Economist says Indiana should enjoy slow but steady growth in 2011

Topic: Miller College of Business

December 8, 2010

A Ball State University economist is forecasting that Indiana's economy will grow at a painfully slow but steady rate in 2011 with unemployment falling throughout the year to a low of about 8.7 percent, more than a full percentage point lower than it was in October 2010.

Michael Hicks, director of Ball State's Center for Business and Economic Research (CBER), believes the state will continue to be a national leader in job creation as the U.S. rebounds from the deep recession of 2007-2009. 

"As bad as it has been, Indiana has done remarkably well over the recession. Given the large manufacturing share of our economy, we probably should have had an unemployment rate in near 16 percent."

He made his comments during the 15th annual Indiana Economic Luncheon Dec. 8 at the Horizon Convention Center. Lt. Gov. Becky Skillman was the keynote speaker at the event. 

"This forecast says the state will be very slow to rebound from the recession, but all signs point to Indiana continuing to outperform the nation as a whole," he said. "Indianapolis will again be the state's economic engine as the capital city continues to attract new businesses and existing firms begin adding to payrolls. However, other parts of the state will see some economic growth but not as fast as we all would hope."

During the luncheon, Hicks reviewed the economic forecast of the Indiana Econometric Model, which combines a U.S. economic model produced by Yale University with Ball State's  model.

The forecast analyzes the potential employment, labor force and income growth in the state's nine largest private sectors. Personal income should rise by 4.81 percent by year's end, with the construction (7.23 percent), manufacturing (7.07 percent) and transportation (6.99 percent) sectors leading growth.

These sectors were hard hit during the recession and, like the economy as a whole, will not recoup their losses by the end of 2011, Hicks said.
Other sector and their expected growth rates:

  • Utilities, 1.2 percent
  • Health care, 3.02 percent
  • Retail, 3.19 percent
  • Finance and insurance, 3.96 percent
  • Wholesale, 5.34 percent
  • Information technology, 5.27 percent 

Hicks said inflation will be tame, but the large money supply suggests inflation will accompany any strong growth in the economy.

"There is some good news, " he said. "We economists and our models did a poor job of predicting this recession, and the nature of the mathematics underlying the models suggests they are more likely to underestimate the rate of the recovery, than overestimate it."

Hicks said that much of the spending on the American Recovery and Reinvestment Act, commonly known as the "stimulus," has yet to be translated into lower unemployment.  If more jobs are created, they will come in mid-2011 and 2012, and so cast some uncertainty on these estimates.

"I believe that 2011 will be much better than the past two years, but uncertainty surrounding federal policy and continued discomfort with government debt in the U.S. and abroad will cast a shadow on this recovery," he said.

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