NWI economy in neutral as fiscal cliff nears

2012-11-27T16:00:00Z 2012-11-28T23:36:06Z NWI economy in neutral as fiscal cliff nearsBowdeya Tweh bowdeya.tweh@nwi.com, (219) 933-3316 nwitimes.com
November 27, 2012 4:00 pm  • 

Two Indiana University Northwest professors said Tuesday that Northwest Indiana's economy has been stuck in neutral in recent months following gains in late 2011 and early 2012.

And despite the seemingly upbeat mood of consumers during the holiday shopping season, Bala Arshanapalli and Micah Pollak said concerns about the U.S. economic "fiscal cliff" could weigh heavily on consumers' minds and impact their spending habits.

The NWI Coincident Index, which measures current regional economic conditions, rose to a level of 101 in October, up from 98 a month earlier. One year ago, the index reading was 97, and the highest readings this year were in April and May at 102. The October figure places the region's economy at a point similar to where it was in 1992, which is the base year for the index.

Growth in the NWI Leading Index, which forecasts regional economic conditions six months from now, slowed from September's reading to 3.12 percent. Three months of positive data signal economic expansion and September and October had positive readings.

The leading index is derived from the movement of several variables including the Conference Board's Leading Economic Index and the Dow Jones Transportation Index.

"We are seeing positive signals but we have to cautiously wait to see what happens in the next few months," said Arshanapalli, a professor of finance and one of the creators of the indices.

Arshanapalli and IUN emeritus professor of economics Don Coffin developed the NWI Coincident Index and the NWI Leading Index in an effort to gauge the dynamics of the region's economy. The Times publishes results from the indices monthly.

Pollak, assistant professor of economics, said economic growth in the region has been weak this year and October showed declines in U.S. domestic steel production, employment in the Gary metropolitan area and national retail and food sales from a month earlier.

The forward-looking data provides some cause for optimism in Northwest Indiana seeing economic gains next year, but that doesn't take into account the uncertainty over how politicians in Washington will respond to the fiscal cliff, Arshanapalli said.

The fiscal cliff is a combination of automatic federal budget cuts and tax changes set to go into effect in 2013. Without action, White House economists said Monday that tax hikes could cause consumers to spend nearly $200 billion less than they would have under the current tax structure.

Retail and food sales will be the first index component to be hurt if angst about the nation's economy translates into lower levels of spending, Pollak said.

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