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IU panel expresses 'moderate optimism' for 2017 economy

  • Nov. 4, 2016

Editor's note: This story from The Bloomington Herald-Times is being published here as a courtesy for readers of IU in the News.

By Kurt Christian

A panel of economic experts agreed Thursday that the best way for attendees at the 2017 economic forecast panel and luncheon event to look at the upcoming year is with “moderate optimism.”

Indiana University’s Kelley School of Business Outlook Panel reiterated several predictions from previous years’ meetings, predictions built upon sub-par growth and significant risks. Jerry Conover, Charles Trzcinka, Timothy Slaper and Bill Witte reflected on the economic situation from global, regional and local standpoints.

The Bloomington presentation was hosted by the Greater Bloomington Chamber of Commerce and the Bloomington North Rotary Club.

“The glass is half-full coming out of 2016,” said Witte, an associate professor emeritus of economics and co-director of the Center for Econometric Model Research. “I think next year is going to be like last year.”

Should the panel’s predictions come true, employment will continue to slowly increase; inflation will rise; the housing sector will recover from a weak 2016 (as will business investment); and a slow consumption growth rate will remain a driving factor in the nation’s economy.

What’s most unsettling for these predictions is a host of possible disruptions, chiefly three “unknowns” Witte said might influence 2017’s global economic status: For one, international problems abound. Uncertainty bred by Europe’s debt and the unprecedented vote by Britons to leave the European Union, a move dubbed “Brexit,” have created knowledge gaps. In China, Witte said, the economy is slowing down as it moves to being consumer and service oriented more than manufacturing based. The Middle East, Witte said, is still in as much flux as it was during last year’s meeting.

The Federal Reserve and the tenuous United States political situation are two more factors that may send a predicted 2 percent overall economic growth rate into a downward spiral.

Inflation is expected to slowly surpass the Federal Reserve’s 2 percent target later in the year, the panel predicted, and the impending political change following this year’s election could produce small positives, although compromises seem unlikely.

The panel expects employment will continue growing, but with the labor market’s near-capacity employment levels, job creation will slow to 150,000 a month, they predicted. That would leave unemployment at, or slightly below, 5 percent. Luckily, energy prices are expected to remain low, allowing the nation’s production to stabilize.

At the state level, it’s expected Indiana will close out 2016 with a real economic growth of 3 percent, with the measure known as real GDP growth for the state falling to 2.8 percent in 2017.

By September of this year, Indiana had gained 109,600 jobs made up of construction, education, health care, trade and other worker industries. That strong number doesn’t translate to an increased personal income level, though, with Indiana’s average only 87 percent of the nation’s.

“This is all reflected in education,” Slaper said. “We don’t have the occupational mix other states closer to the average have.”

Beyond that lack of educational variety, Indiana also falls short in terms of business startups, according to Slaper.

Bloomington’s economic performance has been gradual, yet encouraging over the years, Conover said. The director of the Indiana Business Research Center said the metro area’s economy, its gross domestic product, reversed itself in 2014 after three years of shrinkage. After $4 million was added in 2015, it has brought the region up, but things are still far from where they were in 2010.

On a per capita level, the decline in Bloomington outpaces the national average. That’s because the city’s population growth takes the form of students, who have yet to generate much of an output in the economy.

“We’ve had headwinds, side gusts and downdrafts -- everything but tail winds,” said Slaper, the director of economic analysis with the Indiana Business Research Center.