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‘More of the same’ for economy

Next year will be very similar to this year with weak economic growth, but growth none the less. That was the message four economic experts expressed last Tuesday morning to the more than 350 attendees gathered in the Hoosier Room on the Indiana University Southeast campus for the Economic Outlook 2011.
The annual event, sponsored by First Harrison Bank, included panelists James Smith, John A. Boquist, Bill Witte and Uric Dufrene, all members of the faculty at the Kelley School at Indiana University. The moderator was Chancellor Sandra Patterson-Randles; Dean Jay White welcomed the group.
Witte spoke to the group first about the national economy, and said that this panel forecasted turbulent economic times ahead in previous outlook events.
‘We trudged through one of the most difficult economic times we’ve ever seen,’ he said.
He said 2010 unfolded about as experts expected. While better than 2009, the growth continues to be well below the historically normal rate coming out of a recession. The recession officially ended in June 2009.
The Gross Domestic Product growth five quarters after a recession averages 7.9 percent, but the GDP growth has only reached 3.5 percent after five quarters following the end of the latest recession.
‘This is lousy,’ Witte said, adding that he found it difficult to characterize the current economy going forward.
‘It’s optimistically pessimistic; certainly uncertain,’ he said. ‘Expect, roughly, more of the same.’
Witte reassured the crowd that he did not expect the country to experience a ‘double-dip’ recession, as some have predicted.
Unemployment is expected to remain in the 9-percent range at the end of 2011, Witte said.
He said there is more than the usual amount of uncertainty, especially after the November General Election shook up the political landscape on Capitol Hill.
Witte asked the group to raise their hand if they thought President Barack Obama’s administration and the new Republican majority in the House of Representatives will ‘make nice’ and compromise on issues, or, raise their hand if they thought the two parties would be ‘deadlocked.’ Nearly everyone in the room voted for the latter.
‘You people are real cynics down here,’ Witte said.
But, he continued, a deadlock may not be a ‘kiss of death’ for the economy. He said some people have the thought that if politicians would ‘quit kicking us in the head,’ then it would be a good start for the economy.
Boquist then spoke, focusing more on the financial markets, but he continued the uncertainty theme. He touched upon the Federal Reserve’s latest effort to boost the economy, Quantitative Easing 2 (QE2), which will pump $900 billion into the economy when the Federal Reserve buys $600 billion in long-term treasuries.
‘They’re trying to drive down long-term interest rates … ‘ Boquist said. ‘It’s good for borrowers; not so good for savers.’
He said the rates currently are outstanding, and it’s a good time to again refinance a home. But, these rates don’t necessarily mean the economy will move.
He expects the housing market to improve, because it has already hit rock-bottom.
He mentioned the auto industry, in particular General Motors, which he referred to as ‘Government Motors’ since the government bailed out the company. He said that in the 1970s, GM had more than 468,000 American jobs, but now has only 52,000.
The stock market had a pretty good year in 2009, he said, and continues to improve this year. He said that trend should continue, but inflation does present some level of uncertainty.
Smith then addressed Indiana’s economic situation. He said the Hoosier state has a history of being hit hard by recessions, and this one was no different. However, Indiana wasn’t hit the worst; in fact, it was above average. Smith contributed the numbers to the rest of the country being hit harder than usual.
The state saw 500,000 lost jobs in the recession and, he said, recovery has continued. He repeated a quote someone recently told him to describe the recovery: ‘Well, you can’t fall out of a well.’
Last to speak was Dufrene. He described the recession and recovery as ‘U’ shaped, with a sharp decline in unemployment, which has already taken place, then a slow recovery.
‘We are now at a point where we will begin moving away from the bottom of the U in this U-shaped recovery,’ he said. ‘This year, the region will see noticeable improvement in the regional economy, but we will not return to labor market conditions that existed at the start of the recession.’
He said the region’s unemployment rate will remain somewhat elevated but with a downward trend.
‘Consumers will continue to show their vigilance,’ Dufrene said, ‘and discretionary spending will continue to take a back seat to frugality.’
At least for the Louisville metro area, Dufrene said 2011 will be the year where noticeable progress is made on the recovery of jobs.

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