IU experts: Economy to stay 'lousy' in 2012

IBJ Staff
November 3, 2011
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The Indiana and national economies in 2012 likely will experience a repeat of the slow growth seen this year, with unemployment remaining relatively high, according to a panel of Indiana University Kelley School of Business economists.

The experts, speaking Thursday morning at the Columbia Club in downtown Indianapolis, predicted the national economy will grow a modest 2.5 percent to 3 percent next year.

Indiana’s economy, meanwhile, could outpace the national average and grow 3.1 percent in 2012.

“I’ve been told to be concise,” Bill Witte, an associate professor emeritus of economics at IU, said. “The economy in 2011 has been lousy; the economy in 2012 will be lousy.”

The economists last year predicted growth in 2011 of 3 percent. Through the first nine months of the year, the economy has grown just 1.4 percent.

“Clearly we were too optimistic,” Witte said.

Any expansion should contribute to roughly 2 million new jobs, which would cause the national unemployment rate to decline to about 8.4 percent by the end of 2012, they said. That would beat the prediction of the Federal Reserve, which on Wednesday said it expected the jobless rate to be at 8.6 percent by the end of next year.

The nation’s unemployment rate in September stood at 9.1 percent.

Indiana’s rate is only slightly better, at 8.9 percent, and could drop to 8 percent within the next 12 months, according to the forecast. Further, Indiana shouldn’t expect to reach pre-recession employment numbers until 2014.

“We see continuing tepid economic recovery during 2012, with disappointing output expansion, low inflation, and a small decline in unemployment,” Witte said prior to Thursday' s event in a written statement. “This is better than a slide back into recession, but is a long way from an optimistic outlook.”

The IU economists predict that Indiana will add about 40,000 jobs next year as the economy gains steam toward the end of 2012. Strong growth is expected in the financial services, education and health, and professional and business sectors. Construction and government sectors will continue to be a drag on any recovery.

In addition, Hoosiers’ personal income could grow about 2 percent in 2012, they said.

Jerry Conover, director of the Indiana Business Research Center, said, “It’s been two years since the economy in Indiana has bottomed out and we’ve since been treading water."

Indiana lost 250,000 jobs during the recession, or almost 8 percent of its work force. The state since has gained 55,000 jobs, and another 40,000 jobs should be added in 2012, Conover predicted.

“We predicted the same thing last year and we didn’t come close to that,” Conover said

Other highlights from the forecast:

— Inflation will be slightly above 2 percent in 2012, with consumer spending rising moderately;

— The Federal Reserve will continue to maintain its near-zero position on short-term interest rates well into 2013, causing mortgage rates to remain at historically low levels;

— Energy prices will be relatively flat in 2012, with oil prices averaging about $90 per barrel;

— The federal budget deficit will remain high, and any congressional efforts to reduce it will have little immediate impact.

Indianapolis will host the Super Bowl in February and could get an economic boost from the game of between $100 million and $200 million.

“It’s a nice stimulus, but it will be relatively fleeting,” said Kyle Anderson, an assistant professor of economics at the Kelley School.



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