Topic: Miller College of Business

December 7, 2015

The Indiana and national economies might slow to about 2 percent growth in 2016 as a sluggish gross domestic product (GDP) rate becomes the new normal for the foreseeable future, says a new report from Ball State University.

A Long-Term Forecast for the United State & Indiana, 2016-2030,” an analysis based on the Indiana Econometric Model developed by Ball State’s Center for Business and Economic Research Center for Business and Economic Research (CBER), forecasts a variety of factors that will combine to stagnate growth.

CBER director Michael Hicks, a distinguished professor of economics, will discuss the report at 11:30 a.m. today at the 20th annual Indiana Economic Outlook luncheon at the Horizon Convention Center. James Bullard, president and chief executive officer of the Federal Reserve Bank of St. Louis, will deliver the keynote presentation, “U.S. Economy and Monetary Policy.”

“Current discussions regarding economic forecasting are almost wholly consumed by the timing of the Federal Reserve’s policy response to tightening labor markets,” Hicks said. “That is not surprising, given that most third-graders weren’t yet born when the Fed last raised rates in 2006. Much in the economy has changed since the Federal Reserve last engaged in monetary tightening, and so there is no shortage of short-term analysis of the condition of the U.S. economy.

“The Federal Reserve’s decision to increase interest rates in the coming weeks will have little effect on most Hoosiers, and we may well see more increases by the end of 2016. The big unknown is the slowing international economy, which carries risks throughout the coming year.”

Hicks said the world’s economy, which has faced uneven growth in the post-recession period, is widely predicted to slow in the coming year.“

This slowdown is related to many factors but is most tangibly apparent in the slower economic growth in China, lower commodity demand especially for fuels and continued poor performance in several key nations including Brazil, Canada and the European Union.”

Indiana’s economy

Hicks said his model forecasts GDP for Indiana to grow about 2.1 percent in 2016 — on par with the last five years — with the state adding 32,400 workers and unemployment falling to about 4.1 percent.

The forecast also calls for personal income growth in Indiana to remain in the 1.6 percent range next year with larger increases in manufacturing, trade and health care sectors.

“The continued bright spot is Indiana's labor market, which should see continued strengthening this year,” he said. “Wage growth may begin in earnest in 2016 as unemployment stays low. We do not expect declines in personal income in any sector, but growth will be very slow for government, utilities and information technology.”

Midwestern economy

Hicks points out that growth in GDP in the Midwest mirrors the national business cycle but has been slower and experienced larger variation than the national economy during these periods.

The analysis found that from 2001-2007, which was trough-to-peak of the previous recovery, the U.S. saw GDP growth of 2.5 percent, while the Midwest saw growth from 0.4 percent in Michigan to 2.2 percent in Wisconsin.

“This national recovery did not materially improve economic conditions in the manufacturing heartland,” Hicks said. “The recession in the Midwest was more pronounced than much of the nation as a whole, with GDP losses in manufacturing intensive states like Indiana and Michigan dropping 2.8 and 3.1 percent respectively.”

Growth in the years following the Great Recession has not been robust. Only Indiana saw growth near the national average over this time period. The Indiana Econometric Model for 2016-2030 predicts growth in all of the region to remain muted, growing slower than the nation as a whole.

“The most optimistic position is that of Indiana, which is forecast to grow at near the national rate at 2.1 percent,” Hicks said. “Growth in Michigan and Illinois is anticipated to remain very low, with growth in the remainder of the region also sluggish.”

Indiana’s population growth

The report forecasts that urban areas will grow at rates near the national level, while Indiana’s rural counties will continue to experience significant population loss through the next decade.

Indiana’s population is projected to grow to 7.055 million by 2030, with the strongest growth coming from the Indianapolis and Fort Wayne areas. By 2030, the report anticipates the Indianapolis region will grow to 2.3 million, while the Fort Wayne region will grow to just over 1 million.

The south central and southeastern portions of Indiana will also see modest population growth. The east central region will continue to experience population decline through 2030, and the remainder of the state will see no meaningful population differences in the regions.