Federal Government and Economic Analysis and Government

IU economists: Sluggish growth to continue into 2014

November 6, 2013

Frustrated with paltry economic growth this year? Brace for more of the same well into 2014, and blame the government for your ire.

That’s the message from economists at the Indiana University Kelley School of business, who launched their annual forecast road show Wednesday morning at the Columbia Club in downtown Indianapolis. The Business Outlook Tour plans to visit eight other cities through Nov. 18.

Gross domestic product will rise about 2 percent in the first half of 2014, not much better than the tepid 1.7 percent recorded through the first half of 2013, said Bill Witte, an associate professor emeritus, prior to the event

"We can find only one plausible explanation: Policy from Washington is standing in the way all across the board. Fiscal policy is obviously a mess," Witte said in a prepared statement. "The latest episode managed to kick that mess into next year, but only after shutting down much of the government for two weeks.

“On the regulatory front, the rule seems to be if it succeeds, regulate it or sue it."

Not only does the threat of a government shutdown loom again in January, Witte added, but the Federal Reserve Bank is creating uncertainty among consumers and businesses by not signaling clearly when it will begin to slow its purchases of securities.

Businesses in particular are sitting on piles of cash that could be invested at a time of low interest rates, he said.

If Washington doesn’t deadlock again, and if the Fed tapers its purchases without seriously disrupting financial markets, growth could rise toward 3 percent by the end of the year, the panel said.

Indiana will improve in 2014, but only because 2013 was “below sub-par,” said Jerry Conover, who directs the Kelley School’s Indiana Business Research Center.

Growth will double and outpace the nation’s rate, Conover said, but the expansion nevertheless will lag long-term trends.

“More subpar growth is expected,” Conover said.

A bright spot is personal income rising faster in Indiana than the U.S. average, fueled by earnings from manufacturing, transportation and warehousing, he said.

The Indianapolis-area economy will continue its five-year-long recovery, predicted Kyle Anderson, clinical assistant professor.

The unemployment rate of 6.9 percent is the lowest since 2008, Anderson said, but only modestly below a year ago.

Incomes and output will rise 2 percent in 2014 in the area, and the unemployment rate will drop to 6.5 percent, Anderson said.
 

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