Recession and Economic Stimulus and Unemployment and Economic Recovery and Federal Government and Economy and Barack Obama and Government

Stakes huge for Indiana as feds weigh stimulus

February 2, 2009

All the wrangling in Washington over President Barack Obama's proposed $825 billion stimulus plan may seem a little mind-numbing. But a new report by one of the nation's leading economists finds that getting the package through Congress— and fast— has huge implications for Hoosiers.

Without a stimulus plan, Indiana's unemployment rate would be two percentage points higher in the fourth quarter of 2010 than if a plan is approved, according to the report by Mark Zandi, chief economist of Moody's Economy.com.

And it would get far worse from there, Zandi found. He predicts that by the fourth quarter of 2012, the unemployment rate would be 3.2 percentage points higher than with a stimulus plan in place.

Indiana's unemployment rate already is a whopping 8.2 percent, and the nation's is 7.2 percent. Allowing those numbers to hover above 10 percent, he said, would be calamitous.

"There is no formal definition of recession and depression, but the current period likely will be considered a depression if the nation's jobless rate rises into the double digits for more than two quarters," Zandi said in his report.

Without a stimulus, the report found, the nation would have 5.4 million fewer jobs by the fourth quarter of 2012, and Indiana would have nearly 150,000 fewer.

Zandi said it isn't just about the money, though $825 billion is a staggering sum, representing 5.5 percent of the nation's gross domestic product. It's about rebuilding the nation's battered psyche.

"Any fiscal stimulus plan has to be about more than dollars and cents to be effective in lifting spirits and the economy," the report said. "It must be passed quickly and explained well so that households and businesses are convinced it will work. Unless the plan helps dissipate the current dark mood of pessimism, it will not stem the economic downtown."

It's easy to understand why consumers and business leaders are blue. Shoving the economy out of recession requires a pickup in spending on homes and other consumer goods, an elusive goal as the ranks of the jobless swell.

Just since the start of the year, U.S. employers have announced 210,000 job cuts, including more than 1,000 in Indiana. Even healthy companies are joining the fray, alarmed that the vicious cycle of cuts bodes ill for the rest of the year.

"It is bad, and it's going to get worse," Bob Jones, CEO of Old National Bancorp, said on a Jan. 26 conference call with analysts.

"Our opinion is that the economy is in a very deep and long-lasting recession and that the earliest we could see any positive trend is the third quarter of this year. But more than likely, any recovery will be in the first part of 2010."

Banks can help by opening their coffers and lending, and many say they're eager to do so. But they can't cast aside their normal standards of risk analysis.

"It is a lot harder to find really good deals right now, given that many companies are experiencing financial difficulties, and many consumers have overloaded their balance sheets with debt," said Jerome Gassen, CEO of New Castle-based Ameriana Bancorp.

Yet Gassen is an optimist. He said the economy may start to rebound by the second half of the year. He said Americans are resilient and won't be down and out for long.

And there is one silver lining to the downturn: It propelled oil prices into a free fall, leaving gas at about $2 a gallon. Every penny-per-gallon decline in the cost of gas saves U.S. consumers more than $1 billion a year, according to Moody's Economy.com.

"As quickly as the economy has slowed, it could turn around if consumer confidence came back and confidence in the business environment was somewhat restored," Ameriana's Gassen said.

Steeled for tough times

Few industries are more closely tied to the economy than steel-makers. But Fort Wayne-based Steel Dynamics Inc. contends that doesn't necessarily mean 2009 will be bleak.

Steel Dynamics' management was guardedly optimistic in a Jan. 27 conference call discussing fourth-quarter results, suggesting the company can be profitable this year if steel prices avoid further declines.

The quarterly results weren't pretty, of course, with revenue slipping 17 percent. Steel Dynamics lost $83 million in the last three months of the year, compared to a profit of $193 million a year earlier.

The bond-analysis firm Gimme Credit said the company is "adequately situated for a moderate cycle trough," since it has no major debt coming due before 2012. Yet it said timing of a recovery remains the wild card.

Investors are tiptoeing back, pushing the company's stock up 5 percent this year, to about $11.75. Shares have doubled since November but remain down 70 percent since June.

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