Economic Recovery and Economic Analysis and Economy

IU economists predict more of the same in 2013

November 1, 2012

The economy in 2013 is likely to mirror the slow-growing one of this year, economists from Indiana University’s Kelley School of Business predicted Thursday morning at their annual forecast.

The panel predicted the national economy will expand about 2.5 percent next year, which is better than the 1.7-percent growth so far this year, due in part to increased consumer spending and improvements in the housing market. But the panel also said a number of factors could make things worse.

Even the best scenario won’t be enough to make much of a dent in the unemployment rate, which stood at 7.8 percent in November. The economists think the jobless rate will remain above 7 percent next year with inflation remaining close to 2 percent.

“We expect that 2013 will be generally similar to 2012: unacceptable slow growth, without much progress in the labor market,” Bill Witte, associate professor emeritus of economics at IU, said in a prepared statement.

Indiana, however, is faring better in terms of employment, said Jerry Conover, director of the Indiana Business Research Center. So far this year, payroll employment is averaging more than 52,000 above last year’s levels, he said.

“This is a more appealing picture than we painted last year for Indiana,” Conover said in a prepared statement.

At the current growth rate, however, Indiana still is about two years away from its pre-recession employment level, he said.

Real personal incomes in Indiana will rise less than 2 percent in 2013, with per-capita incomes rising about $1,500. The state's overall economic output will grow about 2.3 percent, comparable to the national rate, the economists forecast.

And like a year ago, a considerable list of issues could upset the economists’ expectations, especially what they refer to as the “fiscal cliff,” a potential economic growth-killing combination of higher taxes and government spending cuts. Such a situation would likely send the economy back into recession, they said.

Without congressional action, a long list of tax increases and spending reductions will go into effect Jan. 2, Witte said.

“In fact, the uncertainty about the situation is already having an impact on business decisions,” he said, pointing to a decline in plant and equipment investments in the third quarter. “The tepid pace of hiring probably also reflects this ambiguity.”

Other highlights from the forecast include:

— Prices of existing homes will rise and new housing construction will increase;

— Mortgage rates will continue at historic lows, as lenders finally begin to loosen reins on credit;

— Energy prices will remain relatively flat in 2013, with oil prices averaging at or below $90 per barrel;

— Stock market values should climb slowly next year, but well below long-term growth rates.



 

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