The economy is in for a bumpy ride in the year ahead, a panel of Indiana economists said Friday during a gathering in Schererville.

Employment and economic output will continue to shrink even as the nation's budget deficit rises, the group of Indiana University and Purdue University professors told Northwest Indiana business and civic leaders at their 2009 business outlook meeting at Tiebel's restaurant.

"2009 is going to be a tough year," said James Smith, who teaches corporate finance at the Indiana University Kelley School of Business. "Wish us all luck."

For an economy still reeling from the failure of once solid banking and investment firms in recent months, the good news was, "It's been 30 days since the last bank failure," Smith said, to a smattering of applause.

"The economy is shrinking in the midst of a recession," said Philip Powell, a professor of business economics at the Kelley School of Business.

"The financial system almost collapsed," said Powell, thanks to a combination of circumstances.

As new home construction climbed, some banks stepped up risky lending to borrowers who later were unable to make mortgage payments.

Main Street suffered from the collapse on Wall Street, as credit tightened and as those who hadn't built up savings accounts found themselves with little to fall back on, Powell said.

"We have households that are financially paralyzed," Powell said. "That leaves us with a daily barrage of bad news, of layoffs en masse."

The news was no better for Indiana's economy.

As it has for 30 years, "Indiana is losing ground to the rest of the nation," said Morton Marcus, director emeritus of the Indiana Business Research Center at the Kelley School of Business. Marcus also writes a syndicated business column that appears in The Times.

Hoosiers' per capita personal income trails that of other states by an average $5,400, Marcus said, making it difficult for the state to attract new business.

"It's why we're always behind in terms of national trends," Marcus said.

Agriculture, which had held promise during recent years of bumper corn crops and a burgeoning ethanol industry, also is suffering, said Corinne Alexander, a professor of agricultural economics at Purdue University.

Falling gas prices, a boon to consumers, have brought declining corn prices as ethanol loses its luster.

"Farmers today wonder if they can stay in business," Alexander said.

Despite all the bad news, the economists held out hope for recovery during the next few years.

Signs of improvement would include an increase in earnings on Wall Street and rises in the stock market and national gross domestic product, with employment levels being the last to recover, Powell said.

"That's when we'll start to see that we've turned a corner," he said.