Kelley School economists expect stronger 2015

Economists from Indiana University Kelley School of Business say they are cautiously optimistic that 2015 will be the strongest year the economy has seen yet in its long, slow recovery from the Great Recession.

"During the past year, the United States economy has given clear signs that it is finally breaking out of the rut it had been stuck in during the first four years of the recovery," said Bill Witte, IU associate professor emeritus of economics, in a written statement. "Looking ahead, we expect the coming year to produce a continuation of these positive trends.”

Witte and the rest of the IU Business Outlook Panel on Thursday predicted a slightly better year for the national and local economy next year, but one that could see some setbacks.

“This favorable outcome is far from a sure bet," Witte said. "The level of uncertainty in the current environment is high."

Output growth for the national economy averaged just 2 percent annually from mid-2009 to mid-2013, but that number should rise to 3 percent next year due to a stronger housing sector and more government spending, the panel said.

The labor market should continue to strengthen, with the unemployment rate expected to fall to 5.5 percent nationally, to 5.25 percent in Indiana and as low as 4 percent in the Indianapolis area. The panel expects the state to add 55,000 workers next year, about the same as this year.

Members of the IU Business Outlook Panel were scheduled to appear at 8 a.m. Thursday at the Columbia Club in Indianapolis and again at 11:30 a.m. at Indiana Memorial Union in Bloomington to discuss their predictions.

The panel will present other economic forecasts in eight other cities across the state through Nov. 21.

Panelist Kyle Anderson, clinical assistant professor of business economics in the Kelley School of Business at Indianapolis, said employment is finally growing to the point where some workers might finally see meaningful raises.

"Wages have not grown as fast as employment, with average weekly wages increasing only 1.4 percent in the past year," Anderson said. "However, with unemployment falling and hiring picking up, look for wage pressure to increase in 2015. For the first time in years, employees will have more leverage and employers will need to give wage increases to keep valuable employees."

Among other panel predictions:

— Inflation will remain contained and close to its present level of 2 percent, due in large part to lower energy prices.

— The housing market should be stronger in 2015, but it's unrealistic to think that it will return to pre-recession levels.

— With the Federal Reserve's decision to end quantitative easing, interest rates should begin to rise by the middle of the year, and short-term rates could reach 1 percent by the end of the year.

— Outside the United States, the forecast for the world economy isn't positive. Much of Europe appears to be heading toward its third recession in a decade. Concerns about security and stability in Eastern Europe and the Middle East will adversely affect economies outside the region. The Chinese economy, which has enjoyed double-digit growth for about 30 years, is decelerating.

— The Indianapolis real estate market has been a source of growth, but there are signs that the pace may drop off somewhat. Rising interest rates may dampen some of enthusiasm among homebuyers.