Kokomo Tribune; Kokomo, Indiana

November 8, 2013

Economists predict another slow year in 2014

Federal dysfunction blamed for continuing malaise.

By Scott Smith Kokomo Tribune
Kokomo Tribune

---- — A group of Indiana University economists predicted “tepid” growth in the state’s economy next year amid concerns about the Federal Reserve and congressional turmoil.

Professor emeritus Bill Witte called it “zombie growth,” saying the percentage of adults participating in the labor force nationally is at its lowest level since 1983.

That percentage — which economists call the employment rate — dropped a full 5 percentage points during the 2008 and 2009 recession and has remained virtually flat since, Witte said.

“If we were in a healthy economy, we’d be recovering some of what we’d lost there,” he said.

Indiana has actually fared better than the national average since the recession, but the boost in the state economy produced by auto manufacturing powerhouses like Kokomo, Lafayette and Columbus could be waning, warned Jerry Conover, head of the Indiana Business Research Center at the IU Kelley School of Business.

“The manufacturing sector was the one which really led Indiana out of the doldrums, but there’s still about 60,000 fewer factory jobs than we had before the recession,” Conover said. “The growth we’ve seen since has leveled off. We shouldn’t expect to get back to that level we had before the recession.”

Witte said the cost of labor has been rising in China, making American manufacturing more competitive in some instances.

That view was echoed by the owners of Kokomo-based Patriot Porcelain LLC last month, when they announced they would bring about 140 jobs to a sanitary pottery manufacturing site which had been idled after the former owners “offshored” the jobs there.

But even in the Indianapolis area, which has seen the most economic growth in the state since the recession, growth this year has been sluggish.

Conover said the Indy-metro area added about 16,000 jobs this year, but would need to sustain that growth rate over the next two years to reach a full employment level by 2016.

The panelists said “disappointing” is probably the word that best describes next year’s economic outlook, with Witte laying the brunt of the blame on Washington, D.C.

The post-recession economic malaise could be attributed to the crisis itself, international economic turmoil such as the European bond markets, and the phase-out of the federal stimulus, Witte said.

“Frankly, we’re five years out from the recession, and all of those excuses are getting a bit long in the tooth,” he said.

With those issues fading, the lone culprit standing seems to be the lack of a coherent federal fiscal policy.

“For 16 days, the government was shut down, and in a couple of months, we get to do it all over again,” Witte said. “How many of you think it’s going to be sweetness and light this next time?”

Conover estimated the state economy could possibly double the national economic growth next year, but said growth is expected to remain anemic until the latter half of 2014.

Inflation is expected to remain low, but the panelists said they were perplexed by endgame scenarios for the Federal Reserve’s quantitative easing program. To keep interest rates low and to calm bond markets, the Fed has been purchasing about $85 billion in bonds each month, a policy Conover called “completely unsustainable.”

If Congress can overcome the current policy deadlock and the Fed can “taper” down its purchases of securities without interest rates skyrocketing, the U.S. could see 3 percent growth next year, they said.

Conover called this year’s 2 percent growth rate both “below sub-par” and “unacceptable.”

Scott Smith is on Twitter @JasonSSmith1; email him at scott.smith@kokomotribune.com.