Hi, I'm Jeff Rea your host for Economic Outlook.

Thanks for joining us.

Each week as we discuss the region's most important economic development initiatives with a panel of experts.

The Kelley School of Business at Indiana University has been sharing its forecasts for the economies of the nation, Indiana, and metro areas for more than 50 years.

Each year they visit South Bend, where they team up with the Judd Leighton School of Business and Economics at IUSB for a regional, state and national outlook.

We'll dive deeper into this year's findings on today's show.

Joining me first to kick off that conversation with a focus on the economic forecast for the South Bend Elkhart region, is Hong Zhuang professor of economics and director of the Bureau of Business and Economic Research at the Judd Leighton School of Business and Economics at Indiana University, South Bend.

Hong welcome.

Thank you, thank you.

Well, we appreciate the good work.

You've been doing it IUSB for a long time.

And thank you for coming to join us today.

Let's talk briefly at a high level.

We teased in our opener about this future cast event where you team up with the IU Kelly School of Business.

Tell us a little bit about this event you do each year.

Oh, this is a great event, dad.

At the, at this event, we share with the little community of the forecast at the international level for the international economy in the next year in the national level, state level, and then our regional level and where.

So we got three faculty members and staff from Kelly Business School and also Indiana, Business Research Center to cover global, international and state.

And I would talk about, a economic forecast for South Bend Mishawaka and Elkhart and Goshen.

And we've been doing this in the past, ever since I joined thousands in the past 17 years, every year, provide this to the community.

And as part of the it's part of our mission, BBR, Bureau of Business and Economic Research mission to serve and provide business and economic expertise to the public and to local Michiana region.

I do think the the the data and the forecasts you write is really critical, helps communities businesses plan.

And so thank you for the the good work you do.

Diving into the numbers, I think sometimes the the the splashy news stories about big projects don't tell the whole story.

And actually the deep dive into the data gives a maybe some better perspective.

So you focused in your presentation a little bit on the regional, kind of stuff in Elkhart.

Kind of area.

So let's dive into that a little bit and talk to us a little bit about some of the key indicators, some of the things that the the observations that you have about our local region, of course.

So let's begin with a summary of what has happened in the past eight months of 2024.

So what we saw that is the there was a under the influence of the contractionary monetary policy.

The labor force declined a little bit in South Bend, Mishawaka.

There was a more substantial decline in our core Goshen labor force.

And then unemployment rates moved higher in both regions.

We saw non-farm employment increased in salesman Mishawaka, but it declined in Elkhart and Goshen.

As for the housing market, the supply increased in Saint Joseph County.

But at the same time, the good news of steady housing market inflation has eased.

So that's the general summary.

And if we are looking more specific into the few numbers, I could I can give a few highlights, such as.

So for the average unemployment rate, for example, Mishawaka is 4.7% in the first eight months.

So that's about 0.6 percentage point higher from last year.

And for our card in Goshen, the average jobless rate climbed to 4.4% and about 0.2 percentage point higher than 2020.

We now notably both of these, unemployment rates are above the national state.

The, sorry, the state unemployment rate of 4.2% and national unemployment rate of 4.1%.

So we do see our local labor force contract under the tightening monetary policy.

You know, it's interesting when you talk, unemployment, for example, because like, I'm old enough to remember when, you know, 5% was good and anything, below five was really good, five was full employment, I think.

But in recent years, we've gotten sort of used to numbers that were much lower than that.

And now we race.

We and then if it's both for 4.5, you will start getting scared.

Yeah, they sure do.

So is interesting I think and you mentioned you know kind of Elkhart and and I just think about jobs over there in particular RV industry.

Obviously nationally, I think people sometimes say the RV industry is kind of the bellwether that makes, you know, predictions.

And so so you're seeing some things that, you know, how are those, speak to that piece a little bit, the RV industry and its influence.

Sure.

So, well, we saw that in Elkhart is that their non-farm employment.

That's from the, from the payroll survey, established Business Establishments survey that the non-farm employment declined and Elkhart and Goshen, and we saw the significant job losses in manufacturing.

