Indiana's outlook for 2026

Indiana's outlook for 2026
Indiana's outlook for 2026
Phil Powell, Ph.D.
Executive Director, Indiana Business Research Center,
Kelley School of Business, Indiana University
As
Table 1
below reveals, comparative performance of the Indiana economy was very strong between 2024 Q2 and 2025 Q2. Real GDP grew 2.6% statewide while it only grew 2.1% in the nation. Growth of only 0.4% in Michigan, 0.9% in Kentucky, 1.3% in Illinois and 1.4% in Ohio meant Indiana maintained economic momentum even though its neighbors did not. This positive contrast with its neighbors in terms of real GDP expansion has persisted since 2019, just before the pandemic. Indiana is a positive economic outlier in the Midwest.
Table 1: Comparative real GDP performance
Real GDP 2019 Q2
Real GDP 2024 Q2
Real GDP 2025 Q2
Real GDP growth 2019-2025
Real GDP growth 2024-2025
Indiana
369,152
410,042
420,585
13.9%
2.6%
Illinois
856,589
898,830
910,911
6.3%
1.3%
Kentucky
210,890
230,618
232,590
10.3%
0.9%
Ohio
670,571
721,143
731,349
9.1%
1.4%
Michigan
518,379
563,996
566,019
9.2%
0.4%
United States
20,602,275
23,286,508
23,770,976
15.4%
2.1%
Note: Real GDP is quoted as millions of chained 2017 dollars.
Source: U.S. Bureau of Economic Analysis
According to
Table 2
, a surge in nondurable goods manufacturing explains Indiana’s comparative strength. While nondurable goods manufacturing makes up 12.2% of the Hoosier economy, it accounts for 4.7% nationwide and between 4.1% and 7.7% among neighboring states. Nondurable goods manufacturing grew 11.9% in Indiana (from 2024 Q2 to 2025 Q2) compared to -1.6% in Illinois, -1.5% in Michigan, -0.9% in Ohio and 0.2% in Kentucky. Nationwide growth was only 0.9%. Growth in Indiana beat every other state by a wide margin with Montana a distant second at 7.8%.
Table 2: Comparative nondurable goods manufacturing performance
Nondurables 2024 Q2
Nondurables 2025 Q2
Real GDP 2025 Q2
Nondurables GDP share
2025 Q2
Nondurables growth 2024-2025
Indiana
45,933
51,405
420,585
12.2%
11.9%
Illinois
61,322
60,318
910,911
6.6%
-1.6%
Kentucky
17,792
17,823
232,590
7.7%
0.2%
Ohio
49,173
48,752
731,349
6.7%
-0.9%
Michigan
23,329
22,979
566,019
4.1%
-1.5%
United States
1,108,598
1,118,133
23,770,976
4.7%
0.9%
Note: Nondurable goods manufacturing and real GDP are quoted as millions of chained 2017 dollars.
Source: U.S. Bureau of Economic Analysis
Chemical manufacturing represented 57.2% of Indiana’s nondurable goods manufacturing in 2024 versus 40.9% nationwide.
Production of pharmaceuticals is a dominant component of chemical manufacturing and represents a comparatively very high share of the Indiana economy when compared with other states. Indiana led the nation in pharmaceutical and medicine manufacturing exports at $22.4 billion in 2024 with North Carolina a distant second at $12.7 billion.
While most concentrated in Indianapolis with Eli Lilly and Bloomington with Catalent and Baxter, pharmaceuticals are a statewide industry with a diverse geographic footprint as exemplified by PharmaCord in Jeffersonville, IntegriMedical in Bainbridge and Eradivir in West Lafayette.
Eli Lilly’s $13 billion dollar investment in new manufacturing facilities in the Boone County LEAP District strengthens Indiana’s competitiveness as a national pharmaceutical leader and fuels further contribution by the state economy to this high-growth industry.
