UPDATE: IU forecasts ‘rough’ economy

That’s the consensus of Indiana University economists who presented their 2009 economic forecast this morning in Indianapolis.

A recession that started in the third quarter will last through the middle of next year and possibly until 2010, they said.

“It will be a really rough year, folks, so batten down the hatches,” said Phil Powell, an associate professor of business economics at IUPUI.

A collapse of the housing market, meltdown of the financial sector and rising energy prices created a perfect storm that led to a severe slowdown, the economists said.

As a result, Indiana has seen five consecutive months of job losses – the longest streak since employment bottomed in summer 2003. Statewide unemployment could reach 7 percent, they said. The Indianapolis area will fare a bit better, with unemployment expected to peak between 6 percent and 6.5 percent in 2010.

Meanwhile, the state and nation’s gross domestic product will continue sliding through the first six months of 2009 at a rate of roughly 1 percent before turning upward in the second half.

Industries hit hardest in Indiana include manufacturing and construction. However, health care, transportation and logistics, and retail are among sectors that continue to perform well.

One of the few bright spots is exports of auto parts, industrial machinery, electronics and pharmaceuticals. Those categories helped drive overall exports last year to a record $26 billion – up 14 percent from 2006.

And the housing market is showing signs of thawing. In Indianapolis, median home prices increased 3.6 percent during the past 12 months, and the inventory of unsold homes fell 9.3 percent.

“There is a glimmer of light at the end of the tunnel,” said Jerry Conover, director of the Indiana Business Research Center at the Kelley School.

However, Powell said, until bankruptcies, foreclosures and job losses slow, Hoosiers will continue to keep a tight grip on their pocketbooks.