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Companies fear ‘fiscal cliff’

Economists see modest growth ahead if drastic measures are avoided

For months, economic experts have said businesses were hesitant to invest before finding out who the next president will be.

With that question answered late Tuesday, Indiana University economists now say businesses will hesitate to invest because of uncertainty about the looming “fiscal cliff.”

Assuming that disaster is averted, the U.S. economy likely will grow by about 2.5 percent next year, they predicted Wednesday.

The IU Kelley School of Business Outlook Panel has been presenting forecasts for almost 40 years. The group launched its 10-presentation series on Nov. 1 in Indianapolis.

Wednesday’s lunchtime forum at Ceruti’s Summit Park – fifth on the list – was sponsored by the IU Alumni Chapter of Northeast Indiana. About 40 people attended.

Last year’s outlook called for “lingering uncertainty” and “modest growth.” This year’s forecast calls for much of the same.

That’s assuming elected officials avoid plunging over the cliff.

Almost 90 percent of Americans would face higher taxes next year if Congress fails to avert the scheduled $400 billion in tax hikes and $100 billion in spending cuts. Economists predict going over the “fiscal cliff” could send the country back into recession.

Robert Neal, associate professor of finance at IU, said politicians have “a short-term horizon, and this is a long-term problem.”

Neal hopes rational minds prevail, leading to a compromise. “But don’t count on it,” he warned.

D.J. Masson, associate clinical professor of finance, reviewed the global and U.S. economies. He found reasons for optimism.

It’s now less likely that the eurozone – those 17 European countries that have adopted the euro as their common currency – will break up next year, Masson said. Germany and France, which are both economically strong, are motivated to maintain the alliance, he said.

As for China’s recent economic slowdown, the country’s leaders will do whatever is needed to avert a deep and lasting recession, Masson said.

Jerry Conover, director of the Indiana Business Research Center in the Kelley School, focused his remarks on the state’s economic forecast. He sees optimistic signs for continued job growth in 2013.

Indiana has recovered about half the jobs it lost during the recession in manufacturing and construction, he said.

Health care hiring has led the state’s job growth in recent years. The financial sector, which includes insurance- and banking-related jobs, has struggled throughout the recession and weak recovery, Conover said.

That assessment squares with what Cecile Buchanan has been seeing.

The Star Bank commercial banker, who attended the forum, continues to see résumés passed around from those looking for work in the industry. Buchanan has been discouraged by the slow recovery.

“I don’t feel that anything is going to change in the short term,” she said.

John Stafford, director of the Community Research Institute at IPFW, said the Fort Wayne metropolitan statistical area saw 4 percent job growth last year. That’s almost double the state’s rate.

Fort Wayne’s MSA includes Allen, Wells and Whitley counties.

Stafford noted, however, that almost 25 percent of that growth has been in temporary jobs, which pay “substantially” lower wages and don’t offer benefits.

Heavy reliance on temp workers reflects business leaders’ reluctance to invest and create permanent jobs, he said.

At a glance

Highlights of the 2013 forecast include:
•2.5 percent growth in real gross domestic product
•2 percent inflation
•7 percent Indiana unemployment rate, which will be below the national rate

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