They lose 3600 jobs, on average.

So that mostly tied to the prosperity of of of RV industry.

So RV industry was hit hard in 2020 so weak.

So their total shipment was down to 313,000 units in 2023.

But when it was in 2021, that was a little more than 600,000 units.

And then that was down to this much.

So it got hit hard.

And, for the unemployment rate, even though the average seems low, that's 4.4%.

I think it's still lower than, south of Mishawaka.

But we do see big fluctuations and our unemployment rate.

It was in one month.

I was in July.

It was as high as 5.4%, and then it was down to 4.7% in August.

And then now in 2024, we do see some recovery.

So in the first eight months, the total shipment of RV units is around 236,000.

So that's about 8.6% higher than the 2023 level.

So according to the RV Industry Association prediction that next year, it's going to approach the total shipment that's going to approach 350,000 units.

So that's about 2016 levels.

So hopefully next year we will see the manufacturing jobs start going back a little bit more.

I like this region.

Yeah.

So as soon as we get back into our last three minutes or so look ahead talk to the forecast again.

We see these forecasts you provide are really critical to help communities businesses make decisions.

What's the forecast that you share for the South Bend Elkhart.

Sure.

Areas sure.

Now for South.

So basically what we see, what we look forward into 2025 is are we see those pop up, optimistic opportunities.

But there's also a cautionary risk.

Now the good news is that bad and it's contractionary monetary policy.

So in September 50th basis points in federal funds rates will cut.

And then another 25 basis points cut was announced.

And in November.

So that's a good news.

We know that lower interest rate is going to stimulate household spending, especially on durable goods.

And annual inflation has come down.

So overall we know that about two years ago and in 2022 the inflation rate was had as high as 9%.

But now it is down to 2.6% in November, which is good.

So if inflation rate continue to come down the fed will continue to cut interest rates.

So that's the good news that now we have lower interest rate and we would have stabilizing prices.

But the risk is are that the US savings rate has been declining.

It's down to four point it's down to 4.8%.

And it's much lower than the pandemic average of 15.1%.

And then the huge accumulated household savings from pandemic has been have been depleted by March 2024.

And then the DAP level, the household debt level, has been rising.

It reaches $17.8 trillion by in the second quarter of 2024.

So we're seeing that three factors declining savings, depleted pandemic erode reserves and and rising debt levels.

So how much more household consumption can increase in 2025.

Right.

So we got to balance those.

And then already inflation really has been tamed.

We don't know yet.

So with all these risks.

So for south of Mishawaka I anticipate the unemployment rate in 2025 between 4.5 to 5%.

It would decrease a little bit because if we look back for ourselves with Mishawaka, its unemployment rate has not been stable.

It stars was 4.3% in January and then down to 4% in April, but then back up to 5.2% in August.

I know that recently it has been down come down a little bit, but most of this due to a temporary hiring because of a holiday season.

But in 20, in 2025, as the monetary easing cycle began in September this year, it takes time for the policy impact to unfold.

So unemployment will come down, but it's going to be gradual.

And similarly for Elkhart and Goshen, I anticipate the unemployment rate is also between 4.5 to 5%.

Similar reasons because of the lower interest rate, because of the tamed, price levels.

So it would take time for manufacturing to add jobs in Elkhart and Goshen and and to boost the labor force participation and reduce the unemployment rate.

Hong.

Thank you.

Hong Zhuang IUSB professor, thank you for sharing your forecast.

We'll be right back.

I'm here in South Bend on the campus of IUSB.

I am joined today by Doctor Bregu.

Doctor, thank you for being with us.

Thank you for inviting me.

You are a professor of economics here at IUSB, and for our listeners and viewers who maybe don't know too much about economics, what does that study entail?

Well, basically we study how humans make decisions.

That's the basic of it.

And obviously we make these decisions in the world of scarcity, that means we have limited resources.

So we want to understand how to best make those decisions.

So we get the most out of those limited resources.

And so you are training future business leaders, community business leaders or others that might go beyond our community and and work in the business industry.

But you're teaching them about making these decisions about limited resources, which really is what economics is all about.

