Local and state economic experts predict a slowdown in the coming year, although the severity will depend on many different factors.
Or, as Jennifer Rice, a senior lecturer at Indiana University’s Kelley School of Business, puts it, her outlook is optimistic, “but a little pessimistic.”
Indiana’s annual business outlook panel was held in the House of Commons on Monday, and experts from Indiana University and Columbus presented their forecasts for 2023 — a year with “the most uncertain outlook in half a century,” according to IU experts one year.
“The overall conclusion is that 2023 is likely to see some form of recession,” Rice said. “It depends: Are we on the optimistic end or are we on the pessimistic end?”
Since 1972, Kelley College has presented annual business outlook forecasts to communities across the state, based on research forecasts from its Indiana Center for Business Research.
This year’s Business Outlook tour includes visits to nine cities and begins in Bloomington on November 11. 10. At each stop, Kelley faculty and local panelists provide economic forecasts for 2023 at the global, national, state and local levels. Their insights include economic trends expected to occur in the coming year and the outlook for financial markets.
The Columbus Group is sponsored by the Columbus Area Chamber of Commerce, the Centra Credit Union, the business units of IUUC, the Indiana Center for Business Studies, and the Kelley School of Business. Proceeds from local event support scholarships for IUPUC business students.
Kelley School officials said their forecast for 2023 uses two sets of assumptions to make two different projections for the year. One is optimistic; the other is “moderately pessimistic”. Continued consumer spending and bringing more workers into the labor market will be key factors in improving economic outcomes.
“We believe that output growth in 2023 will be weak at best, with a high probability of negative growth for parts of the year,” Kyle Anderson, clinical assistant professor of business economics and chair of the faculty of the evening MBA program, said in an official statement. Demand across the economy will fall. One key is the magnitude of the impact on consumer spending. If consumption holds up, it will cushion any decline. Otherwise, a recession will be inevitable.”
According to the IU report, consumer spending in the third quarter of 2022 was 15.2% higher than pre-pandemic levels, while services grew only 3.4%. If that divide narrows, Kelly economists will worry about how the commodity-producing industry will respond to the sharp drop in sales.
It could also have a more significant impact on Indiana, whose economy still relies on durable goods manufacturing, said Ryan Brewer, an associate professor of finance at IUPUC and co-author of the state’s forecast. The sector accounts for 16% of the state’s gross domestic product.
Rising interest rates and other factors could lead to lower demand for the product, and economists at the Kelley Institute also expect Indiana’s unemployment rate to rise to between 4.1% and 5.5%.
“It appears that through 2023, Indiana, a manufacturing leader, will feel the pressure of the Fed tightening cycle and end up on a flat or relatively flat trajectory in output while facing the real possibility of layoffs,” Brue said. Ernest said in IU’s report. “If inflation remains high in the coming months, the Fed is likely to continue to tighten policy, demand for durable goods will continue to decelerate, and unemployment in Indiana may become more severe.”
In the financial forecast, Brewer advised those in the stock market to consider “rebalancing” their portfolios, possibly moving to other areas such as socially responsible investing or energy.
Brewer said local residents will be able to tell whether we’re on a “hard landing” with holiday season spending and consumerism, and said individual households as a whole will decide whether the economy will land softly or hit hard (falling into recession) next year.
Other risks to the economic outlook to 2023 include the ongoing war in Ukraine, how developed country central banks handle their fiscal policies and tightening financial conditions as interest rates rise.
In discussing the state’s outlook, Phil Powell, academic director of the Indiana Center for Business Studies, pointed to talent attraction as a major challenge for Indiana and the Columbus region. He added, however, that the Indiana Legislature has an opportunity to address the issue by using some of the state’s surplus to invest in education, infrastructure, placemaking and public health, which will help make districts more competitive.
Jason Hester, president of the Greater Columbus Economic Development Corporation, presented the local outlook, including insights from himself, Brewer and Steve Mohler from the IUPUC business unit.
“First, the upside,” said Hester. “With about 8,000 local employees in our region and their global headquarters in downtown Columbus, just a block from us, we first thought Cummins was well positioned to deliver a solid sales year. We expect them to absorb any local or all input cost increases , and achieve margins comparable to pre-inflation. Importantly, our forecasts do not anticipate material changes in local headcount.”
In addition, U.S. light vehicle sales are expected to rise, and the Reducing Inflation Act includes incentives for companies to invest in clean energy. In addition, inflation may encourage individuals who have left the labor market to re-enter the labor market, thereby reducing the burden on the labor market and encouraging employers to create more jobs.
However, there is also some potentially bad news along with good news. Hester reiterated that lower consumer spending could lead to less demand for durable goods produced by local employers.
While Columbus has a high labor force participation rate of 66% and a low unemployment rate, Hester said that if unemployment remains low and the labor force does not increase, local GDP growth could be “hampered” by a lack of available workers.
Hester said he and his co-authors mapped out three possible outcomes for Columbus, including a soft, medium or hard “landing” for the local economy.
They think moderation is the most likely outcome. In this scenario, Columbus’ real GDP would fall by -1% to -4%. Inflationary pressures will prompt up to 1,500 people to re-enter the local job market, with employers filling vacancies but delaying expansion. Unemployment will rise to 3%-4% as jobseekers outpace job growth.
“High inflation and rising interest rates, ongoing supply chain challenges, tighter local business investment and continued tight labor markets are the biggest challenges to local GDP growth,” Hester said. “However, these headwinds can be offset if consumer spending remains unchanged, as has been discussed, especially as demand for light vehicles and other locally produced products remains.”