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December 2005
Vol. 6, No. 9
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Cautious Optimism for 2006
What does the 2006 economy have in store? To help answer
this question, the Kelley School of Business at Indiana University partnered
with local economists and traveled the state in November to share national,
international and state forecasts. The following are the panel’s
highlights:
Growth in gross domestic product is expected to be about 3.6 percent,
about the same as 2005. Inflation (as measured by the Consumer Price
Index) will be about 3 percent.
- The nation will add close to 2 million jobs, and the unemployment rate
will fall back to just below 5 percent (see Figure
1).
- The overall national housing market will remain strong, partly due to
rebuilding in Louisiana and Mississippi.
- Rising costs of inputs and health and pension benefits will slow corporate
profits to around 6 to 8 percent.
- The major risks to the outlook include uncertainty about energy prices,
the possibility of problems in the housing sector, and potentially destabilizing
deterioration in the government deficit and the trade balance.
- International trade will grow, but there will be no significant reduction
in the trade deficit.
- Employment in Indiana will increase by about 25,000 jobs, slower growth
than the national rate.
- Indiana’s manufacturing jobs are not expected to grow significantly,
though they may rise slowly. Growth is expected in Indiana’s professional
and business services, health and education services, and construction
sectors.
- The federal funds rate will reach at least 4.5 percent. The prime rate
will rise to 7.5 percent. Mortgage rates will approach 7 percent.
Figure 1: Unemployment and job Creation, 2003 to 2005
Look for detailed projections in the upcoming Indiana
Business Review,
available on the Web in December (www.ibrc.indiana.edu/ibr) and in mailboxes
by early January.
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