Witte: ‘Buckle up’ for ‘interesting’ economical yearFebruary 21, 2020
By ALLEN LAMAN
JASPER — Bill Witte likes Star Trek.
Sure, science fiction might seem like a weird topic for an associate professor emeritus at the Center for Econometric Model Research to bring up at an economic forecast.
But Witte sees the connection.
In one of the franchise’s recent movies, one character utters a short phrase to another as their spaceship takes off for flight.
“Buckle up,” Witte said, recalling the line. “That’s good advice for the economy this year.”
Witte and two other economy experts were summoned to a Rotary Club of Jasper event at KlubHaus 61 in Jasper on Thursday to deliver the annual economic forecast for 2020. A year after not having enough numbers to inform his prediction, Witte’s debacle is now very different.
“This year, the forecasting problem, is in some ways, the reverse of what we had last year,” Witte said. “Last year, we didn’t have any information to work with. This year, we’ve got all sorts of information and all sorts of things about what’s going on. The problem is that for a lot of that information, I don’t know what it means.”
The three big question marks for this year and the future: How will the 2020 presidential election affect the economy? What about Boeing temporarily halting production on its 737 Max airliner? And what about the spreading coronavirus?
“It’s going to be an interesting year,” Witte said.
He told attendees that 2019 was “not a bad year” for the national economy. More than a decade after the recession officially ended, the economy is still expanding and growing at a pretty good rate, he said.
He explained that when he took the stand at the annual luncheon a year ago, the United States was flying “pretty much blind” from an economic forecasting point of view, because fourth quarter information had not been released due to the government shutdown.
Still, his forecast was close to reality. In 2019, the national economy’s total output grew by 2.3%, employment grew at a monthly pace of 175,000 jobs and the year-end unemployment rate was 3.5% — the lowest it had been since 1969.
For 2020, Witte forecasted that output rate will grow by about 2.1%, just a tick above the fourth quarter of 2019. He predicted that employment will grow at a monthly pace of 150,000 jobs — a noticeable drop off from the 211,000 jobs that were added, on average, between November and January.
“The reason there is that we’re basically running out of people to put to work,” Witte explained. “We are at a full-employment economy.”
He also forecasted an unemployment rate that will fluctuate throughout the year and end at about 3.6%. Enormous volatility could be seen in those numbers, Witte said, due to the Census Bureau, which is currently trying to hire half a million people, who will later be laid off.
“The forecast is basically an extrapolation of where the economy is now, and where it would go under normal conditions,” Witte said of his prognostications. “With a little adjustment for the Boeing thing. Nothing to do with the election. Nothing to do with the virus. So, it provides a baseline about what you should expect, extrapolating away from those things. It gives you a basis for comparing as things actually unfold, how the economy has been affected.”
When it comes to those question marks mentioned above, Witte said the impact the presidential election could have on the economy in 2021 could range from “positive, through not much, to seriously bad.” But the developments that could lead to those outcomes are still up in the air.
The extent that GDP growth is hindered by Boeing’s shutdown is dependent on the length of time that production is stalled, and the spread of the coronavirus and its effect on the Chinese economy is a “big wild card” for us in the states, Witte explained.
In Indiana, Ryan Brewer, a professor of finance at Indiana University-Columbus, forecasted a roughly 2% GDP growth in 2020 on the heels of “reasonably good news with the latest manufacturing index.”
Unemployment is currently a few tenths of a percentage point below the national rate in the state — it sits even lower at 2% in Dubois County — and the Indiana rate “may be reaching a point where it’s really hard to compress it further,” Brewer said.
He pointed to some of the same issues that Witte highlighted. Indiana’s economy is 10.6% reliant on export markets, including Canada, Mexico, Japan, China and Europe. The Hoosier state relies on imports and exports “disproportionately compared to the other states in our union,” he said.
That means the trade war, coronavirus and a recession could be especially felt in Indiana.
“At the end of the day, we have some risks out there that we can’t really put our minds around,” Brewer said. “The coronavirus and how it’s going to impact what we do in Indiana ... and that I think gets to the fact that we rely on imports more than the rest of the country does.”
Also at Thursday’s event, Charles A. Trzcinka, chair of finance at Indiana Business Research Center’s Kelley School of Business, gave a financial markets prediction that was a “below average forecast, but still positive.”