Outlook for 2005.

• Author: Green, R. Jeffery
• Position: Economic forecasting

In October 2004, a group of economists gathered at the Kelley School of Business to discuss the economic outlook for the nation and the state. The discussion began with an analysis of the October forecast from the U.S. model developed at the Center for Econometric Model Research (CEMR) at Indiana University. A consensus was then generated concerning assumptions behind the forecast and adjustments to the model forecast. Thus, the U.S. outlook presented here reflects the combined thinking of almost a dozen IU faculty members. The CEMR model of Indiana was used to translate the economic forecast for the United States into a forecast for Indiana.

These and other faculty then traveled throughout Indiana presenting the forecast and answering questions. They were joined by a local economist who discussed the outlook for that part of the state. The articles that follow summarize the 2005 outlook and in some cases expand upon what was presented by the traveling panel.

The forecast we made last year was quite accurate. Real growth will likely come in at 3.9 percent for 2004, only slightly above the 3.5 percent rate we forecast last December, and inflation will be near 2.2 percent again, only slightly above the 2 percent forecast last December. The biggest surprise this year was the sharp increase in world oil prices.

The key economic assumption for the coming year is that world oil prices will remain high. This assumption is based on the...