Table 3: U.S. and Indiana real GDP share and growth by industry
Industries
Indiana GDP share 2025 Q2
Indiana real GDP growth
2024 Q2 - 2025 Q2
U.S. GDP share
2025 Q2
U.S. real GDP growth
2024 Q2 - 2025 Q2
All industry total (total real GDP)
100.0%
2.6%
100.0%
2.1%
Private industries
91.7%
2.7%
89.1%
2.2%
Agriculture, forestry, fishing and hunting
1.2%
-4.6%
0.8%
-6.6%
Mining, quarrying, and oil and gas extraction
0.3%
2.0%
1.5%
0.9%
Utilities
1.5%
-5.3%
1.4%
-3.7%
Construction
4.4%
4.9%
3.7%
2.4%
Manufacturing
27.3%
5.7%
10.1%
1.5%
Durable goods manufacturing
14.9%
0.7%
5.4%
2.1%
Nondurable goods manufacturing
12.2%
11.9%
4.7%
0.9%
Wholesale trade
5.1%
1.1%
4.9%
1.1%
Retail trade
6.0%
-0.4%
6.1%
-0.6%
Transportation and warehousing
3.4%
2.5%
3.1%
2.1%
Information
2.1%
4.7%
7.7%
7.7%
Finance and insurance
4.9%
-0.8%
7.1%
2.6%
Real estate and rental and leasing
10.4%
2.5%
13.7%
3.2%
Professional, scientific and technical services
6.5%
8.3%
9.5%
4.3%
Management of companies and enterprises
1.5%
0.0%
2.4%
2.5%
Administrative and support and waste management
2.8%
-0.8%
3.1%
-0.1%
Educational services
1.0%
0.8%
1.2%
0.7%
Health care and social assistance
9.1%
3.9%
8.1%
4.6%
Arts, entertainment and recreation
1.0%
-2.0%
1.1%
3.7%
Accommodation and food services
2.2%
-2.9%
2.7%
-1.3%
Other services (except government)
1.8%
-0.8%
1.7%
-1.7%
Government and government enterprises
8.3%
0.8%
11.0%
0.8%
Federal civilian
1.3%
0.2%
2.1%
-1.7%
Military
0.3%
1.8%
1.4%
-2.2%
State and local
6.7%
0.9%
7.5%
2.1%
Source: U.S. Bureau of Economic Analysis
Statewide growth in durable goods manufacturing – industries where Indiana has a legacy such as automotive and machinery – lagged national growth between 2024 Q2 and 2025 Q2. Annual growth in Indiana of 0.7% fell significantly short of the 2.1% national rate (see
Table 3
). New-generation durable goods manufacturing is capital intensive and uses advanced technology. High-productivity
workers require more training and education than in the past. Growth that lags the nation in these core state industries resurrects concern that Hoosier workers may lack the skills necessary to keep Indiana competitive in markets where it has historically been strong.
Beyond manufacturing, Indiana impressively beat the nation in growth of construction (4.9% versus 2.4%) and professional, scientific and technical services (8.3% versus 4.3%). Indiana growth notably lagged the nation in information industries (4.7% versus 7.7%), real estate (2.5% versus 3.2%) and management of companies and enterprises (no growth versus 2.5%). Finance and arts, entertainment and recreation shrank in Indiana (-0.8% and -2.0%, respectively) while they grew nationwide (2.6% and 3.7%). Retaliatory tariffs by trading partners on agricultural exports hit farmers and the businesses they support hard. Agriculture contracted 4.6% in Indiana and 6.6% nationwide.
Between 2024 and 2025, Indiana grew faster than the nation because of extraordinary growth in nondurable goods manufacturing driven principally by rapid expansion in the production of pharmaceuticals. Indiana pharmaceutical manufacturers, especially Lilly, face strong market and regulatory pressure to lower prices, especially on obesity drugs.
National growth in nondurable goods manufacturing is expected to only be 0.5% in 2026. In contrast, the forecast for national growth in durable goods manufacturing is 1.3%. Growth in durable goods production in Indiana, though, has not kept pace with the nation because of a lower productivity workforce that earns lower wages and drives lower wage growth. Hoosiers in manufacturing earned only 85% of the national average for an hour of work in August 2025. Average hourly earnings in manufacturing grew 2.6% in Indiana compared to 4.0% nationwide between August 2024 and August 2025.
These headwinds in manufacturing make it hard for overall economic growth in Indiana to beat the 1.8% forecast for U.S. real GDP in 2026. Next year, real GDP growth in Indiana is expected to hover unsatisfyingly close to 1.0%.
Table 4: U.S. and Indiana unemployment and average hourly earnings
August 2024
August 2025
Growth 2024-2025
Unemploment - U.S.
4.2%
4.3%
Unemployment - Indiana
4.4%
3.6%
Average hourly earnings - U.S.
