Region economy slows as cliff fears take shape

2012-12-27T16:00:00Z 2012-12-28T23:25:06Z Region economy slows as cliff fears take shapeBowdeya Tweh bowdeya.tweh@nwi.com, (219) 933-3316 nwitimes.com
December 27, 2012 4:00 pm  • 

Lackluster growth in retail sales and a drop in regional employment took some holiday cheer out of Northwest Indiana's economy last month, according to an index that gauges regional economic dynamics.

And the Indiana University Northwest professors who compile the data for the index continue to expect economic uncertainty to remain strong in 2013. 

The NWI Index fell to a level of 99 in November from 101 a month earlier. The index has been below 100 in three of the last four months.

Micah Pollak, assistant professor of economics at IU Northwest, said retail sales in November rose about 0.2 percent from October, but the increase was less than the 10-year average. Employment in Lake, Porter, Newton and Jasper counties also fell by 0.41 percent to 270,100 last month. The average month-over-month decline over the last 10 years was 0.01 percent.

Pollak said the data, including domestic steel production and average hours manufacturing worked, point to a regional economy that isn't as strong as it was earlier this year.

"November was the first month in which the so-called fiscal cliff first began to receive major attention in the media, and we may be seeing the results of the political and fiscal uncertainty starting to show up in the data for November," Pollak said.

The fiscal cliff refers to a combination of automatic federal spending reductions and tax hikes to take effect Jan. 1 absent action from political leaders in Washington. But Pollak said the impact of the fiscal cliff may be as much psychological as it is actually reducing income for people.

Two developments expected to reduce income for people in the new year is the expiration of a temporary payroll tax cut and the elimination of federally funded extended unemployment benefits. The Indiana Department of Workforce Development said benefits could expire for about 40,000 Hoosiers. The average claimant receives about $290 a week. Payroll income will also be reduced for all workers as the Social Security tax withholding rate increases to 6.2 percent from 4.2 percent in 2013. The White House estimated the impact on the average family would be about $1,000 a year.

Dave Wilkinson, president of Highland-based grocery store chain Strack & Van Til, said the economy in the last few years has "messed up" shopping patterns so much that it's difficult to say whether the fiscal cliff will reduce spending at grocery and retail stores. He said his stores haven't forecast a significant impact if the tax hikes and spending cuts take hold, but people having less disposable income available will reduce their grocery budgets as well as those for gasoline and other items.

The NWI Leading Index, whose components are used to form expectations for the regional economy in the next six months, also turned negative in November. Pollak said the minus 1.03 percent figure last month could reflect "weak contraction" in the economy as groups such as the Institute for Supply Management are reporting an apparent slowdown in the manufacturing sector.

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