National economy to see growth

A panel of IU economists announced Friday its prediction that the United States and global economies will see stronger growth in the coming year. \nThe panel also predicts Indiana will continue to underperform in the national economy, and the growing federal deficit will threaten the economy's long-term health.\nThe IU Business Outlook Panel spoke at a lunchtime forum Friday in Alumni Hall at the Indiana Memorial Union. \nJeffery Green, co-director of the Center for Econometric Model Research, said the national economy will probably grow by 3 percent this year and 4 percent in 2004. The economy's strength will continue to rest on consumer spending and a vigorous housing market, as well as increasing business investment, exports and productivity growth, he said.\nThe weakest sector of this year's economy, Green said, was state and local government spending.\n"There are a lot of localities and states where financial problems are severe, and that's going to constrain the overall growth in spending next year," Green said. "Federal spending, on the other hand, next year being an election year, is likely to be quite robust. One consequence of that we are already experiencing is an exploding federal deficit which should balloon to record levels."\nGreen cited a Congressional Budget Office report estimating the federal deficit for this year at $480 billion. The forecast, Green said, was made before Congress approved President Bush's request for $87 billion to aid in the reconstruction efforts in Iraq.\nSenior lecturer in finance Jim Smith predicted the country's inflation would remain low and corporate profits would grow in 2004 by about 9 percent. But he agreed with Green's warnings about the deficit.\n"There's one significant dark cloud on the horizon, and that is the U.S. federal deficit," Smith said. "It's not a very sexy issue, but the fact is, and this isn't just Iraq either, non military federal spending has been growing at 6 percent a year-ironically under a Republican administration."\n"What we're seeing, in effect, is transferring a lot of the financial burden for what the federal government's doing today to the future," Smith said. "In other words, our children, instead of spending federal money on what they want done with their taxes, are going to spend it in part to fund what we did in '03 and '04." \nThe panel also discussed Indiana's business outlook.\n"Are we (Indiana) any worse off than the rest of the nation? The answer is yes," said Jerry Conover, director of the IU Indiana Business Research Center.\n"Indiana ranks next-to-last in the nation in terms in job growth in the last two and a half years," Conover said. "Only Michigan has lost a larger percentage of its jobs in that time."\nIndiana's employment peaked in March 2000 at about three million jobs. Since then, Indiana has lost about 181,000 jobs, or roughly 6 percent of its peak employment. Only Michigan, New York, Illinois and Ohio -- all states with much larger populations than Indiana -- have lost more jobs in absolute terms than Indiana, Conover said.\n"We've had a much steeper decline than is the case nationally," Conover said. "If you look at recovery from that decline, U.S. employment has been nearly flat, shrinking about a half percent, whereas in Indiana employment has dropped two percent over the last year and a half."\nMore than half of the lost jobs have come from the manufacturing sector, Conover said. He said that the decline was attributable to two factors: the shifting of factories to other areas, particularly foreign countries with cheap labor, and increases in productivity.\n"As the factors in Indiana have become more proficient at cranking out goods with a smaller amount of labor, their output has been able to hold relatively steady even as employment declines," Conover said.\nMorton J. Marcus, former director of the Indiana Business Research Center, said Bloomington's employment has contracted slightly because of higher productivity.\n"Fourteen more business establishments exist in this community than did a year ago," Marcus said. "We have more establishments, but we have two hundred fewer jobs."\nThe two bright spots in Indiana's jobs outlook are government and education and health, Conover said. He noted that currently one in eight Hoosiers work in education or health-related jobs, and another one in seven works for federal, state or local government.\nConover said the Indiana Business Research Center is forecasting approximately 1 percent growth in Hoosier employment next year.\n"We anticipate that Indiana's economy will experience a modest upturn in the coming year," Conover said. "We entered the recession before the rest of the nation. We're taking a longer time digging our way out of it. We don't predict the economy will be booming in Indiana in the year ahead, but it should be better than it has been in the last year."\nMarcus said wages in Bloomington are lower than the rest of the state. In a study of 12 Indiana metropolitan areas, Bloomington ranked tenth in wage levels with an average weekly paycheck of $572 or $29,700 annually.\n"That includes the dean's job, plus the waiters who are here. It averages out," Marcus said.\nThe Business Outlook Panel's presentation is archived online at http://broadcast.iu.edu.\n-- Contact staff writer Paul Musgrave at rpmusgra@indiana.edu.