Indiana's outlook for 2026 accordig to Indiana Business Review

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.1

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%.2

Chemical manufacturing represented 57.2% of Indiana’s nondurable goods manufacturing in 2024 versus 40.9% nationwide.3 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.4 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.5 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.6

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.7

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.8 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 2025.9 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%.

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.

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.