Indiana's strengths are Indiana's weakness

Big automakers on the brink, farm prices on the way down, and rising energy prices can make an economist a little nervous -- especially in Indiana.

Ditto for business people, according to Jerry Conover, director of the Indiana Business Research Center. He thinks that's one reason attendance seems to be up overall at the nine Indiana University Business Outlook Panels held around the state this year.

"So much of our economy is driven by the auto industry," Conover said in comments after the outlook panel's final stop on Friday. "And what's good for General Motors may no longer be good for America."

The problems of the world's largest automaker are sending ripples of anxiety through Indiana's critical manufacturing sector, from steel mills in Northwest Indiana to auto supplier Delphi Corp.'s plants in Kokomo.

At Friday's two presentations at Teibel's Restaurant in Schererville, Conover and other economists on the panel gave a mostly upbeat assessment of the U.S. economy and even had encouraging words for Indiana.

But there was no ignoring the fact some of the state's leading industries are in for a slow patch, if not a rough one.

Agricultural economist Corinne Alexander predicted overall farm income in 2006 will be in the $700 million to $800 million range, down from $2.4 billion in 2004.

"There's so much corn out there, it's just not worth much," said the Purdue University associate professor.

The saving grace for Indiana's farm economy may be the energy bill passed by the U.S. Congress and signed by President Bush in August.

Incentives for renewable fuels, such as corn-based ethanol, may help keep corn prices from falling flat on their face.

It's not that the Indiana economy is about to fall on its face, as long as the national engine keeps chugging. And the prognosis for that was good on Friday, with the consensus estimate for economic growth in 2006 coming in at 3.6 percent.

"The U.S. economy is doing remarkably well ... and we expect it to continue to do remarkably well," said Morton Marcus, director emeritus of the Indiana Business Research Center.

Marcus said he used the word "remarkably" in light of the hits delivered by Hurricane Katrina on the Gulf Coast and spiking fuel prices.

The coming year will see solid earnings by U.S. companies, according to Robert Neal, an associate professor of finance at Indiana University's Kelley School of Business. Companies making up the S&P stock index should realize earnings growth of 10 percent to 12 percent.

Inflation may be a worry, with the core consumer price index up about 2 percent and overall inflation up about 4.7 percent this year.

"Inflation is a little like toothpaste," Neal said. "Once you squeeze the tube and it starts coming out, you can't get it back in."

The dollar should continue to strengthen, Neal said. That is not good news for manufacturers, because it will make American exports more expensive abroad.

That is another factor that could tip the economic balance against Indiana. The state still leads the nation in percentage of jobs in manufacturing and is 12th in total value of goods exported.

At an economic summit convened by the Indiana Economic Development Corp. last week, it was stressed the state must carve out some manufacturing niches where it can grow. But those haven't been developed enough to produce significant job growth, Conover said.

Northwest Indiana will continue to lose jobs in manufacturing while picking up jobs in the service sector, according to Donald Coffin, a professor of economics at Indiana University Northwest in Gary.

The transition to a service economy is definitely creating jobs here. But those jobs pay about $30,000 per year in Northwest Indiana, whereas manufacturing jobs here pay about $70,000 per year, Coffin said. Both of those figures include the cost of benefits.

Manufacturing employment in Northwest Indiana will see about a 3.5 percent drop in 2006. The steel industry, where thousands of jobs have been slashed, offers a good example of what's happening.

"We are producing more output up here," Coffin said. "We are just doing it with a whole lot less people."