Morton Marcus: GDP in the time of COVID


Cartoonists again have represented the new year of 2022 as a baby in diapers.

More appropriately, 2022 peeks in cautiously, wearing a mask, standing in a circle with a 12-foot diameter and a certificate of vaccination in hand.

The old year, 2021, is seen wheezing, bedraggled and heading toward eternal rest in an overcrowded hospital emergency room.

We know the tragedy and turmoil of the coronavirus pandemic. Unemployment and simultaneous staffing shortages, plus supply chain disruptions and selective inflation, get the headlines.

What we may not appreciate is the actual performance of the economy during nearly two full years of COVID.

Clearly, COVID hit the economy in both the United States and Indiana in the first half of 2020. However, Real Gross Domestic Product — the market value of goods and services, adjusted for inflation — shows there was already economic weakness evident. In the last quarter of 2019, private sector growth rates for the nation and Indiana were moving toward zero.

When the third quarter of 2021 data for Real GDP (the most recent figures we have) are compared with the same quarter in 2019, we find the nation as a whole has advanced only 1.9% for the entire two-year period. That’s a pathetic record, but Indiana’s growth rate of 3.7% is nearly twice the nation’s and ranks seventh among the 50 states. Who’s lagging?

Of the 12 states that have yet to achieve recovery to the level of 2019’s third quarter, the biggest economies are those of Pennsylvania and Wisconsin. Together, the two states accounted for 5.4% of Real GDP, more than three times Indiana’s share of the nation’s economy.

In addition, four energy-producing states (Oklahoma, Louisiana, Wyoming and Alaska), along with tourist-dependent Nevada and Hawaii, bring up the bottom of the list of laggards.

Why has Indiana done relatively well in this period of economic distress? Once again, manufacturing drove the Indiana economy forward. Over the two-year period — third quarter 2019 to third quarter 2021 — Hoosier manufacturing accounted for approximately 72% of the state’s Real GDP growth, but only 2.7% of the growth in the U.S. economy.

Nationally, about one-third of the Real GDP growth came from just two industries: Information services and Financial/Insurance services. Those two groups contributed less than 12% of Indiana’s advance.

For some time, cynics argued manufacturing is Indiana’s hidden problem. They said, “Manufacturing is a shrinking part of the economy.” It is more realistic to say, “Manufacturing remains the mode by which knowledge is embedded in goods for diverse uses by all sectors of society. And specialization in such a key economic element leads to a prosperous economy.”

Meanwhile, the sustaining value of financial and insurance services is an open question. In several respects, they may be warts on the economic body.