Published: November 12, 2009 10:48 pm      

IU panel anticipating growth in 2010

When the current recession hit in late 2007, what was occurring in America also affected financial markets overseas.

As a result, as America slowly emerges from one of the worst recessions since the 1930s, other countries will emerge, too.

And emerge just as slowly.

“The good news is that we have ended the free fall and the recession is coming to an end,” said Ellie Mafi-Kreft, clinical assistant professor of business economics and public policy at the Indiana University Kelley School of Business. “The whole world was affected at the same time. That is going to make recovery difficult. It was a financial fiasco worldwide. We can take the lead in recovery, but China is saving too much and the U.S. spends too much.

“We are predicting a 3 percent growth in the market in 2010. That’s good news. But why don’t I feel happy and why aren’t my neighbors out shopping for Christmas? We had an extraordinary bust so we should expect an extraordinary rebound.”

Wednesday morning at Indiana University Kokomo, Mafi-Kreft was among five IU Kelley School of Business economists participating in the school’s 30th annual Business Outlook and Public Policy Panel Discussion and Breakfast.

Since last week, Kelley’s economists have been touring the state presenting their annual forecast and they are confident 2010 is going to be better than this year.

Unfortunately, 2009 was “really, really awful.”

“Better is not necessarily good,” said Bill Witte, associate professor emeritus of economics at IU and a member of the Kelley School of Business’ annual Business Outlook Panel. “2010 is going to be acceptable, except for the fact that we’re starting from extremely low levels. Things will be getting better, but they still won’t be really good.”

Witte, who also co-directs the Center for Econometric Model Research at IU, pointed to two factors — cautious consumers who took dramatic hits to the values of their homes and other investments and small businesses still contending with tight credit — as the primary sources of an economic headwind in 2010.

“Households are probably going to continue being cautious with their spending. They’ll certainly take advantage of bargains when they see them,” said Witte, using as an example the Cash for Clunkers program, which led to a surge in auto sales followed by a return to a lower level of purchases.

“Looking at the next year or two, as households rebuild their financial situation, consumption is just not going to be a roaring, robust source of economic growth.”

Although some analysts have declared the national recession is over, the panel said any economic progress will continue to be weakened by the aftermath of a historically severe downturn.

While output growth next year will be above 3 percent, “hangover from the financial crisis will hold the strength of the recovery below what would normally be expected following such a deep downturn. The worst appears to be behind us, and it will take three to five years to restore the luster to the economy and once again reach full employment.

“In Indiana, 2010 also will be a tough year, but not tougher than the nation as a whole,” said Jerry Conover, director of the Indiana Business Research Center. “We forecast some economic growth for Indiana in the year ahead.”

In addition, the panel’s forecast predicts the national labor market will lag behind output and unemployment will peak above 10 percent. Payrolls should add nearly 2 million jobs by year’s end. Inflation will remain low through 2010 due to cautious consumer spending and continued high unemployment.

In Indiana, Conover said, real personal income will grow about 2 percent higher than in 2009. This will be due partly to some improvement in state employment.

Besides health care and education jobs, the panel indicated every sector in the state lost jobs during the recession. Statistics show from August 2007 through July 2009, the state lost more than 200,000 jobs. However, since July, the state has been gaining jobs and almost 50,000 jobs will be added through 2010.

The forecast said government, construction and health care services will fare relatively better than other major sectors. Joblessness will remain a challenge, with the gradually shrinking unemployment rate still well above long-term averages at year’s end.

“In 2010, we will start out flat,” said Robert Neal, Kelley School of Business associate professor of finance, “but it will take us a while to get back all the jobs we lost.”

Locally, Jason VanAlstine, IUK’s assistant professor of economics, highlighted the unemployment rate is down and with Chrysler and Delphi emerging from bankruptcy, and economic conditions should begin stabilizing.

Furthermore, as Zuna Infotech — an information technology startup business — plans to bring 400 jobs to the area, VanAlstine said that is a credit to the county’s work force and “a good piece of news.”

Yet, for Jeb A. Conrad, that good piece of news is just what his organization wants to hear more of in 2010.

“There are still a lot of challenges out there, but this is encouraging,” said Conrad, president and CEO of the Greater Kokomo Economic Development Alliance.

“With Chrysler and Delphi stabilizing, that will help us out a lot. We have the work force here and that makes us attractive to business. We are selling our work force daily and we have gotten some activity,” continued Conrad, adding he is in confidential discussions with several businesses interested in the Kokomo area.

The panel is presenting its national, state and local economic forecasts in nine other cities across the state through Nov. 18.

A detailed report on the outlook for 2010 will be published in the winter issue of the Indiana Business Review, available in December on the Web at www.ibrc.indiana.edu/ibr.

• K.O. Jackson is the Kokomo Tribune’s business writer. He can be reached at 765-854-6739 or via e-mail kirven.jackson@kokomotribune.com