$35.02
$36.37
3.9%
Average hourly earnings - Indiana
$30.59
$32.15
5.1%
Average hourly earnings - Indiana as a % of U.S.
87.4%
88.4%
Source: U.S. Bureau of Labor Statistics
As
Table 4
reveals, performance over the past year (August 2024 to August 2025) of Indiana’s labor market was generally good. While unemployment fell from 4.4% to 3.6% statewide, it rose from 4.2% to 4.3% nationwide.
10
11
The state returned to a historical trend of unemployment that is typically a half to full point below the national rate. Relatively cheap labor drives this trend. The average Hoosier earned 88.4% of the average American for an hour of work in August 2025. In contrast to manufacturing, though, Hoosier wages grew faster than the nation between August 2024 and August 2025 – 5.1% statewide versus 3.9% nationwide.
12
A widening wage gap between the state and nation was reversed. While unemployment and wages demonstrated significant comparative improvement, labor force growth did not. The Indiana labor force only grew 0.4% while it grew 1.4% nationwide.
13
14
Like the nation, a modest rise in Indiana unemployment is expected in 2026, but the rise will be larger than the nation because the state economy is expected to grow more slowly than the national economy. Unemployment is expected to rise from 3.6% to 4.4% statewide versus 4.3% to 4.8% nationwide.
A state economy that lags the national economy in 2026 should not overshadow important trends that bode well for Indiana. First, Indiana is a national leader in expansion of Swiss-style apprenticeships which broaden workforce opportunities for high school students and widen the pipeline of talent coming into high-productivity jobs that do not require a bachelor’s degree.
15
Second, large investments in new industry clusters – such as pharmaceutical manufacturing in Boone County and semiconductor development in West Lafayette – will modernize production infrastructure in Indiana and elevate the global competitiveness of the state.
16
A new focus by the Indiana Department of Commerce and Indiana Economic Development Corporation on region-by-region strategies can elevate the economic value of local assets and ensure a dispersion of growth that is more geographically equitable.
17
Third, state government has positioned itself to maintain fiscal strength. Indiana was one of just 14 states to maintain a AAA top credit rating in September 2025 and tax revenue was $270 million ahead of forecasts for the first quarter of the 2025-2026 fiscal year.
18
19
This gives the state resources to drive new economic initiatives that accelerate prosperity for Hoosier communities.
Table 5: Employment and hourly wages by Indiana metropolitan area
Metro
Employment August 2024
Employment August 2025
Employment growth   2024-2025
Hourly wage August 2024
Hourly wage August 2025
Wage growth 2024-2025
Bloomington
81,300
79,200
-2.6%
$30.28
$28.31
-6.5%
Columbus
52,900
53,400
0.9%
$25.51
$28.19
10.5%
Elkhart-Goshen
131,700
132,600
0.7%
$30.48
$32.06
5.2%
Evansville
141,600
142,700
0.8%
$28.18
$28.45
1.0%
Fort Wayne
238,800
240,300
0.6%
$30.65
$34.01
11.0%
Indianapolis
1,185,300
1,197,800
1.1%
$31.34
$33.44
6.7%
Kokomo
36,500
37,800
3.6%
$22.84
$27.61
20.9%
Lafayette
112,000
111,000
-0.9%
$27.74
$27.81
0.3%
Lake-Porter-Jasper counties
286,200
287,900
0.6%
$31.06
$33.05
6.4%
Michigan City
42,100
42,400
0.7%
$30.25
$28.97
-4.2%
Muncie
48,200
48,800
1.2%
$21.80
$22.83
4.7%
South Bend
140,600
143,200
1.8%
$29.08
$32.57
12.0%
Terre Haute
67,700
68,500
1.2%
$28.89
$28.10
-2.7%
Indiana
3,285,600
3,302,100
0.5%
$30.59
$32.15
5.1%
Source: U.S. Bureau of Labor Statistics
Indiana is a composition of regional economies. Because GDP measurements for metropolitan areas are typically available on a two-year lag, they do not allow up-to-date regional economic assessments. Employment can be used as a proxy.
