A Columbus economy fighting for growth in the face of a tight labor market also is dealing with the negative impact of opioid addiction.
The difficulty of finding additional workers to fill jobs in a community that is essentially at full employment, coupled with lost economic growth due to opioid abuse, doesn’t help an economy that has been flat for a few years, said Ryan Brewer, IUPUC associate professor of finance, during the annual Indiana Business Outlook Panel at the Columbus Learning Center.
Indiana University business and finance professors from the system’s various campuses each year provide international, national, state, local economic and financial forecasts during a series of fall panel stops around the state.
Columbus has a $5 billion economy, but it has remained at the level since 2015, Brewer said.
[sc:text-divider text-divider-title=”Story continues below gallery” ]
The city’s real gross domestic product — the monetary value of all the finished goods and services produced within the area, adjusted for price changes such as inflation or deflation — dropped 3.6 percent in 2016, the first decline since the end of the Great Recession, Brewer said.
After dropping 14 percent in 2009, the city’s real GDP rose 10.2 percent in 2010 and had increases ranging from 1.7 percent to 6.2 percent through 2015.
Brewer’s forecast for the city’s GDP next year factors in concerns.
“My overall trajectory for GDP is closer to continuing negative,” Brewer said.
Columbus’ unemployment rate in September was 2.7 percent, which was lower than the state’s 3.6 percent and the national average of 4.1 percent.
In 2016, 70.5 percent of working-age people in Columbus were in the workforce.
“That’s an incredibly high number,” Brewer said, compared to the national average of 62.7 percent and the state’s 63 percent.
The Columbus metropolitan statistical area — which includes all of Bartholomew County — has 54,300 jobs, but provides a labor force of 45,274. That means about 8,000 to 10,000 people travel to the Columbus area to work the remaining jobs, Brewer said.
Impact of drug abuse
Opioid abuse doesn’t help employers who need more qualified workers, he said.
“It’s like adding a log on the already existing fire,” Brewer said.
Estimates range from 780 to 1,000 opioid abusers in the Columbus area, Brewer said.
The unemployment rate for opioid users is about five higher than for the general population, he said.
Opioid abusers who are either not employed or underproductive at their jobs impact the Columbus economy, Brewer said.
The estimated loss to GDP growth in Columbus is $17.5 million, or 0.35 percent of total output, he said.
Other concerns
The construction and real estate markets are other areas of concern heading into next year.
Building permits issued in Columbus, for October 2016 through September 2017, have declined for two consecutive years, Brewer said. They dropped from 269 in 2015 to 207 in 2016, and to 198 this year.
“It is cause for concern because it’s a leading indicator, and leading indicators are going to tell us what the economy is going to do for the following year,” Brewer said.
Also, the inventory of houses for sale is down 49 percent the past two years and transactions are down 21 percent, Brewer said. As a result, home prices have increased 8.8 percent, Brewer said.
Despite multiple concerns, Brewer said he sees some positives for the Columbus economy heading into 2018.
Global power company Cummins Inc., the largest employer in Bartholomew County, posted record sales for a quarter in this year’s third quarter, reaching almost $5.3 billion, because of higher demand in truck, oil and gas, and construction markets in the U.S., and an increasing demand in certain international markets.
The fact that the Columbus Area Stock Index is up 22 percent over last year, through November, coupled with Cummins’ strong year, is a good sign, Brewer said.
That’s because the stock market is a leading indicator of the economy for the year to come, he said.
Another positive is wage growth, and the opportunity for people to advance their careers. Wages over past three years in Columbus have increased nearly 16 percent because qualified employees are in demand, Brewer said.
“(It’s) an excellent opportunity for individuals to get their resumes polished up and get more wages or a better position,” he said.
[sc:pullout-title pullout-title=”Business Outlook Panel highlights” ][sc:pullout-text-begin]
Since 1972, experts from the Indiana Business Research Center, a part of the Kelley School of Business at Indiana University, compile, analyze, and interpret international, U.S., Indiana, and local economic data and prepare predictions for the coming year.
Three business and finance professors within the IU system presented forecasts Thursday at Columbus Learning Center. Here are some highlights:
National
Presented by Kyle Anderson, clinical assistant professor of business economics at IUPUI:
- Gross domestic product expected to increase about 2.5 percent in 2018 compared to a 2.4 percent increase this year.
- Economy will create about 170,000 jobs per month.
- Unemployment rate of 4.1 percent in September, which should hold in 2018.
- Private-sector wages rising about 2.5 percent over past 18 months. From 2010-2015, increase was at or below 2 percent.
- Country in 100th month of the economic recovery, which is the third-longest recovery since 1900. “Overall, we don’t see a lot of issues that might cause (the recovery to end).”
- Some threats to economic growth include policy changes and geopolitical rifts in the political system; aging population with increasing costs for Social Security and medicare; growing national deficit.
State
Presented by Ryan Brewer, assistant professor of finance at IUPUC:
- Econometric modeling suggests Indiana’s gross state product output for 2018 will increase by 2.8 percent, but he personally thinks closer to 2 percent is realistic.
- The pharmaceutical industry looks to post 5 to 6 percent returns.
- The replacement of 500,000 cars and trucks in Texas because of Hurricane Harvey provided a little bump for Indiana’s auto industry this year and may again next year.
- Indiana has a tight labor market and is getting close to what is considered full employment. It had a 3.8 percent unemployment rate in September.
- Wages in Indiana lag behind other states and the nation. Indiana attracts lower-wage jobs.
- State’s opioid epidemic affects its gross state product. Indiana estimated to have 66,000 to 75,000 opioid abusers, who are unemployed at a rate that is five times higher than the general population. This is equivalent of 13,500 working-age Hoosiers between ages 16 and 66 who would be contributing to the state economy except for their opioid abuse, which results in gross state product loss of $1.5 billion.
Financial markets
Presented by Robert Neal, professor of finance in the Kelley School of Business at IUPUI:
- Since passage of the Congressional Budget Act in 1974, which shifted budgetary authority from the executive branch to Congress, the ratio of debt to gross domestic product has increased from 32 percent to 105 percent — meaning the country owes one times the GDP in future taxes. Country owes four times the GDP for Social Security and Medicare.
- Market volatility lower than expected after Donald Trump elected president.
- Cautiously optimistic for 2018.
- Interest rates to remain low and pace for increase to be modest.
- Earnings projected at 11 percent increase for next year compared to 10 percent for this year.
- Economy shifting from 1-2 percent gross domestic product growth to 2-3 percent.
- Suggestions for next year: Take a balanced approach to one’s portfolio to limit exposure; be careful of one’s bond position, considering return rates against interest rates; diversity portfolio internationally; pay attention to interest expenses.
[sc:pullout-text-end]
