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  • Indiana Model of the U.S
  • Indiana Model of Indiana
  • Indiana Sub-State Model
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Indiana Model of the United States

Summary of Current Forecast: January 2010

Like the first revision a month ago, the final release of NIPA data for the third quarter reduced the estimated growth in the quarter. The value is now put at only 2.2%, down from 2.8% in the second release.   There were small downward changes to all of the domestic components of GDP.  Exports and imports were both increased slightly, leaving the net export balance little changed.

These revisions had little impact on our view of the likely course of the economy over the next three years.  The same applies to new monthly data received during December  Some specifics:

• Payroll employment declined in December by a somewhat disappointing 85 thousand.  However, the November number was revised to show a small increase (4 thousand).  The unemployment rate remained at 10% in December unchanged from November.  We continue to believe that the labor market is at or very close to its bottom for this cycle.
• Both ISM indexes rose by about two points in December.  The manufacturing index is now above 55, while the non-manufacturing index managed to move barely back above the breakeven level of 50.
• The Conference Board Consumer Confidence Index rose slightly points in December, but remains below its August level.
• Sales of autos and light trucks rose to an 11.2 million annual rate in December.  This is far below the  “Cash for Clunkers” rate in August, but well above the levels earlier in the year.

In this environment our updated forecast is for growth a little above our November outlook. In our baseline forecast we now to expect growth of 3.1% during the just completed fourth quarter, followed by solid, but not spectacular, growth during 2010.  Except for the fourth quarter our updated forecast is very little changed from our update last month.  The fourth quarter growth is up slightly from that forecast, mainly reflecting the lower base due to revisions of the third quarter values.

Payroll employment for the current quarter averages very close to its December level, while we now have unemployment peaking during this quarter at 10.1%.

This latter estimate could prove to be optimistic.  One disturbing aspect of recent labor market data is a decline in the labor force (down in each of the past seven months).  Normally, of course, the labor force grows (at roughly a 1% rate).  If these “missing” potential workers reenter the labor market during coming months, it could drive the unemployment rate significantly higher, even as payroll employment starts to grow.