Table 5
summarizes growth in employment between August 2024 and August 2025 in all Indiana metropolitan areas. Bloomington and Lafayette – homes to the state’s two major public universities – were the only two metropolitan areas that shrank. The top four fastest-growing metropolitan areas – Kokomo, South Bend, Terre Haute and Muncie – represent the resurgence of manufacturing-intensive regions once scarred by the onset of late-twentieth century Rust Belt deindustrialization. The average wage (measured as average hourly earnings) fell measurably in Bloomington, Michigan City and Terre Haute. Kokomo, South Bend, Fort Wayne and Columbus enjoyed strong double-digit wage growth. Wage growth beat the national rate of 3.9% in eight of Indiana’s thirteen metropolitan areas.
Notes
U.S. Bureau of Economic Analysis. 2025.
SQGDP9 Real GDP by state
Ibid. Rank order all states by growth in nondurable goods manufacturing (measured in millions of chained 2017 dollars) between 2024 Q2 and 2025 Q2. Montana grew the second fastest from $2,076,800,000 to $2,239,800,000, or 7.8%.
U.S. Bureau of Economic Analysis. 2025.
SAGDP gross domestic product (GDP) by state
. Chemical manufacturing (measured in current dollars) in 2024 was $554,021,000,000 in the United States and $32,893,300,000 in Indiana. Nondurable goods manufacturing (measured in current dollars) in 2024 was $1,355,884,000,000 in the United States and $57,528,600,000 in Indiana. This suggests that chemical manufacturing was 40.9% of nondurables in the United States and 57.2% in Indiana.
U.S. Bureau of Labor Statistics. 2024.
Top 6 states and territories in pharmaceutical and medicine manufacturing exports
Inven.
Top 20 pharmaceuticals companies in Indiana
Guffey, Alysa. 2024.
Eli Lilly plans $4.5 billion facility in LEAP District, bringing investment to $13 billion
Indianapolis Star
. October 2.
Powell, Philip. 2023.
A new renaissance in U.S. manufacturing; Will Indiana miss it?
InContext
24(4).
Armstrong, Annalee. 2025.
Lilly faces triple threat of drug pricing pressure as CEO emphasizes value
BioSpace
. August 7.
U.S. Bureau of Labor Statistics. 2025.
Current Employment Statistics
state-specific data
and
national data
portals. Based on preliminary estimates as of December 8, average hourly earnings for Indiana manufacturing workers were $30.09 per hour in August 2025 compared to $35.40 nationwide, or 85% of the national average. Average hourly earnings for manufacturing workers in August 2024 were $29.34 for Indiana and $34.05 for the nation. This suggests average hourly earnings growth between August 2024 and August 2025 of 2.6% in Indiana and 4.0% in the nation.
Federal Reserve Bank of St. Louis. 2025. “
Unemployment rate
.” FRED.
Federal Reserve Bank of St. Louis. 2025. “
Unemployment rate in Indiana
.” FRED.
U.S. Bureau of Labor Statistics. 2025.
Current Employment Statistics
state-specific data
and
national data
portals. Data is in Table 4.
Federal Reserve Bank of St. Louis. 2025. “
Civilian labor force level
.” FRED.
Federal Reserve Bank of St. Louis. 2025. “
Civilian labor force in Indiana
.” FRED.
O’Donnell, Patrick. 2024.
Indiana looks to Swiss experts to create thousands of student apprenticeships
Indiana Capital Chronicle
. August 13.
Purdue University. 2024.
SK hynix announces semiconductor advanced packaging investment in Purdue Research Park
Purdue News
. April 3.
Bergquist, Garrett. 2025.
Braun’s commerce secretary: Regionalism ‘key’ to economic development
. WISH-TV. August 1.
Muñiz, Leslie Bonilla. 2025. ‘
A signal’: Indiana maintains top credit rating
. Indiana Capital Chronicle
. September 2.
Kelly, Niki. 2025.
Indiana revenue comes in strong for September, first quarter
Indiana Capital Chronicle
. October 13.
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Inside This Issue
Winter 2025   |   Volume 100, No. 4
International outlook for 2026
U.S. outlook for 2026
Indiana’s outlook for 2026
The Indiana housing market: 2026 forecast
Financial markets in 2026
Bloomington forecast 2026
Columbus forecast 2026
Fort Wayne forecast 2026
Indianapolis forecast 2026
Johnson County forecast 2026
Kokomo forecast 2026
Lafayette forecast 2026
Louisville forecast 2026
Muncie forecast 2026
Northwest Indiana forecast 2026
Richmond forecast 2026
South Bend and Elkhart forecast 2026
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