If we all had endless money, it wouldn't have much value.

What is all right.

And I know that, for some of our viewers there may be familiar with what you guys call futurecast.

It is your program here at USB, where you invite some economists in to talk about the economy that happened recently, didn't it?

Yes.

Just recently, on November 19th, we had our last one.

We do this every year where we invite a group of economists, usually from Bloomington, and we have one of our own economists here.

They talk about the local economy here, they talk about the state economy, and they also talk about the international and national economy, where we introduce students to what's supposed to happen in the next year or what we expect to happen.

Obviously, always these are predictions, and often they do get close.

But, you know, obviously we try to do our best on those.

Sure.

And when you're talking about the economy, what does can you help us understand how what that scope is, is it is it just about business?

Is it about other intrinsic factors that might help shape what our economic outlook might be?

We usually focus on unemployment, on the GDP, what's happening to economic growth.

Those are the things that we mostly look at.

But obviously we can look at other factors.

We look at financial factors.

One of the individuals always talks about the financial part of the economy as well.

What's supposed to happen, for example, with stock market and so on.

But usually we focus on the local economy or mostly unemployment or employment, and then also what's going on with different areas of the economy.

For example, here in Elkhart, we have a lot of RV industry and obviously we touch into that and how it's doing and so on.

And so you do take that local perspective into account as you're giving your, information and you're you're teaching lessons to these local students.

Yes, yes, of course.

We want our students to be aware of what's going in the local community.

A lot of our students stay here.

Very high percentage of them stay here and are employed here.

So we want them to at least get an exposure to what's going on in our economy once every year.

That way they can help make make better decisions.

Even what they're deciding in what they're studying and so on, or maybe even introduce them to some areas where there's growth, where they can look into for future opportunities for employment.

Okay.

And that actually brings me to a question that I had for you.

When you look at the students who attend, most of them, I'm assuming are in the business school or somehow studying economics.

You this semester tell me you teach macroeconomics.

So I'm sure many of your students were at at futurecast this year, but you also have students beyond the business school attend?

Yes.

So normally we have more students from a business school since we run it through the business school, the future cost.

And so we invite our own students.

I invited my students there and for my students, even more beneficial because they directly benefit.

They're studying macro economics.

And most of the things that we talk about are macroeconomics.

And so but of course we all also have other students.

This is open to all the students in the campus.

So sometimes other students also do come.

And obviously anyone can benefit from this.

And when we talk about that benefit, we were actually I was thinking about and maybe even mentioned before we went on air that there are let's take our, you know, our local doctors or dentists or medical professionals or someone that might become an engineer.

There really is still a value to knowing some basics about the economy and how economics shape every one of our, industries and our day to day jobs.

So that's what I tell my students at the beginning of the semester when I teach macro.

We live in this economy.

We are part of this economy.

So when things are, when the economy is doing well, the likelihood will do well is also high.

And so we can make better decisions about what's coming if we know what's going to happen in the economy, even in our personal life.

So it doesn't have to be that we apply what we learn in economics, in macroeconomics, and in future cost only to the business decision making.

We apply a lot of these decisions to our own decision making.

Buying a house, buying a car.

All of these things are important and we do cover those things.

So anyone can really benefit from this.

So and when we are talking about your students, local students, and you are giving them this type of exposure to economists, there really wouldn't be another opportunity for them to get that type of, one on one or maybe not one on one, but at least that type of interpersonal experience with that type of information.

Would there be?

Oh yes.

There's definitely obviously we can share videos with our students when we have, you know, from other economies around the US and we can hear from them, but it's different because of the kind of more or less personal interaction.

They can ask questions directly to the panel, they can interact with them.

So they learn in a slightly different way that they would learn from me saying one of the videos.

Sometimes I do obviously share videos from other economies talking to them, but this is a very different experience.

So hopefully by being a different experience, we hope that they get to remember more of this stuff that they hear.

Also since the introduction is different.

All right.

So to wrap this up, I'm gonna ask you a couple questions.

That may feel like a quiz, but what did the economist say about the future of our economy?

How are we doing?

We are doing pretty good so far.

