America's economy will go on to post its third consecutive year of post-recession growth in 2005, despite challenges posed by high energy prices, the conflict in Iraq and harsh rhetoric of the election season, according to two Ball State economists. 

During the ninth annual Indiana Economic Outlook luncheon Dec. 7, Ball State's Patrick Barkey and Gary Santoni listed the reasons for optimism as continued strong spending by consumers and businesses, and improved figures for exports.

"The fundamental indicators of our economic performance – gross domestic product (GDP) and employment – both posted significant gains this year and bring the economy into 2005 with reasonably healthy momentum," said Barkey, director of Economic and Policy Studies.

The Indiana Economic Outlook function attracted Muncie-area business leaders, politicians and educators to share information about the local economy. Ball State President Jo Ann M. Gora was the featured speaker, discussing how universities like Ball State have a positive impact on state and regional economies.

The forecast for the national economy in 2005 by Santoni and Barkey calls for continued but slower growth as the recovery matures into its fourth year. 

Barkey and Santoni project:

• Gross domestic product, which measures the total output of the economy, will grow by 3.4 percent in 2005 — down from the expected 4.4 percent growth in 2004 as business spending cools and higher energy prices take a toll.
• Inflation will continue to be moderate at 2.2 percent next year as compared to an expected 2.5 percent growth in price levels in 2004.
• Unemployment rates will stabilize at an average of 5.3 percent next year — slightly lower than the 5.5 percent rate in 2004 as employment gains are offset by increased participation in the labor force.
• Stable longer-term interest rates will reflect the cooler economy and tepid price inflation as yields on 10-year Treasury bonds are forecasted to be at average 4.1 percent in 2005, which is virtually the same as the average of 4.2 percent in 2004.

"There are many risks to this forecast, of course, but we are not sure that the much-discussed federal budget deficit is one of them, at least for the short run," said Santoni, who recently retired as the George and Frances Ball Distinguished Professor of Economics. 

"Not only is the relationship between deficits and interest rates much less clear than some rhetoric suggests, but in comparison to the size of the economy, we find the deficits still quite manageable. Near-term economic performance is far more likely to be influenced by the policy of the Federal Reserve, especially in the less-publicized actions affecting money supply growth."

Barkey said the Indiana economy is poised to improve a bit on its mediocre economic performance over the last several years. 

"The surge in manufacturing since the fall of 2003 has stabilized factory employment levels and held out hope for at least a mild rebound," he said. "We expect that when the state's employment figures for this year are revised they will show more than the half percent growth they show today. We expect the Indiana economy to expand payrolls by 1.5 percent, or about 50,000 jobs, in the coming year."                                                      

Barkey and Santoni also discussed national, regional and state economic forecasts Dec. 8 in Carmel during Indiana Outlook 2005, sponsored by the Hamilton County Business Forecasting Roundtable.