and snowfall. 

Most notably, Northwest Indiana lost 9,800 jobs, a 3.5 percent decline.

"While a decline in employment is not unusual for the region in December and January it is typically offset by an increase in hiring during February," Arshanapalli and Pollak wrote. "However, in February the region only added 600 jobs."

Steel production normally rises 2 percent to 3 percent between December and February, as automakers and other manufacturers ramp up. But it only rose by 27,000 tons this year, a modest increase of 1.5 percent.

Average manufacturing hours declined by 0.7 percent, and the ISM manufacturing index plunged by 9.2 percent. Retail sales decreased by 0.4 percent.

The severe weather took the biggest toll on home sales, when the Housing Market Index fell a record 10 points. The National Association of Home Builders blamed the largest single-month decline in the history of the measure on the harsh winter.

"The weather was a one-time shock and the underlying fundamentals of the economy have not changed significantly since last year," Arshanapalli and Pollak wrote. "As a result, we expect to see positive, if not dramatic, economic growth this spring."

The severe winter has had some lingering effects, such as on raw material-starved steel mills, but other sectors are seeing improvement as temperatures warm. Retail sales are already improving, Arshanapalli said. 


Business Reporter

Joseph S. Pete is a Lisagor Award-winning business reporter who covers steel, industry, unions, the ports, retail, banking and more. The Indiana University grad has been with The Times since 2013 and blogs about craft beer, culture and the military.