Cloudy crystal ball: Indiana's challenges and advantages in 2009.(VIEWPOINT)

PREDICTING THE COURSE of Indiana's economy over the year ahead is no easy matter.

Key forces that will shape our economic fate in 2009 are yet to be defined clearly. The incoming Obama administration and the Congress have spoken in broad terms about strategies to stimulate economic growth, bur the crucial details have not yet emerged. There is much hope in communities and states throughout the country that major federal investments in infrastructure will bring long overdue improvements to roads and bridges, schools, sewer systems, and other infrastructure needs while creating jobs close to home. Indiana certainly has its share of needs in these areas that a federal infusion could ease.

Similarly, federal spending to support "the jobs of tomorrow" in fields such as renewable energy production and more energy-efficient power systems would be welcome in Indiana, where major growth has occurred recently in these areas. And the prospect of increased federal funding for research programs at the nation's universities has them eagerly contemplating expanded efforts to create the innovations of tomorrow. Bur again, what shape federal rescue efforts will take is far from clear as the new year begins.

How is Indiana likely to fare in these uncertain rimes? Our economy remains strongly based on manufacturing, as it has for generations, though our dependence on this sector is shrinking as others grow. Manufacturing has been hit hard by the current recession, causing acute pains in Indiana's factory towns. There's likely to be significant shrinkage in certain manufacturing industries, those whose products are no longer in strong demand or whose use requires a more generous economic environment, and there's likely to be substantial restructuring in such industries before the worst is over. Other sectors, including construction, are also struggling in the Hoosier State.

At the same time, Indiana has several advantages that should mitigate the economic blows. We continue to be among the nation's most attractive places for business due to our pro-business policies, strong economic development community, skilled workforce, and geographic location. Despite the challenges we faced, firms committed in 2008 to create more than 18,600 new jobs and make over $4.2 billion in investments to expand or locate facilities in Indiana. Though these plans may move forward more slowly than originally scheduled, they still represent confidence that Indiana is a good place to be.

We will probably see our payrolls shrink significantly more--perhaps by 50,000 jobs--before they start to grow again later this year. Bur there is light at the end of the tunnel if we muster the resolve to invest during these hard times to make Indiana, our communities and our workforce even better suited for the rebound that will inevitably come.

Jerry Conover is director of the Indiana Business Research Center, Kelley School of Business, at Indiana University.

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