So the prediction for this quarter that we are in the fourth quarter of this year is according to one of the predictions that we have from Atlanta Fed, is the 3.3% the latest one and 3.3% growth, which is pretty good for the economy.

For the next year, the Federal Reserve expects 2%.

But the likelihood is the way things have been going is that it's quite possible if things go towards that direction, we have growth greater than 2%, which is very good, which is very good.

The only issue we kind of have is now that the decrease in prices, or rather the slowdown in inflation rate is, is kind of it's it's not continuing.

And so we kind of stuck it somewhere for the measure at least the, the Federal Reserve looks at.

But we are stuck somewhere around in the mid, 2.5, 2.8% to 3%, which is a problem because the goal they're looking for is 2%.

I got it.

Well, good luck in the future to all of us.

It's very cool to know that you're teaching these young kids about these fundamental concepts of econom economics.

Thank you for joining us today.

I think this has been very insightful and very interesting to hear how, our local educational institutions are helping prepare all students for the reality that economics play in all of our lives.

Joining next to continue our 2025 economic outlook discussion with a focus on the national economy is Chad Ham, an associate professor at the Kelly School of Business at Indiana University.

Chad, welcome.

Hi, Jeff.

Thanks for having me.

Hey, thank you for being here.

Chad.

We, thanks for the futurecast event you did up here in South Bend.

This is that we're glad to share some of this insight for our viewers.

Before we get started on your outlook, talk a little bit about, just what you do at IU.

Yeah.

So I'm an accounting professor here at IU.

I teach financial accounting primarily to our undergrad students and, as a researcher, my primary areas and, capital markets based research and human capital.

Great.

Well, thank you, Chad.

We appreciate you sharing your expertise.

So, Chad, we talked earlier the show doctor doctors wrong about, you know, kind of the regional piece.

We asked you to join us for a little bit, more of a focus on the national picture.

Our viewers are very interested in kind of, you know, kind of where we're at now.

But maybe more importantly, we like where we're headed.

So, let me toss that your way.

What?

You know, give us some, talk to us a little bit about the national economy.

Yeah, yeah.

So, all right, as our, our committee, the future tax group, we, you know, we prepare a forecast, and we kind of talk about where things have been over the past several years with the US economy and where we anticipate things are going to go into the future.

And with that, you know, we focus on some big picture metrics.

All right.

And so some of the metrics that we focus on, you know, are going to be related to the labor market, to the output.

So GDP right where prices are moving.

So inflation and things like that.

And so I guess big picture what I would say is where we're anticipating things to go from here is a little bit more of a steady state.

So we've been in some turbulent times recently with, you know, the pandemic and such.

And so we're our model is looking to the future is that we're we're going to be entering a little bit more of a normal economic time period.

And so with that, some of the, the, metrics that we look at, you know, when we think about the labor market, one of the metrics that we focus on there is both the unemployment rate as well as, the job openings to unemployment.

And so in the aftermath of Covid, we had, right, really low unemployment, right.

And a lot of demand for employees.

So, a lot of job openings, relative to the unemployed individuals who could potentially fill those, those roles.

And what we've been seeing is that's coming into a little bit more balance right over the past year or so.

And we expect that to continue into the to the future, which is a good thing, having that labor market imbalance, when it comes to output GDP, we've seen extremely strong growth.

And a lot of that has been, driven by consumer demand.

So consumer demand for products and such.

And so, that's been good.

But the downside to that is that demand for products has led to some inflation.

And so inflation.

Right.

We felt that recently.

Right.

It's been coming down.

But the latest reading was a little bit of a tick up.

So we do anticipate that inflation's going to continue reducing over the next year.

But there is some uncertainty as always surrounding that figure.

So I guess what I would say big picture what works anticipating is, you know, entering a little bit more of a steady state.

So getting GDP growth around 2% unemployment as well, or inflation around 2% as well.

Right.

Approaching those figures.

Great.

No I like it Chad, thank you for sharing this.

And the you know, the Kelly School has been doing this for 50 plus years.

And we appreciate you bringing this input, to Indiana and kind of talked about these, these key factors.

