News and Tribune

November 16, 2013

PANEL: Local economic outlook better than state

National politics may dictate continued growth

By BRADEN LAMMERS
braden.lammers@newsandtribune.com

NEW ALBANY — Nationally, it’s the status quo. Locally, the economic forecast is a little rosier.

Indiana University Southeast and the Kelley School of Business hosted its annual economic outlook breakfast Friday morning to provide local business leaders and politicians a peek at the expectations of the national, state and regional economy for next year.

Panelists said implications for economics on the local and national stage are tied to national politics.

Among the concerns were the direction of the Federal Reserve, issues surrounding the implementation of the Affordable Care Act, Medicare, as well as continued partisan politics and future fights over a national budget and debt ceiling.

Willard Witte, retired Indiana University economics professor, started with an overview of the national economy by letting the audience know if they attended the event last year, they were free to check their emails for the next few minutes.

“I really don’t have a lot that’s new to say,” Witte said in jest.

He said while there has been growth in the national economy, it has been slightly behind expectations. During the past three years, the national economy has grown at about a 2 percent rate.

The lackluster growth during the past few years has been explained by the economy coming out of the recession, an international economy that was keeping growth limited, the national stimulus plan ending and uncertainty due to political dysfunction.

“We really can’t see the economy doing much better than the status quo — 2 percent growth or so that we have been experiencing for the last three year — until sometime at least until the middle of next year,” Witte said.

There also has been a steady decrease in unemployment, but the figures were not without their caveats. Witte explained that while the unemployment rate continues to decrease, the employment rate — the number of people older than 16 years old that are employed — has not grown since the recession hit in 2008.

“The employment rate right now is as low as it’s been since 1983,” he said. “And on the unemployment side, a lot of the reason that unemployment has been falling is because the number of people have been participating in the labor market has been declining significantly.

“People have been dropping out of the labor force.”

Five years removed from the financial crisis and with international economies improving slightly, they are not as much of a factor on the national level, Witte explained. But he added that political dysfunction is likely to continue to have an affect on the national economy moving forward.

A temporarily resolution was reached to end a government shutdown last month, as well as a temporary raise in the federal debt limit, both of which will need to be revisited in January.

Witte said his larger concern stems with the direction that will be taken by the Federal Reserve, and it’s potential new chair Janet Yellen.

Dubos Masson, an associate professor of finance at the Kelley School of Business, said any time the federal reserve mentions tapering back on how much money it is printing, the stock market drops.

But contrary to slow overall growth numbers, Masson said the market has outgained expert’s predictions during the past few years. Masson said he is not sure if that trend will continue, but does expect growth in the stock market, just maybe at a slower pace.

Masson said the bigger concern on the national stage is not the Affordable Care Act, but Medicare because of the large market of aging baby boomers that will be falling into the program and how the federal government will address its needs.

“The economy looks like it is going for smoother waters, we hope,” Masson said. “Unemployment is still a stubborn reminder ... full recovery, full employment is going to take some time.

“And I don’t know if we’ll ever get back to the kind of full employment we had prior to the crisis.”



LOCAL AND STATE OUTLOOK

Overall economic figures were better at the state and locally than at the national level, but a major indicator for Indiana’s economy lagged behind. The state’s unemployment figures, and estimates through 2014, are expected to trail the national average.

Kyle Anderson, assistant professor of economics at the Kelley School, provided 10 factors that could influence Indiana’s economy next year.

One area of desired improvement is the state’s educational levels. Anderson said Indiana ranks 41st in the number of people with bachelor’s degrees in the country. The more educated a workforce, the more likely it is to be and remain employed. Also, unemployment in the state is expected to drop to about 6.8 percent by the end of 2014. It stood at 8.1 percent as of August.

For Indiana’s workforce overall, wages have increased in the state by 7.3 percent since 2008. While Anderson noted the increase, he said that the growth rate year-to-year has not kept pace with inflation.

“In real terms, we’re making less money now as a state in terms of wages than we were five years ago,” he said.

High-paying Indiana jobs that are not likely to make a significant comeback are manufacturing positions. Indiana is No. 2 in the country in terms of manufacturing output for a state’s percentage of Gross Domestic Product, Anderson said. However, manufacturing jobs only represent about 5.6 percent of jobs in the state. Anderson said it mirrors a changes that Witte mentioned, that companies have found more efficient ways to produce more products with fewer employees.

Jobs locally are expected to be more plentiful next year and the area will likely see an increase in payroll.

“Times are good right now in Southern Indiana,” said Uric Dufrene, executive vice chancellor of academic affairs at IUS. “The good news for 2013 is that we’ve finally surpassed the prerecession jobs peak. In 2014, we will likely see payroll growth that will parallel the growth that we saw in 2012.”

According to the forecast highlights, Indiana is expected to add 55,000 jobs in 2014.

“The first quarter for Southern Indiana in 2013 actually represents the best quarter since the start of the great recession,” Dufrene said in terms of new jobs.

He said while there has been a deceleration in some of the state’s major economic sectors, he believes because of pent-up demand there will continue to be growth in the manufacturing and housing markets, locally.

Even though local growth is strong, there are still challenges in the region.

“Discretionary dollars are still tight,” Dufrene said.

He cited casino admissions, which have declined as a model for the drop in discretionary spending. French Lick Casino and Horseshoe Casino saw drops in admissions year-to-year, from about 275,000 in 2012 to about 250,000 in 2013, and just shy of 600,000 in 2012 to about 550,000 this year, respectively.

Dufrene said the increase in casino competition may also have had an impact on the attendance figures.