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A panel of Indiana’s leading economists might have been right last November when it said the recession would end the following summer. But it underestimated the depth of the slump and the toll it would take on Indiana workers.
The Indiana University Business Outlook Panel will make its predictions for the coming year today at Indiana University-Purdue University Fort Wayne. As it did last year, the panel will make its predictions using data from the Indiana University’s Center for Econometric Model Research.
Even in normal times, making economic forecasts is tricky. But a year ago, the economy began to shrink rapidly after the financial markets were thrown into a panic in September and October.
With six weeks still to go in 2009, it’s too early to give a final grade of last year’s forecast, but the available data suggest a mixed performance. Some of the panel’s predictions from last November and what actually happened:
That could turn out to be on the money. At roughly the same time the panel was predicting seven months were left in the recession, the Business Cycle Dating Committee of the National Bureau of Economic Research was looking back and declaring that the recession started in December 2007.
The committee in Cambridge, Mass., is the official arbiter of when recessions begin and end. It waits until well after the end of a recession to declare it over, because it wants to be sure there’s sustained growth in the economy, said Morton Marcus, an economist and a member of last year’s economic outlook panel. It could be spring before the committee makes its next declaration, but when it does, it could say that July is when the recovery started. That was the start of the quarter in which gross domestic product grew at 3.5 percent after shrinking in all but one of the six previous quarters.
The reality was that forecast was low at least for the first 10 months of 2009. The Labor Department’s Bureau of Labor Statistics reports that average unemployment through October was 9.1 percent. Marcus said the panel – and most other economists – underestimated the "sheer panic" that set in among employers as credit tightened last fall.
Through September at least, this prediction has proved to be even further off. Indiana unemployment averaged 10 percent through the first nine months of 2009. It was led in large part by big layoffs in the manufacturing sector that hit northeast Indiana particularly hard. As with the national unemployment estimate, Marcus said the panel underestimated the panic among Indiana employers.
The jury is still out on this one. According to the U.S. Commerce Department’s Bureau of Economic Analysis, the GDP was minus 6.4 percent in the first quarter, minus 0.7 percent in the second and 3.5 percent in the third. That means the GDP will have to grow 4.35 percent in the last quarter to meet the panel’s prediction. The U.S. GDP is the total market value of goods and services produced domestically in a year.
The jury is really out on this prediction. The Bureau of Economic Analysis didn’t release state-by-state GDP estimates for 2008 until June 2009. A spokesman said this year’s estimates are unlikely to be available until halfway through 2010.
