Feb. 3--While 2010 is expected to be somewhat better than last year, economic growth may end the year at a lower level that it began, some panelists predicted Tuesday during the 14th annual Groundhog Day Economic Forecast on the campus of Indiana State University.

Robert Guell, professor of economics at ISU, said while the fourth quarter of 2009 had a 5.7 percent growth rate in the gross domestic product, most of that was from excess inventory and government stimulus funds.

Guell said more than half of the growth, 3.4 percent, was considered growth because inventories of products were not decreasing as fast as they had been, “so that is a statistical anomaly.”

“Consumption spending only rose 1.4 percent during the fourth quarter of 2009,” Guell said.

Guell said historical indicators that follow bad economic recessions, such as the current recession, show “positive first quarters 1/8with annualized growth 3/8 in the 8 to 10 percent range. In 1983, it was 10 percent annualized growth. We are coming out of the worst recession since the Great Depression. We have should have seen a number in the 7 to 8 or 9 or 10 percent level if this were in historical context, and it is not.”

Instead, the 5.7 percent GDP increase matches “the growth coming out of the shortest and shallowest recession in U.S. economic history.”

“I would say, in a normal situation, growth in 2010 should be between 7 and 10 percent, but I don’t think it will exceed 4 percent, so 5.7 percent is not all it is cracked up to be,” Guell said.

A massive investment boom, which included businesses converting entire offices to computers technology, helped lead the country out of a recession in the 1980s. “I don’t see anything that people are going to buy, whether businesses or 1/8personal 3/8 consumption ... so I say that 2010 will be positive but underwhelming,” Guell said.

Unemployment is and will remain a significant part of the landscape between 2010 and 2011, Guell said.

State and local government have been “shedding employment.” With little turnaround in the economy, school districts such as Vigo County will struggle to maintain current levels of instruction, “but class sizes in Vigo County and other more mature school districts will likely rise” as teachers are cut.

Cuts in education will “put a significant weight on economic growth,” he said.

Guell said some heavy weights on economic growth for 2010 include fewer jobs in state and local government; a decline in spending on roads and other structures; and a continuation of debt foreclosures.

Possible engines for economic growth in 2010 include “inventory rebuilding, and there is $1 trillion in unloaded reserves in the banks around the country,” a number that had been $6 billion on Labor Day 2008, Guell said.

That means when banks start lending, “they have so much money to lend that their pushing on the accelerator will have to be accompanied by a massive federal reserve pushing on the brakes or inflation will be there,” he said.

Housing market

Brian Conley, president of Conley Real Estate Appraisals, said Vigo County does not follow a national trend “for high highs and low lows in terms of market prices for residential real estate.”

Conley said if Vigo County has a six-month supply of homes listed for sale, the market is balanced. If that number dips below a six-month supply, it is a seller’s market, such as in April 2007, when there were 683 homes listed -- a 5.7-month supply -- in the Terre Haute Multiple Listing Service.

If that number is higher than a six-month supply, it is a buyer’s market, such as in July 2008 when 845 homes were listed, a 9.4-month supply of homes.

That buyer’s market of July 2008 had returned to a more balanced market by December 2009, with a 7.8 month supply.

The all-time high for the average price paid for a home in Vigo County was $102,387 in April 2007. That price had been reduced by December 2009 to $94,777, Conley said.

The four-year low for the average price paid was July 2008 at $91,376.

“So from our all-time high to the low, we are only down 10.75 percent on the average price. On the median price, the all-time high was $85,000 in January 2007 and then in January to May 2009, the median price was $75,000, which is only a difference of 11.76 percent,” Conley said.

Conley said the housing market in Vigo County is still down 7.43 percent from its high in 2007, but is up from the county’s four-year low. “So we are starting to go in the right direction,” he said.

Conley said Terre Haute had its own housing bubble in 2006, when hundreds of people moved in to work at Pfizer’s Exubera plant, causing the price of homes to increase. But after Pfizer pulled the plug on its plant, it caused housing prices to drop in 2007 as more homes hit the market.

“Over the last 10 years, we have averaged a 6.92 month supply of houses, so we have been very close to that balanced mark in Vigo County in terms of houses available for sale,” he said.

Statewide

Gerry Dick, president and managing editor of Grow Indiana Media Ventures LLC, which includes Indiana Business, said 2010 will be “another pretty tough year, a challenging year, at least for the first three quarters.”

One new development that could affect Indiana’s state income is that Ohio has approved gaming, which will have negative impact on the eastern and southeastern part of the state, Dick said.

