Guarded Optimism for 2007

What is in store for next year's economy? To help answer this question, Indiana University's Kelley School of Business partnered with local economists and traveled the state in November to share national, international and state forecasts. The following are the panel's highlights:

  • Growth in gross domestic product (adjusted for inflation) is expected to be about 3 percent, a little slower than in 2006. Inflation (measured by the Consumer Price Index) will decrease slightly to about 3 percent.
  • The nation will add about 1.7 million jobs next year, and the unemployment rate may decline slightly.
  • The overall housing market will continue to weaken nationally (to a lesser extent in Indiana) but will not experience a total collapse.
  • Despite continuing expenditures on Iraq, the government budget deficit will remain about the same.
  • The federal funds rate will remain at 5.25 percent for most of the year. The prime rate will also remain stable, but mortgage rates may rise a little.
  • Rising costs of inputs and employee benefits will slow corporate profits to around 6 percent to 8 percent, a smaller rise than in 2006.
  • International trade will grow but will not significantly reduce the large trade deficit.
  • Employment in Indiana will increase by 20,000 to 25,000 jobs, slower growth than the national average.
  • Indiana's manufacturing jobs are forecasted to grow slowly. Jobs in professional and business services, health and education services, and construction are positioned to grow.
  • Major risks to the outlook derive from uncertainty about energy prices, the potential problems in the housing sector, and possible destabilizing deficits in the government deficit and the trade balance.

Look for detailed projections in the upcoming Indiana Business Review, available online in late December at

Figure 1: U.S. Job Creation and Unemployment Rates, 2004 to 2006

Figure 1