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By George Vlahakis
The final years of the 20th century will be recorded as one of the most remarkable periods in U.S. economic history. This American success story will continue into the next millennium, even as a truly global economy emerges, said Indiana University professors at the IU Business Outlook forecast Nov. 4 in Indianapolis, one of 11 presentations given in 10 Indiana cities this month.
"Since the end of the last major recession in 1982, real GDP (gross domestic product) growth has averaged 3.5 percent per year, well above the 2.9 percent per year rate in the preceding 17 years," observed R. Jeffery Green, associate dean of IU's Kelley School of Business. "Once the great recession of 1980-82 was completed, only one very short recession was recorded in the next 17 years, an achievement unprecedented in the more than 150 years over which recessions have been recorded."
The forecast projected that the U.S. economy will slow down in 2000, but not fall into recession. The nation's GDP is expected to grow by 2.8 percent and inflation should be no greater than 2 percent next year. Consumer spending on durable goods and housing will grow more slowly after unexpected and unsustainable increases in 1999. The savings rate will rise slightly from what is now an historically low level.
Michael Simkowitz, professor of finance, said rising interest rates suggest much less growth in equity prices. Any major unexpected announcements relating to earnings, economic growth or Federal Reserve policy could cause a significant decline in stock prices.
"The market's optimism about earnings is troubling. I don't think that we will get the growth in operating earnings that it seems to be expecting," Simkowitz said. The next 12 months should see returns on stocks in the single digits with a fair amount of volatility, he added.
The Indiana economy likely will lag behind that of the nation due to its dependence on manufacturing of big-ticket items, said Morton Marcus, director of the Indiana Business Research Center. "A slowdown in consumer spending on durable goods and housing will keep Indiana from advancing at the national rate," he said. "Nominal personal income growth‹approximately 5.2 percent in 1999‹should come in around 4.7 percent in the first year of the next century."
The IU forecast suggests that the U.S. economy will produce more than 1 million new jobs in 2000, leaving the unemployment rate largely unchanged at 4.3 percent. Indiana should share in this growth with 25,000 new jobs and an unemployment rate below the national level.Internationally, the U.S. trade deficit could deteriorate further in 2000, but only marginally, from the historically high trade deficit of this year, said Larry Davidson, director of the Global Business Information Network. The value of the dollar will depreciate in 2000, following a significant decline in the last half of 1999.
Indiana's export growth outperformed the nation's during the first half of 1999, largely because of increased sales of transportation equipment to Canada and electronic equipment to Mexico.
A more complete analysis of the economic outlook for 2000 will be available in the forthcoming issue of the Indiana Business Review. Free subscriptions for Indiana residents are available from the Indiana Business Research Center, 501 N. Morton St., Bloomington, Ind. 47404.
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