|
|
|
|
|
|
Business Outlook Forecast for 2002:
United States, Indiana are in recession, expected to
be moderate
Nov. 8, 2001
NOTE: The panel's other presentation
Thursday (Nov. 8) in Bloomington will be taped for rebroadcast on the Web. Users
will need RealPlayer 8 Basic and can access the presentation at
http://broadcast.iu.edu.
INDIANAPOLIS -- The same evidence that points to a sharply weakened U.S.
economy after the events of Sept. 11 also points to a moderate recession by
historic standards, according to an economic forecast presented here today (Nov.
8) by economists in Indiana University's Kelley School of Business.
"As we head into 2002, the U.S. economy will be recovering from recession,
reaching its trough in the first or second quarter," said R. Jeffery Green,
co-director of the Kelley School's Indiana Center for Econometric Model
Research.
"One of the reasons we expect the recession to end in early 2002 is that the
economy underwent considerable adjustment prior to the onset of the recession.
The decline in financial markets started in early 2000, and the drop in
investment spending began shortly thereafter," Green said. "The inventory
adjustment began in early 2001. Thus, if the recession is judged to have begun
in March 2001 or even in September 2000, many necessary structural adjustments
were well under way before Sept. 11."
Strong policy moves toward expansion, including 10 interest rate cuts since
January by the Federal Reserve, are another reason for an upturn in the spring,
he said.
The IU panel forecasts that gross domestic product will increase by 1 percent
in 2002, which is slightly slower than the 1.1 percent increase this year. The
Consumer Price Index measure of inflation will be no greater than 2.2 percent.
Locally, changes in the Indiana economy both mirror and magnify changes in the
national business cycle. The state possesses a more diverse mix of industries
than when it was previously rocked by national recessions.
"Structural changes in the state's economy -- now less reliant on
manufacturing -- suggest that Indiana will not be as badly impacted by the
current recession as the ones in the early 1980s," explained James C. Smith,
director of the Indiana Business Research Center (IBRC).
In 1981, 31 percent of all jobs in Indiana were in manufacturing. By 1990,
that figure was down to 25 percent, and this year the percentage is 22 percent.
Even within the state's manufacturing sector, the picture has changed
considerably, Smith said. More jobs in Indiana are at plants supplying
Japanese-owned auto companies, whose sales have held up better than their
U.S.-based peers, or at medical device manufacturing companies with growing
demand.
Also, employment at service industries has increased considerably,
particularly at well-paying health service and business services firms. Health
care jobs now account for 8 percent of all jobs in Indiana. Business services
jobs, including those at accounting firms and software companies, now make up
5.4 percent of Indiana's employment.
"For 2002, it appears Indiana's economy will benefit from the momentum it
brings into this recession, holding job losses to a minimum," said Smith, who
adds that the state's unemployment rate will reach 6 percent and increase toward
the national average, but not match or exceed it. "By the end of 2002,
employment should be on the rise again. There were 3 million jobs in Indiana in
2000. For a return to that level, we probably will have to wait until 2003."
From a state geographic standpoint, economic conditions are strongest in the
greater Indianapolis metro area, said Morton Marcus, executive director of the
IBRC.
"The Indianapolis metro area will continue to out-perform the state in the
year ahead," Marcus said. "With a diversified economic base, less dependent on
airlines and hospitality than the rest of the nation, this nine-county area may
also be less affected by the downturn than the United States as a whole."
Looking at the national and international picture, the IU professors forecast
that business capital spending and national exports will decline in 2002,
continuing a trend that began this year.
Consumer spending is not expected to fall, but will not grow by more than 1
percent. Demand for durable goods will decline after growing by almost 3.1
percent this year. This includes the sales of automobiles, which posted record
sales this fall in response to 0.0-percent financing deals offered by
automakers.
Despite the recession, steep declines in mortgage rates have bolstered sales
of new and existing homes. Higher unemployment will affect new housing starts in
2002 and lead to little or no growth in that sector of the economy.
Concerning international trade involving Indiana companies, Lawrence S.
Davidson, professor of business economics and public policy, said Indiana export
growth has out-performed the nation through much of 2001. At mid-year, Indiana
exports were just about equal to what they were a year earlier, but this
stability is in sharp contrast to the nation, which saw a decline in exports of
more than 2 percent.
This largely has been because of increased sales of organic chemicals,
pharmaceutical products and medical devices to the United Kingdom, Japan,
France, the Netherlands, Brazil and China. Davidson expects little growth in
Indiana exports in the coming year, mostly due to a severe global economic
slowdown.
The same forecast was presented today in Bloomington. The two presentations
are the first in a statewide tour that will include 10 cities over the next
three weeks. The annual forecast is prepared by a group of IU economists who use
the Indiana Econometric Model as their starting point. The model combines state
statistics and a national forecast to develop projections for the coming year.
The panel has presented an annual forecast since 1972.
Other panelists at the Indianapolis presentation were Robert S. Neal,
associate professor of finance; and Roger W. Schmenner, Kelley School associate
dean-Indianapolis programs.
The panel also will appear in Columbus on Friday (Nov. 9); Richmond and
Anderson, Nov. 13; Fort Wayne, Nov. 14; Kokomo, Nov. 15; Schererville, Nov. 16;
and New Albany and Evansville, Nov. 20. Regular panelists will be joined in most
cities by an economist from that particular area who has prepared a forecast for
the local economy.
(George Vlahakis, 812-855-0846, gvlahaki@indiana.edu)