Mike Wolanin | The Republic Panelists Andrew Butters, front to back, Kristoph Kleiner, Phil Powell and Steven Mohler answer questions during the Indiana University Kelley School of Business 2024 Business Outlook Panel at The Commons in Columbus, Ind., Wednesday, Nov. 15, 2023.
Indiana University’s financial experts have a positive outlook for the economy in 2024, though they expect some possible hurdles along the way.
A panel of professors presented their predictions for next year’s economic trends at The Commons on Wednesday, with the event being one of several stops on the Indiana University Kelley School of Business’ “Futurecast 2024” economic outlook tour.
“My own take, and one that I think is shared by the university, is that we’re relatively optimistic in that we will have returned to our new equilibrium and hopefully a more sustainable growth path for the economy,” said panelist Andrew Butters, an associate professor in the Business Economics and Public Policy department at the Kelley School of Business at IU.
The Columbus presentation was hosted by the Division of Business at IU Columbus, the Columbus Area Chamber of Commerce, the Kelley School and the Indiana Business Research Center. All proceeds from the local event will help fund scholarships for IU Columbus business students.
In looking forward to next year, the Kelley School predicts that the economy will slow slightly during the first half of 2024 and then speed back up in the latter half of the year.
“During the last quarter of 2023 and the first six months of 2024, real U.S. gross domestic product will slow to a rate of 1.6%,” IU officials said in a release. “It will then rise to 1.8% in the final two quarters. The low point may come in the second quarter, when output growth is projected to be at a rate of 1.2%.”
Experts pointed to student loan payments, government assistance for childcare and leftover funds from stimulus payments as factors that could affect this year’s level of consumption.
“Even if income holds up, however, households may not continue to spend,” said Bill Witte, author of the Kelley School’s U.S. forecast and an associate professor emeritus of economics, in an official statement. “Consumer sentiment has declined in the past couple of months. Weakness in the labor market or problems in the financial markets would likely be a problem for consumer confidence.”
Consumption growth is expected to moderate through the first half of the year and fall to 1.3%.
The Kelley School is also predicting that inflation will fall from an average of almost 4% over the past year to 2.2% in the latter half of 2024.
Additionally, employment growth may slow down next year and job losses could occur, but the forecast indicates that these will be “only modest declines,” university officials said.
As for the Hoosier state, Indiana Business Research Center director Carol Rogers has predicted that Indiana could experience a slowdown in overall employment growth.
It’s expected that the state’s employment and income trends will mirror those of the U.S., but at lower rates of growth. Income growth is expected to decrease in the first third of 2023 but later stabilize at just under 4% in Indiana, Rogers said in a release.
Phil Powell, executive director of the Indiana Business Research Center and associate clinical professor of business economics and public policy, said that since manufacturing is such a big part of the state’s economy, Indiana is disproportionately affected by slower growth in the purchase of durable goods.
“So while we are forecasting a national growth rate of just maybe between 1.5-2% in real GDP, Indiana, because of our disproportionate slowdown in durable goods, is going to be about half of that,” Powell said. “We expect real GDP in Indiana to grow between 0.5-1%.”
However, he expects the state to benefit as manufacturing companies pull out of overseas sites and seek to establish new facilities in the United States.
An important factor in attracting next-generation manufacturing will be whether the state’s labor force can deliver the skills and productivity that these businesses require, Powell said.
Steven Mohler, assistant professor of management at IU Columbus, noted that manufacturing also continues to be an important piece of the local economy.
“At least since 2001, manufacturing and primarily durable goods have constituted an average of 50% of the Columbus, Indiana GDP,” he said. “No other industry sector is even close.”
Cummins, Inc also continues to be a “keystone” of the local economy, with the company’s sales increasing from about $6 billion in 2001 to $28 billion in 2022, he said. For 2023, the company’s sales are expected to grow by 18-21%, with all business segments seeing an increase.
According to Mohler, some of the other bright spots for the upcoming year include recent increases in orders for durable goods and the possibilities presented by the Inflation Reduction Act.
Conversely, some of the possible “dark clouds” for Columbus in 2024 include higher interest rates, reduced savings, reduced housing availability at higher costs and a lack of potential workers, he said.
“Our forecast for 2024 for Columbus, Indiana projects a decline in GDP by 2-5%, resulting in unemployment increases to the 4-5% range,” Mohler said. “The GDP decline may be softened if interest rates drop, or if fiscal policy is made more available.”
The IU Kelley School of Business has presented its annual economic forecasts since 1972, with the presentations being based on data from its Indiana Business Research Center.
The starting point for the forecast is an econometric model of the U.S., university officials said. A similar model at the state level provides a prediction for Indiana based on the national outlook as well as data that is specific to the Hoosier state.
However, much like a weather forecast, these predictions are not infallible. For instance, IU officials reported that the national economy has greatly exceeded their predictions for 2023. While last year’s panel had been concerned about consumption becoming weak or declining, it instead grew at a rate of 2.4%.
Some of the potential risks for the 2024 forecast include the international impact of conflicts in Gaza and Ukraine, which could affect commodity markets.
An expansion of the conflict in the Middle East could have potential impacts on energy prices, said Butters. He added that the election year is also a “cause for uncertainty.”
Furthermore, IU’s predictions for next year assume that the Federal Reserve is done raising the federal funds rate and could move to cut rates in July. However, panelists indicated that interest rates are a hard factor to predict.
It seems likely that there will continue to be high interest rates for at least the next few months, said Kristoph Kleiner, who is an associate professor of finance and the Daniel C. Smith Fellow at the Kelley School of Business, as well as a visiting scholar with the FDIC and IRS.
“If inflation rates continue to decline, we’re unlikely to see further interest rate hikes,” he said. “Right now the market seems to be predicting that. But even last week, Jerome Powell, the (Fed) chairman, suggested that they might not be done. So we could potentially see another hike or two next year. Alternatively, if we see clear signs of a recession, we may actually see a decrease in interest rates next year.”
Where to learn more
A summary of the Kelley School of Business’s economic forecast for 2024 is available at news.iu.edu/news/.
A detailed report will be published in the winter issue of the Indiana Business Review, which will be available at ibrc.indiana.edu/ibr/ in December.
