Economists predict better 2010 but east central Indiana forecast not as bright

aleasha.sandley@heraldbulletin.com

ANDERSON, Ind. - Economic forecasts that show 2010 looking brighter across the country might be a bit too optimistic for east central Indiana, a Ball State University economist said.

Due to losses in the manufacturing industry, many which came from an ailing General Motors and Chrysler, the area of the state that includes Anderson, Muncie and Marion might not rebound from the economic recession as quickly as other parts of the country, said Dagney Faulk of Ball State's Center for Business and Economic Research.

In the Madison County area, Faulk predicted a decrease in employment by half a percentage point through the first quarter of 2010 before employment stabilizes. She expected household income to remain flat in the area.

Faulk's predictions were part of an economic panel on Tuesday presented before the Anderson Rotary Club. Three other panelists forecast economic conditions for 2010 in the national, state and financial arenas.

Small cities like Anderson were struggling before the recession, Faulk said, thanks to the loss of auto manufacturing jobs. Madison County's manufacturing jobs went from 30,000 jobs in the 1970s - GM's heyday in Anderson - to 3,000 now, she said. From 2008 to 2009, the county has lost 1,000 manufacturing jobs and posted slight gains in jobs in leisure and hospitality, government and construction.

The county saw a slight drop in unemployment from 10.4 percent in August to 9.7 percent in September, the last month for which data is available. That number, Faulk said, is not always a reliable indicator that the economy is turning around.

"Frustrated job seekers are dropping out of the labor market," she said. "It doesn't count part-time workers who want to work full-time."

Gaming also could take a hit in 2010, Faulk said, after voters in Ohio chose to allow gaming in that state. Anderson's Hoosier Park's location in the interior of the state might make it less susceptible than the state's riverboat casinos to the Ohio gaming impact, however, she said.

"That is expected to have a negative impact on Hoosier Park's operations here," she said.

Indiana outlook improves in 2010

Indiana's gross domestic product, one standard by which the state's economic health can be measured, was 49th in the country at one point during 2009, said Jerry Conover of the Indiana Business Research Center. A large chunk of the state's decline in economic growth was attributable to a 28 percent shrinkage in the manufacturing sector.

"It was a rough year for Indiana," Conover said. "I'm seeing a little sunshine on the horizon."

Conover forecast that Indiana would see a 2 percent increase in personal income in 2010. Personal income has been growing more in 2009 than many other states - Indiana is 16th in the country - but much of that growth can be attributed to federal stimulus and unemployment benefits, he said.

Job growth in Indiana seemed to level out in 2009, with employment shrinking by 200,000 jobs by July but rebounding shortly after. Indiana led the nation in job growth in September, Conover said.

Conover predicts the addition of 40,000-50,000 jobs in the state in 2010 with the unemployment rate hovering in the 9 percent range for most of the year.

Permits for building new homes in Indiana could increase by about 15 percent, and sales of existing homes might go up by 15-20 percent in 2010, Conover said.

He expects retail activity in the state to level out over the year.

National recession looks to be over

Third quarter growth in 2009 has allowed some economists to declare the recession over, but Kyle Anderson of the Indiana University Kelley School of Business said caution still is needed in 2010.

"2009 has been a real ugly year so far," he said.

The country saw 3.8 percent shrinkage in the economy from 2008 through the first half of 2009, but rebounded with about 3.5 percent growth in the third quarter of 2009.

"The jobs picture, however, is not as good," Anderson said. "We've still got some pain to go through over the next year in the unemployment sector."

The economist predicted a national unemployment rate that would continuing increasing to between 10.5 percent and 11 percent during the first part of 2010. He expected an addition of 2 million jobs nationwide by the end of 2010.

Anderson is concerned that the country's economic recovery is based largely on temporary government intervention.

"We can't, as an economy, expect to recover solely on the basis of government spending," he said. "Right now, we're spending much more than we're bringing in."

The fledgling economic recovery needs increased consumer spending, Anderson said, but more individuals are saving their money instead of spending because of decreased 401(k)s and home equity and tightened credit markets.

"We're seeing some signs of recovery for 2010, but there's still quite a few things to be cautious about in 2010."

Financial markets to recover slowly

John Boquist, of IU's Kelley School of Business, said the nation's financial recovery would be U-shaped, with a period of time spent on the bottom before slowly recovering to the level markets were at before the recession.

"Tremendous damage was done to household wealth," Boquist said. "A third has been recovered."

Household wealth went down by $11 trillion over the recession, an amount equal to the output of Germany, the United Kingdom and Japan combined, Boquist said.

A major hurdle for the country is its deficit, Boquist said. Foreign countries are reluctant to buy U.S. debt, and the country spends about $4 billion a day, according to his calculations. The debt equals about $352,000 per household.

"The big red flag, I think ... is the ticking time bomb of baby boomers that are about to retire," he said.

For 2010, Boquist predicts good profits for businesses that already have cut their budgets to the bare minimum, a strong banking industry, weak retail sales with a 1 percent drop in holiday sales from last year and flat auto sales.

Although stock prices are generally a leading indicator of the economy, Boquist said recent gains might not be duplicated in 2010.

"I think the big gains have already been made," he said. "It's not going to be a great year."