IU experts expect economy to maintain strong pace in 2019

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The U.S. economy is expected to remain strong next year, with Indiana outperforming the nation, 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 present the 2019 forecast early Thursday morning in downtown Indianapolis, and will present it again at 11 a.m. Thursday in Bloomington. The Business Outlook Tour panel also will present national, state and local economic forecasts in eight other cities across the state through Nov. 28.

The panel said this year’s higher-than-expected economic growth should continue into next year, with U.S. output averaging 3 percent amid strong gains in domestic job growth.

Indiana will do even better, with output growing at a rate of 3.2 percent, according to the forecast.

A year ago, panelists predicted that U.S. gross domestic product would grow by 2.6 percent this year and about 3 percent if tax reforms were enacted. Indiana was forecast to see growth of 2.8 percent.

Friday's release of GDP data for the third quarter indicates 2018 should end up with output growth above those levels.

“The tax cut has produced an acceleration in the U.S. economy during 2018 to well above the new normal status quo of 2 percent growth,” said Bill Witte, associate professor emeritus of economics at IU, in written comments. “We expect output growth in 2019 to average 3 percent, but with deceleration as the year proceeds.”

Ryan Brewer, associate professor of finance at Indiana University-Purdue University Columbus and author of the panel's Indiana forecast said the state economy should see its strongest growth in the first quarter next year.

After that, “growth rates are expected to slow but remain strong through the end of the year,” he said “It is most likely Indiana will continue to experience growth across the board—in jobs, numbers of establishments, income levels, wages as well as gross state product.”

The national labor market has exceeded expectations for two years now. A year ago, the panel felt the U.S. economy would create jobs at a monthly rate of about 175,000 and the unemployment rate would fall to 4 percent. Instead, monthly job creation through September has averaged nearly 200,000, and the jobless rate has fallen to 3.7 percent.

These job creation trends are expected to continue into 2019, with average monthly job gains of 200,000. “The labor market will be increasingly tight,” Witte said. “The unemployment rate could decline a little, but firms unable to find workers will remain an important theme.”

The forecast could feel negative impacts from political uncertainty, trade disputes and economic concerns being felt in other parts of the world, including China and Europe. The panel also expressed reservations about the impact of further Federal Reserve interest rate hikes.

Kyle Anderson, clinical assistant professor of business economics and author of the forecast for an 11-county area that includes Indianapolis, Carmel and Anderson, said the region is at full employment.

He expects economic growth in the area will average about 2.5 percent next year.

The economists also predicted:

—   Consumer spending will continue to grow, although at a rate less than in 2018.

—   Business investment will be good, but held back by trade concerns.

—   Housing will resume growth with a small boost from the aftermath of hurricanes Florence and Michael.

—   Mortgage rates, nearly a full point higher than a year ago, could dampen enthusiasm for new housing and constrain prices.

— The trade balance will show increasing deficits.

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