Batesville Herald Tribune, Batesville, Indiana

December 24, 2012

Locals have questions for economics expert

Three-part series

Debbie Blank
The Herald-Tribune

— Four Batesville residents quizzed Michael Hicks, Ph.D., a Ball State University professor, during a Dec. 12 economic outlook hosted by Hillenbrand Inc. Jody Fledderman wondered if Indiana’s right to work law would reduce opportunities here. “Its effects are difficult to tease out,” Hicks admitted. He likened the law to a new paint job on a car. If executives are thinking about relocating to this region. right to work will make them consider Indiana. Other measures leaders have instituted “to right the economic boat” will appeal to companies more than right to work legislation, he believed.

Indiana University student Jarrod Lowery asked whether a free trade agreement between the U.S. and Europe will happen soon. The Virginia Military Institute and University of Tennessee graduate said most Hoosier products are sold to European nations tariff free. “Free trade is a good policy to have,” but an agreement probably wouldn’t impact Indiana much.

Dr. Steve Stein observed businesses are not hiring because of government uncertainly. “Do you think predictions could change if there’s a good resolution to the fiscal cliff?” The Indianapolis Business Journal columnist replied, “It could. Appropriately targeted spending cuts, taxes and entitlement spending ... could restore economic growth to a higher level.” He reflected, “If we didn’t have the capacity to borrow, we would not see the expansion of government.” Some argue the fiscal cliff makes Americans realize the true cost of government.

Citing the costs of food and energy, Jan Holm felt Hicks’ 2013 inflation rate of 2 percent was low. The speaker agreed, “It does appear things are more expensive. We’re seeing some volatility” in certain sectors, such as food prices being affected by last summer’s drought. He predicted, “Once workers can demand higher wages ... you’ll see (higher) inflation.”

 

PART TWO

The Ball State University Center for Business and Economic Research director zeroed in on the state of this state during a recent Batesville speech.

“Indiana’s economy has outperformed the nation as a whole in GDP (gross domestic product) growth and employment growth over this recession. However, our model suggests a mixed future. Overall economic activity in Indiana will continue to exceed the national average through much of this decade, slowing somewhat between 2018 and 2025,” according to a handout Michael Hicks, Ph.D., wrote.

“During this time period, employment growth will lag the nation as a whole” for two reasons. Slower population growth will limit labor-intensive business expansions. “Second, the state’s most intensive industries are those that continue to experience high levels of productivity growth, thus dampening demand for workers.”

Hicks, who has spoken nationally on CSPAN, MSNBC and NPR’s “All Things Considered,” said, “Indiana is a significant exporter of goods to the European Union, with more than 2 percent of GDP destined for Europe. Their recession will reduce demand for these goods and demand for employment in these firms. The slow growth in China and India add to lower demand for our goods.”

Hoosiers can expect personal income growth of 2.4 percent in 2013, followed by 2.1 percent raises in 2014.

He added, “In the short run, we expect a decline in personal income in durable goods manufacturing, retail, transportation, information and finance, insurance and real estate sectors. We expect growth in mining and utilities, construction, health care, and nondurable goods manufacturing.”

The looming fiscal cliff may hurt business here. “Domestic and defense spending cuts will likely affect services for the poor and public infrastructure grant programs. Likewise, defense spending may well impact the state, with the potential for significant cutbacks at U.S. Navy and joint training centers in southern and southwestern Indiana. Also, cessation of planned acquisition of aircraft, ground weapons systems and electronics may also impact civilian employment in many businesses within the state.”

The forecast for 11 southeastern Indiana counties “ranges widely from rapid growth to continuing struggles with outmigration and job loss. Overall, we expect the region to see population growth significantly exceeding the state as a whole through 2025. This is important because population growth is a bellwether indicator of overall economic performance.”

The director said, “Not surprisingly, the largest growth will be concentrated near the Cincinnati and Indianapolis metropolitan areas. However, growth in the more centrally located areas of Jennings, Ripley, and Jefferson counties will be unusually strong for nonmetropolitan areas.”

