NEW ALBANY — It should get better next year, but the country, state and region have a lot of ground to make up before the economy will resemble its pre-pandemic level.
That was the general message a panel of experts relayed Monday morning during Indiana University Southeast’s annual economic outlook event, which was held virtually for the first time because of the continued surge of COVID-19 cases.
The reason the event was held virtually is the same cause of consternation when it comes to employment, labor participation and financial markets. Andrew Butters, assistant professor of business economics and public policy at IU’s Kelley School of Business, warned that any forecast must have a “heavy dose of uncertainty attached to it” due the continuing pandemic.
Economists have predicted a 4.4% shrinking of the Global Domestic Product by year’s end. Butters said IU’s Indiana Business Research Center is “cautiously optimistic” of a 5% GDP recovery in 2021 that should be just enough to erase 2020’s losses.
Though there was a major rebound in the U.S. GDP in the third quarter, the losses endured in early and mid 2020 have still hampered the overall recovery.
“In effect, we have still not returned to pre-pandemic levels of GDP in the United States,” Butters said.
Focusing on the national outlook, Butters surmised that the economy will continue its restart next year, but there will be a deceleration from the record gains after the reopening in 2020.
Each panelist covered a different facet of the economy. Catherine Bonser-Neal, associate professor of finance at the Kelley School of Business, made observations about global financial markets.
Echoing Butters’ comments, Bonser-Neal said there’s been “very large uncertainty” over the pandemic that’s led to volatility. As 2021 approaches, much of that ebb and flow in the markets has been pushed by reports over the success and availability of COVID-19 vaccines.
“We’ve seen the markets rise because of euphoria and we’ve also seen them fall when there’s been some disappointment about the speed of deployment of a vaccine,” she said.
As other economists also stated, Bonser-Neal said the likelihood of more federal stimulus funding could help markets rebound next year. Lowered interest rates will also boost some investments, but Bonser-Neal warned that could also lead to problems down the road for some companies who may borrow more than they can afford once rates are normalized.
She also warned that additional shutdowns due to COVID-19 as well as regulatory and tax policy uncertainty could negatively affect markets.
Ryan Brewer, associate professor of finance at IU-Columbus, focused on the state outlook. Because Indiana relies heavily on manufacturing, it was hit hard during the initial months of the pandemic, but it also saw a more rapid recovery, Brewer said.
That’s good news and bad news, as the manufacturing sector depends on people spending money on products.
“We intentionally shut down the economy to mitigate the effects of the virus,” Brewer said. “However, this does not mean people will go about activity for a while as we did in the pre-pandemic days.”
Analyzing labor participation figures, Brewer said the state has seen the elimination of about 100,000 workers from the force since 2018 with about 70,000 being shed during the pandemic.
On a positive note, he predicted job growth will rebound beginning in the second quarter of 2021. Brewer emphasized the state’s economy will depend on the survival of small businesses, consumer activity and state and local government structures.
Businesses that are able to capitalize on the use of technology will have a better chance of survival moving forward, he continued.
Indiana manufacturing could benefit from a migration away from large, Midwest cities like Chicago and Detroit by industries and laborers as larger metropolitan areas have faced unforeseen struggles caused by the pandemic, Brewer said.
Uric Dufrene, Sanders Chair in Business at IU Southeast, provided insight on the local and regional economy.
At the low of the pandemic in April, the Louisville Metropolitan Statistical Area, which includes Floyd County and Clark County, saw a decline of about 123,000 jobs.
That decrease left employment at its lowest level since April 1996.
But as a counter, the area saw “perhaps the largest on record” month-to-month gains from May to June, Dufrene said. Louisville Metro added about 40,000 jobs over that month.
“Since that time, month-over-month gains are decelerating but remain significantly higher than historical month-over-month gains,” Dufrene said.
But while the latest economic downturn might be short and deep, it’s left some holes that need to be plugged. Year-to-year job loss comparisons in 2020 were larger than those at the height of the Great Recession, Dufrene said.
About 33% of the region’s job losses occurred in the leisure and hospitality sector, and manufacturing shed 20,000 positions in April. In September, Louisville Metro manufacturing was still down by about 5,000 jobs compared to the previous year.
But Dufrene predicted the sector will continue to rebound.
“With a drop in inventories nationwide and an anticipated increase in demand, manufacturing should see a solid year in Louisville Metro,” he said.
Dufrene forecasted improvements will continue. He said a recent jobs report showed Clark County had added about 600 positions.
“We expect growth across all sectors to continue into 2021, inching the region to a level that will erase previous job losses by late 2021,” he said.
Takeaways from the panel:
• Consumer spending is tilted toward goods and away from services
• Strong growth expected in second half of 2021
• Short-term and long-term interest rates will remain low
• China is expected to be the only major economy with positive growth in 2020