Columbus, the state of Indiana and the United States should continue to see economic growth in 2019, but the impact of tariffs and a trade war continues to loom large, economic experts said.
“Trade wars are never good for economic growth,” said Catherine Bonser-Neal, an associate professor of finance in Indiana University’s Kelley School of Business.
If current tariffs on imports and exports by the U.S., China, Mexico, Canada and the European Union continue, or more are added, current economic forecasts could likely change for the worse, said Bonser-Neal, who provided a forecast on financial markets to a crowd of about 120 during Wednesday’s Indiana Business Outlook Panel at the Columbus Learning Center.
That is one concern for Columbus, said another panelist, Steven Mohler, who presented the local economic forecast.
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Columbus’ chain-weighted gross domestic product (GDP) — the monetary value of all finished goods and services within the area, at last year’s prices — should increase 2 to 2.5 percent in 2019, said Mohler, a visiting assistant professor of management at IUPUC.
But for a community such as Columbus that is dependent upon manufacturing and Cummins, a global diesel engine and power company, tariffs on raw goods such as steel, and on imports and exports, cause concerns, Mohler said.
China is a huge market for Cummins’ products, but failure of a trade deal to be worked out between the U.S. and China could have serious consequences for both, said Ryan Brewer, associate professor of finance at IUPUC.
“If we don’t get a deal, it hurts both countries — China more than the U.S. But if they lose, we lose. It’s a binary outcome,” Brewer said during his presentation of the state forecast.
Indiana has $1.9 billion worth of exports to China, Mexico, Canada and the European Union affected by tariffs, including $1.1 billion to China, Brewer said.
In 2017, The Brookings Institution’s Metropolitan Policy program ranked Columbus as the metro area with the most to lose in the United States if President Donald Trump enacted tariffs and altered trade agreements.
Exports comprise 50.6 percentage of Columbus’ gross domestic product, the Brookings report said. Cummins plays a big factor in that number.
Cummins Chairman and CEO Tom Linebarger said after the company’s third-quarter earnings release that the company expected a $200 million hit this year because of tariffs, and $250 million next year.
The economic experts said the tariffs could offset the positive impact the federal Tax Cuts and Jobs Act, passed in December 2017, is having on the economy.
“This is one of the big weights, because (a tariff) is a tax. We got these great tax reductions, but we have tax increases through tariffs,” Mohler said. “Looking back to economic history, the last time there was a trade war was the Great Depression, and that was disastrous.”
Columbus has more to keep an eye on than tariffs for potential negative impact locally, Mohler said. Expected increases in interest rates could reduce demand for durable goods such as automobiles. That’s a concern for a community that relies on manufacturing that is strongly tied to the automotive industry, he said.
Also, a tight labor market and low unemployment will make it challenging for employers to fill jobs, especially those that companies are adding with new investment, Mohler said. Compounding that challenge is that Indiana has one of the lowest educational attainment rates in the country, Brewer said.
A 35 percent decline in local residential building permits from 2017 to 2018 is not a good omen, Mohler said. The 142 permits from January through September this year are the fewest since 132 in 2011, he said.
After the panel concluded, Greater Columbus Economic Development Corp. President Jason Hester said the presentations confirmed feedback the organization has received, and its strategic plans.
“It further emphasizes our mission to diversify the local economy,” Hester said. “It further emphasizes the need that we have, and the desire we have as the Economic Develoment Corp., which is to continue to attract ideal new business to the community that would diversity our economy and diversify our economic portfolio.”
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Here are summaries of topics shared by economic experts during the Indiana Business Outlook Panel on Wednesday at the Columbus Learning Center.
U.S., global outlook
- Economic growth for the U.S. will be about 3 percent in 2019.
- The economy is stronger than is has been in the past 10 years.
- "The current election doesn’t have much impact over what will happen in the next 12 months."
- Gridlock expected with Republicans controlling Senate and Democrats controlling House.
- "That may not be good for the U.S. economy long term, but it will probably not have much effect in 2019."
- The Chinese economy is big enough to affect the entire global outlook, when considering the impact of a trade war.
— Kyle Anderson, clinical assistant professor of business economics at the Kelley School of Business in Indianapolis.
Financial markets
- "Consumer spending is robust. Consumer confidence is at an all-time high."
- Pay is rising; revenues are up.
- "We’re very strong on the corporate side."
- Volatility in financial markets is back. Swings of $3 trillion have occurred throughout the year.
- Expect the Federal Reserve to raise interest rates three or four times in 2019, like it has done this year.
— Catherine Bonser-Neal, associate professor of finance in the Kelley School of Business
State forecast
- Expect 3 percent GDP growth in 2019.
- State’s labor force is really tight, with 3 percent unemployment and 65 percent participation, both better than U.S. averages.
- Potential concern is that Indiana lags in venture capital, with fewer deals reached compared to neighboring states.
- The rate of opioid misuse has flatlined.
— Ryan Brewer, associate professor of finance at IUPUC
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