The Indiana University Kelley School of Business today said it expects the national economy to continue to struggle into 2016. They expect any economic gains to be modest.
Some pundits have been saying the economy may expand at more than 2%, but the Bureau of Economic Analysis says that revisions from 2013-14 data and continuing negative international conditions show that is unlikely.
The Kelly School panel says it is possible the economy will do marginally better than last year. For that to happen, some sectors will need more improvement than last year.
The sectors that did well last year include consumer spending and housing, but now they have limited upside, the panel says. Business investment, international trade and government spending are unlikely to increase enough to make a difference.
“Looking to the year ahead, we see little reason for any real optimism,” Bill Witte, associate professor emeritus of economics at Indiana University’s Kelley School says. “We think the economy can match the past year, or perhaps do a little better.”
According to the IU Kelley School economists, real output growth in 2016 will only average around 2.5 percent, marginally better than this year, but about the same as 2014. This pattern has been in place since 2011.
The panel are not the only ones who are pessimistic about the economy. Gerald Celente, the Trends Journal publisher says that inflation is a myth. Celente says that no quantifiable data or economic model supports the oft-cited fairytale that “the not too hot, not too cold, just right dose of two percent is needed to keep an economy healthy.”
Average national labor market growth is currently 167,000 each month, half of what it was at the end of 2014.
The Kelley School panel says the China slowdown has impacted economic growth in other emerging economies, and Chinese currency instability has severely affected U.S. exports, which were rising in previous years. U.S. housing has experienced “a modest rebound,” as have U.S. auto sales.
Incidentally, since General Motors, Ford and Toyota announced they would cease production in Australia earlier this year, there has also been a rebound in auto sales in Australia. In the past quarter, Toyota benefited the most, selling more cars than any other brand.
The Kelly school panel also looked at the national labour market, and said that looking ahead to 2016 the employment market should match recent performance, but they expect it to be well below what happened in 2014. The panel expects job growth will be much less than 200,000 per month.
Bill Witte said “In part, this deceleration will reflect a labor market that is approaching full employment. This also means that the steady decline in the employment rate, which has been in place since late 2011, will slow. By the end of 2016, the rate will be below 5 percent, but only by a tick or two.”
Unemployment may be falling but the participation rate is also falling. Indiana’s employment picture exceeded expectations, the panel says. The unemployment rate dropped from 6 percent down to 4.5 percent in September. The economic climate in and around the capital city is expected to continue on a flatline this year, according to James Smith, a panel member and senior lecturer in finance.
Manufacturing in Indiana may also suffer as international markets weaken. The panel expects declining sales and possibly cutbacks at major manufacturers located in Central Indiana as the Fed raises interest rates. Rising interest rates coupled with a tight labour supply may limit business expansion, especially in the housing arena.
The panel expects the Federal Reserve to raise rates some time between late this year and early next year. The direct impact on Indiana is expected to be minimal, at least initaially.
The Business Outlook Panel says it will issue a detailed report on the outlook for 2016 in the winter issue of the Indiana Business Review, available online in December.
