Kelley School of Business experts present annual economic forecast

KOKOMO, Ind. - Indiana University experts forecast growth in the national economy for 2026, but warn that slowing business investment and tariff policies could weaken that growth.

Panelists presented the annual Futurecast 2026 economic outlook Tuesday at Indiana University Kokomo. Kyle Anderson, clinical assistant professor of economics, Mark Frolich, associate professor of operations management; Alan Krabbenhoft, professor of economics; Kokomo Mayor Tyler Moore, and Russell Rhoads, clinical associate professor of financial management, discussed national, international, financial, and state predictions for 2026.

In the national forecast, Anderson said they anticipate less than 2 percent growth in 2026, with uncertainty due to constantly changing tariffs.

"We have significant uncertainty still ahead for the rest of 2025 and 2026 about how this is all going to play out," he said. "It's a challenging economy right now, and I think we're going to continue to see that through the next year."

He expects that A.I. will drive growth in the next year, with data centers and warehouses under construction, but he also noted concerns about over-investment reminiscent of the early 2000s dot-com bubble.

Anderson noted that the job market is weak, and that restricted immigration policies are creating difficulties for companies and universities. He expects unemployment to be close to 5 percent.

Rhoads, discussing the financial markets, anticipates two or three Fed cuts in 2026.

In the state forecast, Frohlich highlighted that Indiana outpaced the United States in gross domestic product in 2025, and outperformed neighboring states. The state also experienced a construction boom.

While Indiana was impacted by tariffs in its durable goods manufacturing, nondurable goods manufacturing, including pharmaceuticals, grew. Nondurable goods are now 12 percent of the state's GDP.

"We lead the nation now in pharmaceuticals and medical exports," Frohlich said.

Following national trends, Indiana can expect a modest rise in unemployment in 2026, from 3.6 percent to 4.4 percent statewide.

Moore specifically discussed the local impact of Indiana Senate Bill 1, focused on property tax relief and local government finance, which includes an annual property tax credit for homesteads, increased deductions for veterans and seniors, and increased personal property tax exemptions for businesses.

"What the governor doesn't really recognize is that a lot of municipalities are running lean to begin with, and that the larger portion of our budgets are personnel," he said, adding that within personnel, the greatest portion is for public safety - a vital piece in attracting new residents.

In addition, personal property tax relief for businesses has an outside impact on communities like Kokomo, who rely on manufacturing and corporations.

"If things don't get adjusted or changed, that's where we get kicked in the gut," Moore said.

However, he added that legislators have invited mayors, county commissioners, and other elected officials to be part of a discussion to work toward a solution.

Moore acknowledged concerns about the StarPlus Energy plant in Kokomo after a reduction in force earlier this year. The company, a joint venture between Stellantis and Samsung SDI, has announced plans to invest more than $5.7 billion in two lithium-ion battery plants north of Kokomo.

He said production lines are being retooled to market or sell to some of Samsung's other clients, customers, or industries, and Stellantis has announced additional investment of $100 million in the local engine plant.

The silver lining to the slowdown at the battery plant is that it gives the housing market time to catch up. At least two large single-family home developments are being built now, along with additional apartments.

"This is giving us the opportunity to continue to work on the supply, to accommodate it and meet the need we had before the battery plant, to build the supply to allow rent rates to stay lower for those who need affordable housing," he said.

Krabbenhoft said that agriculture, the Kokomo area's other significant industry, also faces challenges - despite a record growing year - because of tariffs. China, which purchased about half the soybeans exported from the U.S. in 2024, stopped purchasing U.S. soybeans in May in retaliation for tariffs.

"Farmers are heavily dependent on some degree of certainty," he said. "Risk is not something anyone likes when you're making decisions on what is going in the ground in April. The last thing you need is something else working against you. The challenge is, once it comes out of the ground, what will you be able to sell it for? That has been one of the biggest challenges that many farmers have faced. Many of them are quite nervous about their longevity."

Other highlights include:

• Uncertainty will remain high around U.S. trade policy. Legal challenges and constantly changing tariff rates and policies from the administration make it difficult for businesses to make investment decisions.
• Job creation will not be strong enough to keep the unemployment rate from rising to 4.8 percent in 2026.
• Inflation will remain elevated around 3 percent. Tariff pricing pressures will offset the deflationary benefits of weakening demand.
• The expectation of two more Fed cuts by the end of 2025 provides a favorable monetary backdrop for equities, bonds, and real estate, supporting a forecast of 8 to 10 percent broad equity market returns.
• The residential and commercial real estate sectors are expected to experience upward momentum in 2026, contingent to the rate environment.
• Indiana was one of 14 states to maintain an AAA top credit rating in September 2025, and tax revenue was $270 million ahead of forecasts for the first quarter of the 2025-2026 fiscal year.

Education is KEY at Indiana University Kokomo.