You know, obviously, as we've talked locally, we were kind of going through some of that, those same issues with labor market and some of those things, you know, and I think, we're pleased to hear a little bit kind of this steady kind of more normal period are ahead, you know.

What are you talk to us a little about, you know, maybe factors that maybe influenced some of this, like, I think, you know, just for example, of rising wages that, that lead to some inflation or, trade or different kind of things, you know, help us understand, you know, get in your brain a little bit more about some of the the factors that influence things like the labor market or GDP or some of that stuff.

Yeah.

So a lot of this all, it all kind of ties back to, supply and demand.

And so, right, GDP growth, right was strong.

We had a lot of, a lot of demand.

Right, post Covid, right, with a strong labor market.

Right.

And there was stimulus given to individuals.

So there was a lot of money there to be spent.

But on the supply side, there were some bottlenecks, right?

There was a lot of distrust, disruption, within supply chain stemming from Covid that took time to alleviate.

And so that's where a lot of the, the inflation came from.

Right.

So we had excess demand, not enough supply.

Right.

And that drove prices up.

Now, when people feel that is when inflation is higher than then wage growth.

Right.

What you one of the things you just mentioned now, one of the positive indicators is that we've actually seen more recently that flip or wage growth has been increasing more quickly than inflation, which is a really good thing.

For, for individuals.

Yeah.

Yeah.

No, I appreciate that.

And, you know, it's interesting like obviously in the election of 24, the economy got a ton of attention and everybody was going to fix it.

I think skeptics sometimes are like, I mean, how much, you know, will policy influence it?

You know, talk about just generally, factors that could influence your predictions.

Right.

So for example, you've you've predicted this steady, you know, kind of growth next year.

But, but, but I would say policy changes or things that happen internationally.

What are what are factors that that might influence that in a positive or a negative way.

Yeah.

So I would say, two big risk factors to our forecast at the moment.

I would say first is with inflation and so inflation.

Right.

The fed rose rates right when inflation was really high to try to cool down the economy and bring that inflation down.

And so we we've seen inflation coming down.

All right.

But now the fed has begun to cut rates.

Right.

And where things are going to go on that front moving forward is a little bit uncertain because the latest readings show that inflation ticked up a little bit.

All right.

And the market is still expecting that, the fed is going to continue to cut rates at the next meeting.

But again, we're back Benson area where it's unclear precisely what is going to happen.

Right.

As well as some of the policy implications.

Right.

So what some policies are putting in place, whether it be tariffs and such.

Right.

Those things can all impact inflation as well because it impacts prices.

All right.

So there is some uncertainty surrounding where that goes.

Another area I would just say is with some of the international conflicts at the moment.

Right.

So there are some some pretty big conflicts going on throughout the world.

Right.

And those could drive right.

An effect on the US economy right through, supply chains.

Right.

Prices, oil prices and such.

Right.

And how and whether we get involved in those conflicts and how they play out and the influence they will ultimately have on the US economy.

Very difficult to quantify, right.

But those are a risk factor, as well, that we would point out.

Great chat.

Our last 30s any final words to our viewers on, what they should be thinking about, about the national economy?

Yeah.

You know, I guess one thing that I would say is, you know, there's this concern about where rates are right now.

Right?

And so, right, for making big purchases like a house.

Right.

And an auto, an auto loan.

Right.

That's going to be driven a lot by rates.

Right.

And there's been a lot of concern, over that with rates coming down.

That's a good thing for that, that area.

But I guess one thing that I would just say as well, but we've experienced recently, a period of extremely low rates, right.

If we look back historically, rates of actually where we're at right now aren't as much of an anomaly.

We were really more, you know, the past couple of decades were more the anomaly, with having rates it near zero.

And so I think it is just interesting what's going to happen with rates and how people feel about that moving forward.

Awesome.

He's Chad Ham.

He's a professor at UCLA School of Business.

Chad, thank you so much for joining us today.

Thanks for having me, Joe.

That's it for our show today.

Thank you for watching on the unit or listening to our podcast.

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I'm Jeffrey, I'll see you next time.

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