Boris Ladwig, The Republic City Editor
When James Smith teaches a business class on Monday evening, one unrelated event will have a significant impact on his class or, more specifically, the attendance.
The Indianapolis Colts are playing against the New England Patriots.
Smith, a senior lecturer in finance at Indiana University’s Kelley School of Business, used that scenario to illustrate that outside influences can sometimes produce significant effects.
The same is true, he said, for Bartholomew County’s economy.
“We’re a little sensitive to national events,” he said at Friday’s Business Outlook Panel before about 150 guests at Harrison Lake Country Club.
Barring any disasters or other unforeseeable events, Bartholomew County’s economy should, at least in the short term, continue to move along as it did this year, Smith said.
The national unemployment rate is expected to change little in 2006. The same is true for Bartholomew County.
Nationally, the construction sector should enjoy a decent year. The same is true for Bartholomew County.
Nationally, the manufacturing sector is expected to continue to stagnate. The same is true for Bartholomew County.
Also, trends in interest rates and vehicle sales will significantly affect Bartholomew County, which still depends on the manufacturing sector.
“A bankruptcy at GM could have a big effect,” Smith said.
Caveat emptor
Economists on the panel predicted that Gross Domestic Product would expand by about 3.6 percent in 2006, about the same as this year.
However, they warned that the outlook is highly uncertain because of the possibility of problems in the housing sector, a potentially destabilizing deterioration in the government deficit and high energy prices.
Indiana is expected to add about 30,000 jobs next year, and the unemployment rate should fall slightly to below 5 percent, said Jerry Conover, director of the Indiana Business Research Center.
He expected that education, construction, leisure and trade sectors would produce more jobs, but manufacturing likely would stay level.
Higher interest rates, steel and energy prices, also could reduce consumer spending and hamper economic growth.
Farmers will face a more difficult year, Conover said, because production costs, namely fuel and fertilizer, will increase or stay high, while crop prices likely will fall.
The domestic economy will be affected by energy prices; corporate bankruptcies, particularly in the airline industry; and uncertainty about fiscal policy because of the new chairman of the Federal Reserve Bank, said John A. Boquist, professor of finance at IU.
He predicted mortgage rates to rise to about 7 percent, which will reduce the refinancing boom. Overall, however, the housing market should remain strong partially because of rebuilding activities in hurricane areas.
That, however, will drive up prices of building materials, which, in turn, will help increase inflation to about 3 percent next year, he said.
Boquist expected corporate profits to grow by 12 percent, slightly below this year’s pace, but he warned that pension and health care costs would continue to exert pressure.
China’s economy will expand about 8.2 percent next year, and India’s about 6.3 percent, said Andreas Hauskrecht, clinical assistant professor of business economics and public policy.
Europe, however, will crawl at a 1.8 percent growth, largely because its largest economy, Germany, will expand at only 1.2 percent.
“Among the industrialized countries, clearly the U.S. is the growth engine,” Hauskrecht said.