Hicks estimated the average population growth rates during 2013-18 and 2019-25. The best gainers were Dearborn (10.55 percent and 7.44 percent, respectively), followed by Union (5.49 and 7.12) and Franklin (4.67 and 6.18). Ohio showed the lowest long-term population gain, with Ripley second from the bottom (.43 percent and 1.4 percent).

According to the director, Batesville is growing modestly, “but you have all the features a growing community would wish to have, very good schools ... a very livable community,” despite no water features or mountains.” He suggested test scores at other county schools are the reason Ripley won’t add many families.

The I-74 and I-65 corridors will see more economic growth than the I-70 region due to the proximity of larger metropolitan areas at either end of those interstate legs, according to the expert.

One bit of good state news: “I do expect personal income to grow a little bit faster than the national average. Hoosiers will catch up to the American standard of living.”

In southeastern Indiana, Hicks estimated personal income growth rates over the short and long terms: Franklin, .63 percent and .68 percent; Ripley, .57 percent and .62 percent. The only counties predicted to do better were Dearborn and Switzerland.

Hicks observed, “Major threats to the region are weakness in the available and the appropriate labor force in some communities, changes to the structure of casino gaming for southern counties and national economic conditions.” If a casino is constructed west of Cincinnati in Ohio, “in my judgment, it is likely to cause the closure of one in southeastern Indiana” or dramatically decrease the tax take.

 

PART ONE

On the heels of Gov. Mitch Daniels’ Dec. 11 announcement that 2,552 jobs could be coming to Indiana, the Ball State University Center for Business and Economic Research director has a more sobering view of U.S. and Hoosier economies.

“A national recession remains highly likely this year,” Michael Hicks, Ph.D., told close to 90 Dec. 12 at Hillcrest Golf and Country Club during his outlook hosted by Hillenbrand Inc. in conjunction with the BSU center.

A written handout emphasized, “Either the composition of the ‘fiscal cliff’ or a sustained European recession alone is significant enough to push our economy into recession.” The fiscal cliff refers to a combination of tax hikes and spending cuts that will be instituted Jan. 2. The elimination of 2001-02 tax cuts will cause a  higher increase of taxes on middle income households.  For instance, a $40,000 household will pay $900 more in taxes and a $70,000 household about $1,800. Families earning between $32,000-$47,000 will be paying taxes for the first time since 2003.

“This fiscal cliff is coming and I’m not sure kicking it down the road another year is going to make a difference. It’s going to be painful,” the Yorktown resident predicted. He pointed out, “Now is not a good time to be raising taxes” with so many unemployed.

History repeats itself, Hicks believed. “Every time Europe has been in a recession, we’ve been in a recession. Folks, Europe is in a recession with record high unemployment.” Greece, Portugal, Spain and possibly Italy are experiencing their  highest numbers since 1933.

Because “my hunches are really bad,” the economist said his 2 percent growth outlook is derived from mathematical models used at Yale University and the University of Massachusetts and mirrors the number determined by Blue Chip Forecasters, a group of 80. “That sounds kind of good, ... but it is not.” The U.S. economy used to grow at 3.4 percent. “If we grow at 2 percent, the economy will double every 40 years. That’s very, very slow growth.”

The Indianapolis Business Journal columnist noted, “We are very sadly expecting the national unemployment rate to remain roughly where it is at 7.8 percent. In order for it to drop, we need to create 150,000 jobs monthly.  For us to have really dramatic economic growth,” like in 1982-83, 450,000 jobs would have to be added monthly.

Even though 146,000 jobs were created last month, 540,000 adults, ranging from retiring baby boomers to teens leaving for college, left the labor force. “That’s just an astonishing decline in economic activity. A shrinkage of the labor force means the overall economy is getting smaller.”

He blamed the jobless rate on what textbooks call structural unemployment and Hicks calls skills mismatch. “What businesses want and what workers offer” in skills don’t coincide.

When certain skills are no longer needed, people can’t find jobs. According to the associate professor of economics, “I was an Army officer, great with maps and a compass. My children say, ‘I’ve got a GPS, why do I need that?’” The problem of skills mismatch could mean even slower economic growth, he warned.