“We continue to see layoffs and plant closings, but fortunately not as much as in the past 18 months or so,” he said.

One other aspect for the business sector is that, as companies have cut back on employees, some have become more efficient. When the economy recovers, such companies likely may bring back only half of the employees they once had.

Dick said there are some positive signs, such as in Elkhart County, which had the highest unemployment rate in the nation. Some recreational vehicle companies are recalling some workers. “They have about 14 percent unemployment, but that is 5 or 6 points below what it was at its peak, so that is an improving picture,” he said.

Indiana has seen growth in wind energy component companies, and Dick said he expects the state will see investment in the next few months from solar power manufacturers.

He said the state continues to have some strong economic sectors, such as biomedical companies in Warsaw, where one third of the world market of orthopedics is produced.

“It is an $11 billion industry there,” Dick said. “The biomedical and health employment grew by 15 percent since 2001, and by 39 percent in Warsaw.”

Small business development/grocery buyers

Lakshmi Balasubramanyan, assistant professor of finance at ISU, said increased credit for small business startups is needed to pull Vigo County out of the recession.

From 2005 to 2009, small business startups in Terre Haute have dropped. There were 495 business startups in 2005, 460 in 2007, then 115 in 2009.

“We have to focus on revitalizing this community and foster a culture of entrepreneurship and create an environment that is conducive for business startups,” she said.

“Access to credit is important. We need to support credit availability, which is extremely important to small business startups,” she said. “It is important for this community to focus on creating economic vibrancy if we are to prosper in the future. There is hope and there is room to get these 1/8small business startups 3/8 numbers up.”

Balasubramanyan said, “This is a market for banks to look at small business loans. It is not just about saving jobs, but it is important to create jobs, which is something we have to keep in mind for 2010.”

Bill Chew, executive vice president of Supervalu’s Midwest/Southeast division, said the grocery industry has seen a drop in purchases.

Chew said the grocery industry, from independents to chain stores, operates on a 1 to 2 percent bottom line, “that is one cent or two cents for every dollar that goes through the front end that goes to the bottom line of these stores. When consumer habits change, it can impact a store tremendously,” he said.

In 2009, consumption rates of foods dropped to the lowest in 50 years. Most food sales dropped, with exceptions of fresh meat/seafood and dairy products, which remained flat, while salty snacks, beer and liquor saw increases.

“Our supermarket customer count has been fairly flat over last year. The big, disturbing piece was the sales per customer has decreased drastically,” Chew said. “We ended up 2009 with about a half percent inflation, the lowest since 1967.”

Shoppers are turning away from national brands and instead buying private and regional store brands. In 2010, he said, expect to see more promotions from national brand products.

Also, people are now starting to shop only for items on sale, called cherry picking, going from store to store. “Most grocery stores don’t like cherry pickers, they like full-buying shoppers, but it is a fact of life that has happened in the last couple of years,” Chew said, adding that, typically, 20 to 25 percent of product in a store is sold on promotions.

In addition, one major change has been the increase use of coupons.

“Coupons had been a dying industry, but last year and the year before there has been a huge, huge resurgence in the actual redemption of coupons ... The nice thing about coupons in the grocery industry, it has no effect on the market, it is a manufacturer-driven promotion that reduces the retail on the front end but does not reduce margin at the stores at all,” he said.

Chew said consumers are starting to pull more coupons from the Internet.

Consumers are also planning more before they shop, shopping with grocery lists “trying to get away from the impulse buying once they get into the store,” he said.

Supermarkets and grocery stores are still the most popular place to buy foods, while super centers, such as Walmart, are growing with food sales.

In 2010, Chew said, Supervalu plans to target more consumer segments, such as Hispanic or young or retired food shoppers, with specific marketing campaigns. Supervalu will target social media, such as Facebook, to appeal to younger buyers, he said, adding that buyers can be “friends” with a store or product.

“We can send a message that fresh strawberries are on sale today,” he said.

The company also plans to reduce or change its newspaper media advertising. “We have to change as younger consumers don’t use 1/8a newspaper 3/8 as much to get their information,” he said.

Supervalu, which owns Jewel Food Stores, Cub Foods and Save-A-Lot stores, has estimated annual sales of $41 billion. The company also is a third-party logistics company, operating distribution centers. The company also supplies independent grocery stores, including Baesler’s Market in Terre Haute.

Howard Greninger can be reached at (812) 231-4204 or howard.greningertribstar.com.

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