Special issue of IU Kelley School's Indiana Business Review contains expanded 2014 forecast

  • Dec. 20, 2013


BLOOMINGTON, Ind. -- At the end of each year, Indiana University's Kelley School of Business produces an annual economic forecast, which is published in greater detail in its publication, Indiana Business Review. The special outlook issue for 2014 is one of the biggest issues ever, with a focus on state energy issues and employment.

Produced by the Indiana Business Research Center, the IBR includes research articles by faculty at Kelley, IU and many of its regional campuses.

It also features the work of faculty at Purdue University, Anderson University, the University of Southern Indiana, Ball State University, Indiana State University and the Rose-Hulman Institute of Technology, many of whom served as local panelists during the Business Outlook tour in November.

The 46-page publication, available online on the IBRC's web site, includes 2014 economic forecasts for the nation and Indiana, as well as for Indianapolis, Anderson, Bloomington, Columbus, Evansville, Fort Wayne, Gary, Lafayette, Muncie, Richmond, South Bend, Elkhart and Terre Haute. It also has a forecast for Louisville, Ky.

IBRC director Jerry Conover observed that the outlook for the coming year is encouraging.

"Some of the threats that have kept investors and business leaders on the sidelines the past few years have abated in recent months, and the economic fundamentals are generally moving in desired directions. As a result, we forecast continued hiring at respectable levels, gradual improvement in incomes and moderate economic growth for 2014,” Conover said

"Recent Federal Reserve actions have somewhat calmed concerns that government actions might impede the will of employers to hire, financial market players to open their wallets, and businesses to invest in new facilities," Conover continued. "The construction sector is enjoying good growth, which in turn propels considerable activity in other sectors. But some risks remain, as the new IBR outlook issue discusses."

The overall economic outlook for Indiana is generally favorable, though Conover noted that "some parts of the state will fare decidedly better than others in the year ahead."

Indiana's energy future

Timothy Slaper, the IBRC's director of economic analysis, examined the impact on Indiana of the shift away from coal to natural gas as a primary energy source. Indiana is a major coal consuming state.

In 2008, more than half of Indiana’s energy came from coal, compared to less than 23 percent for the nation. From 2008 to 2012, U.S. consumption of coal dropped 4.3 percent and natural gas consumption rose 3.3 percent. By 2012, the nation’s use of coal stood at 18.3 percent.

Hydraulic-fracturing of shale and tight gas formations are the forces behind this shift, fueling cheaper natural gas prices. But more stringent regulations of electricity generation are also responsible.

"As a result of these new regulations, one can expect that Indiana power generation fuels will also shift from coal to natural gas," Slaper noted. "Indeed, Duke Energy and Indianapolis Power and Light have announced closings of coal-fired plants in the state. The closings of non-compliant plants, new plant design and planning, securing financial resources, getting regulatory approval for, and the construction of, alternative generation sources over the next few years may not be smooth.

"In short, there may be deleterious economic ripple effects for both residential customers as well as industrial consumers that result from this transition," he added, noting that Indiana’s electricity rates for industrial users have jumped over the past 10 years. "To the extent that electricity rates make a location attractive to locate a company’s industrial operations, Indiana will get increasingly stiff competition from Illinois, Kentucky and Ohio, as these states have cheaper electricity costs."

Other 2014 forecast highlights:

The IBR provides greater depth in its discussion of economic trends. Here are other highlights from the special issue:

  • In its national forecast first presented in November, the Kelley School panel indicated that the overall U.S. economy will expand in 2014 at about a 2.5 percent rate and inflation will remain low, around 2 percent.
  • Indiana's output growth is expected to double 2013's rate, to about 2.6 percent, and about 55,000 jobs will be generated -- comparable to 2011 and 2012 levels.
  • Stock prices are a very good indicator of future economic activity: investors buy stocks anticipating the real economy will pick up in the near future. There are many positive reasons to believe this story now.
  • Indiana’s home prices, residential construction activity and foreclosure situation will continue to improve. The outlook for existing home sales is less clear. As several recent media reports have highlighted, a handful of real estate investment groups purchased a large number of homes in some Indiana markets in 2013 with the intention of converting these properties into rentals. It seems unlikely that investor purchases will continue at the same pace in 2014.
  • The forecast for personal income growth varies widely across the state's metro areas. The metros at the front end of this growth -- growing at a faster rate than the Indiana forecast -- include Muncie, Terre Haute and Anderson.
Indiana Business Review

Indiana Business Review

Print Quality Photo

Jerry Conover

Jerry Conover

Print Quality Photo

George Vlahakis
Carol Rogers