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Kelley School forecast suggests slow, but continued recovery

(photo courtesy of Indiana University Kelley School of Business)

INDIANAPOLIS (Inside INdiana Business) — The Indiana University Kelley School of Business says despite recent progress, the national economy still has a long way to go before fully recovering the gains it had made prior to the pandemic. In its 2021 Business Outlook forecast, the school suggests the economy’s restart will continue in 2021, but at a decelerated rate compared to earlier this year.

Kelley economists say economic output could regain its previous peak by the middle of the year, however unemployment is unlikely to return to its pre-pandemic level until “well into 2022.”

During a virtual panel discussion Monday afternoon, Clinical Assistant Professor of Business Economics Kyle Anderson said just like the national forecast, Indiana will see output increases and job growth next year, which will largely offset the damage of 2020.

“I think we’re going to end up with a lost two years,” said Anderson. “When we’re back together here next November of 2021, I think that time period will look very much like November of 2019 did. So we’re going to have an economic output and employment situation very close to that, but we’ll have lost two years of growth and that’s a very significant loss due to the pandemic.”

The forecast also says while consumer spending may recover, but it will be “geared toward purchasing goods and not services.” Housing construction is also expected to continue its expansion, but the forecast suggests businesses will shy away from investments in new facilities.

The Kelley school adds damage to the nation’s labor force will be long-term and much of the significant decrease it has seen since the pandemic began may be permanent. 

“Indiana is relatively well-positioned to outperform peer states and the U.S. as a whole during the recovery period when we emerge from the COVID-19 pandemic,” said Kyle Anderson, clinical assistant professor of business economics and faculty chair of Kelley’s Evening MBA Program. “Slack remains in the Hoosier labor force, providing an opportunity for growth as we move into 2021. We will expect to see slow or even negative growth conditions during the last quarter of 2020 and the first quarter of 2021, as we face new waves of infections.”

Ryan Brewer, co-author of the forecast and associate professor of finance at IUPUC, says while the number of COVID-19 cases is spiking, an improved understanding of the coronavirus and how to approach treatment may soften its economic impact.

According to the forecast, Indiana could see stronger, positive economic growth in the second half of 2021, which would set up further positive economic output in 2022. However, that estimation assumes the state remains at stage 5 of Governor Eric Holcomb’s Back on Track Indiana plan.

Anderson says, in the Indianapolis metropolitan area, next year could see a recovery of much of the losses in economic output and number of jobs. The forecast says output is likely to grow by 3-4% and employment levels could increase by 70,000 jobs.

“I think we need economic stimulus,” said Anderson. “A stimulus package being passed that’s of good size either here in the fourth quarter that remains, or maybe more likely in the first quarter of 2021, would be extremely beneficial.”

Anderson says over the next year, he expects Hoosier unemployment to fall to between 4-5%, which reflects the current uncertainty.

“All of this just dependent upon the pandemic improving and us being able to, at the very least, sustain strong economic activity while we deal with the pandemic. And let’s all hope that dealing with it means an effective vaccine and then being effectively able to move on from it in the relatively near future.”

A detailed report on the Business Outlook forecast will be published in the winter issue of the Indiana Business Review in December.