Outside the Columbia Club, the atmosphere matched the picture of 2012 painted by a panel of economists for an audience of business people gathered inside that ritzy building on Monument Circle in Indianapolis.
The sky looked gray, partly cloudy through pessimistic eyes, partly sunny for others. The city poised to host the pinnacle of excess — the Super Bowl — in three months appeared groggy on Thursday morning. A block south, some thirtysomethings hustled toward some appointment, chatting on their cellphones. A cop walked down Washington Street. The neon sign above the Rock Bottom Restaurant and Brewery buzzed with the flickering of two letters, an “o” and a “t.”
When it comes to the potential for OT (overtime), jobs and pay raises in the coming year, the annual economic forecast presented by the Indiana University Kelley School of Business Outlook Panel suggested that Average Joes and Janes need to carry both sunglasses and an umbrella to work.
The economy will expand, the experts predicted, but not enough to dent unemployment that’s refused to abate since the Great Recession hit in 2007. Indiana lost nearly 250,000 jobs in that downturn, about 8 percent of the state’s total workforce, and only 1 of 6 lost jobs has since been restored. Hoosiers won’t see a pre-recession level of employment again until 2014. A modest 40,000 Hoosiers will rejoin the working ranks next year, the forecasters said, and wages will rise slightly by 1.5 percent. The state’s unemployment rate — now at 8.9 percent — will make slim improvement to 8.4 percent by December 2012.
“It’s better than falling off a cliff,” IU economist Bill Witte said of the outlook.
Folks longing for a return to the days of carefree swipes of the credit card and ever-fattening home values should temper their hopes. “The days of wine and roses are still way over the horizon,” added Jerry Conover, another panelist and director of the Indiana Business Research Center.
We’ve emerged from ashes of the PBR and dandelions era. Still, for the foreseeable future, we’ll need to set our tastes on the Samuel Adams and daisies level. Americans have downshifted into a 1970s and early ’80s consumption lifestyle. They’ve returned to the lost art of saving. That rejection of casual spending explains the fizzling of federal stimulus efforts, Witte explained. Thus, the primary goals of stimulus funds — to reinvigorate the consumer and housing markets — remains stalled.
Baby boomers probably recall the U.S. Savings Bond television commercials from the ’70s, describing the nest egg that could be amassed by saving just one $5 bill a week through a person’s working years. The growing pile of Abe Lincolns in those ads impressed us back then. By the early 2000s, it took Hummers, extreme makeovers, and mansions in the suburbs to get our attention. Saving became as passé as Tang.
“And then the bubbles burst,” Witte said, “and we’re finding out that a lot of those things were unsustainable.”
A funny thing happened next.
“Households correctly decided they needed to rebuild their balance sheets by saving more and spending less,” Witte said. The personal saving rate in the U.S., which sank to just above 1 percent of disposable income before the recession, has hovered around 5 percent most of this year. (That rate was in double-digits as recently as 1982, according to the U.S. Department of Commerce.)
So, Americans — individually and collectively — stand at a crossroads. Can we get back to those days of wine and roses, when job security seemed less fragile, pay raises happened and didn’t come with guilt attached, and a whimsical purchase didn’t feel like a step toward bankruptcy? The more relevant question is, should we?
As the 2012 presidential cycle ramps up, the two parties will try to cast the situation in a mold that benefits their chances of victory. Not surprisingly, with the Columbia Club full of business men and women on Thursday, the IU economists leaned heavily toward a Republican “realignment” in the race against President Obama and fellow Democrats running for congressional seats. The mood in the room was distinctly conservative, with advice given on portfolios. IU panelist Rob Neal, a professor of finance at the Kelley School in Indianapolis, mentioned a walkout by students in a Harvard University class this week in support of the Occupy Wall Street movement. “I hope those [students] are not our future leaders,” Neal said, drawing applause.
Yet the protests over the growing income gap between Average Joes and Janes and the wealthiest Americans resonates with many others. In 1979, the top 1 percent of the nation’s richest households accounted for 10.5 percent of all income in the U.S. Today, that top 1 percent pulls in 21.3 percent of income received in the country, according to the Congressional Budget Office. It’s only fair that efforts to reduce the federal debt — a frequent point of emphasis by the IU panel — should include added tax revenues from that elite income tier.
No matter who wins in next year’s elections, though, the new reality may be that most of us must reacquire a taste for life amenities on the Bud Light-and-carnations level. People who used to trade in their car every two years before the recession, may still be driving the vehicle they bought in the midst of that collapse. They don’t have to keep driving it forever, Witte said, and may be able to trade it now, five years later. But, with a more mature financial mind, they’ll hang on to their next set of wheels for at least five years, instead of two.
Those who somehow survived the roughest stretch likely may have twinges of optimism, but aren’t falling head over heels into it. “When you say households are going to save more, it doesn’t mean they’re not going to be spending at all,” Witte said. “They’re just going to be more careful.”
The flickering sign at the Rock Bottom could serve as a reminder.
Mark Bennett can be reached at (812) 231-4377 or firstname.lastname@example.org.