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IU experts expect Indiana's economy to outpace nation's in 2018

November 2, 2017

Indiana is expected to fare slightly better than the rest of the nation economically next year, according to the annual Business Outlook forecast released Thursday by Indiana University’s Kelley School of Business.

A panel of Kelley School economists was scheduled to unveil their 2018 forecast in a presentation early Thursday morning in downtown Indianapolis, and is scheduled to make presentations in eight other cities through Nov. 17. A schedule can be found here.

The national economy is expected to “continue a nine-year trend of tepid growth and modest gains since the end of the Great Recession," the forecast says—possibly building on a stronger-than-expected performance so far in 2017 that’s been driven by strong auto sales and manufacturing output.

National economic output has mostly matched expectations of slightly above 2 percent in 2017, but job creation over the first nine months of 2017 has performed well above the predicted monthly rate of 150,000.

The labor market improvement is giving Kelley School economists a “small tinge of optimism” for the coming year, the forecast says.

The forecasters expect Indiana’s gross state product to grow by as much as 2.8 percent, slightly higher than the national gross domestic product rate of 2.6 percent.

Job gains exceeding 180,000 a month are expected nationally. But unemployment rates next year likely won’t fall much below their historically low rates, now at 3.8 percent for Indiana and 4.2 percent for the nation. That’s because the nation and Indiana are near full employment.

“Fueling the dropping unemployment rate [in Indiana] has been strong employment growth, which has outpaced national employment growth for what is expected to be five out of the last seven years,” Ryan M. Brewer, associate professor of finance at Indiana University-Purdue University-Columbus and author of the panel’s Indiana forecast, said in written comments. “Attracting new opportunities for additional job growth becomes more difficult as the labor market tightens further.”

The economists also predicted:

— National and state economies will continue hurricane recovery in Texas and Florida during the first six months of 2018, slightly boosting the national economy.

— Consumer spending has been strong this year and will continue to increase in 2018, but at a rate lower than this year.

— Business investment growth will be good and could accelerate, especially if meaningful tax reform is enacted.

— Housing will resume growth, helped by hurricane recovery. Single-family housing starts are expected to increase by more than 10 percent next year.

— The Federal Reserve, led by a new chair, will continue to raise interest rates, with the federal funds rate above 2 percent by the end of 2018.

— Energy prices will remain low, with average prices similar to those this year.

— Mortgage interest rates will remain attractive, with the 30-year rate increasing by a half-percentage point, to 4.5 percent.

One continuing danger to Indiana’s economy is the growing effect of the opioid drug abuse epidemic, forecasters said. An estimated 70,000 Hoosiers misuse prescription opioids or heroin. Brewer said Indiana’s gross state product suffers an annual loss ranging from $1.25 billion to $1.8 billion annually because of the epidemic.

 

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