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The local economy will remain strong and vibrant, with unemployment holding steady at a 2-percent rate, according to Indiana University-South Bend economists.
Professors Fred Herschede, Wayne Bartholomew and Paul Joray gave this good news to local business and government leaders this morning at the quarterly economic briefing, sponsored by Lake City Bank.
"The current expansion (in the national economy) is different from other expansions because it's lasted so long and it's gaining strength in the latter stages," Herschede said. "The other unique factor in this expansion is that we are alone. The other economies are in varying stages of retrenchment. That's very unusual."
Inflation remaining low and stable is also very unusual for an economy that has had such an extended period of growth, he added.
Government spending will continue to fall, Herschede said. The result in the aggregate will be a stronger economy and higher tax receipts, allowing the federal government surplus to continue.
"Federal spending has decreased in real terms and tax receipts have skyrocketed - at twice the rate of spending," he said.
There are trends in the economy that could spell trouble for the national and local economies, however, Herschede cautioned.
"Americans are spending virtually all of their income," he said. "The stick market's run-up has created such a high level of comfort with capital gains people don't feel the need to save as strongly."
Herschede forecasts a strong economy continuing for 1999, growing at a 2.5 percent rate.
"This will make this expansion the longest in America's post-war history," he said.
Herschede added he expects to see the growth of the stock market slow in 1999, resulting in a slight increase in the savings rate.
"The one potential risk to the economy is the low savings rate. If a world event or a strong stock market correction occurs, it will cause Americans to retrench somewhat - saving more and spending less," he concluded.
Bartholomew said as long as the economy continues to expand, he sees no reason for the employment picture to change - meaning the supply of labor in northern Indiana will remain very tight.
"The most important determinant in the unemployment rate is the rate at which the economy is expanding," he said. "Another key factor is labor productivity. The rate of productivity is four times higher over the past three years than it was the previous three years."
One cloud on the horizon, according to Bartholomew, is that the cost of employment, which has fallen throughout the 1990s, has bottomed out at 3.5 percent of gross revenues.
Joray said the local economy will mirror the national economy, remaining strong as long as the national economy does. The strength of the local economy is based on consumer spending for durable goods, he said.
"In northern Indiana, we have very tight labor markets because consumer spending on durable goods has been so strong," he said. "The only weak spots in the local economy have been the steel industry, due to Asian and South American imports; and the agricultural sector, due to weak exports to Asia."
The keynote speaker for the briefing was Tobias Buck, chairman and chief executive officer for Paragon Medical Inc. manufacturer of surgical implement packages.
"What we sell is essentially a high-end, customized tackle box for surgeons," Buck said. "We've shipped 70 million units since we first started."
Buck is a 1984 graduate of Purdue University, with a degree in industrial and mechanical engineering. After serving in operational management capacities with ITT and North American Philips, he founded the Paragon Group Inc. in 1991. The firm has experienced a 40 percent annual growth rate, according to Buck.
