By Dan Adkins

UK economists Eric Thompson and Christopher Waller discuss their forecasts for the state and national economies in 2003.

Thompson said Kentucky will add about 36,500 jobs in each of the next three years. In the period from 2003 through 2005, nearly half of the job growth will be in the services industry, while retail trade will add 4,500 per year. The manufacturing sector will grow by 4,700 jobs per year.

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Lexington, Ky. (Dec. 6, 2002) -- Kentucky will experience an economic rebound in 2003, with total personal income growing by 5.4 percent, a University of Kentucky economist forecasts.

The growth of income will feel like a 2.6 percent increase when the effect of inflation is factored, said Eric Thompson, acting director of the UK Center for Economic Research in the UK Gatton College of Business and Economics.

Thompson said Kentucky will add about 36,500 jobs in each of the next three years. In the period from 2003 through 2005, nearly half of the job growth will be in the services industry, while retail trade will add 4,500 per year. The manufacturing sector will grow by 4,700 jobs per year. The coal industry will continue to shrink, with an average annual loss of 500 jobs over the next three years.
After rebounding in 2003, the state's economy will accelerate again in 2004 and moderate in 2005, Thompson said.

Meanwhile, the U.S. economy may face its second recession in three years in 2003, and the federal government's options may be limited, said Christopher Waller, the Gatton Endowed Professor in Macroeconomics and Monetary Economics in the Gatton College.

Waller said a decline in industrial production and capacity utilization in 2002's fourth quarter offers reason for concern.

Waller said a recession could be triggered by several factors ranging from war with Iraq to a major terrorist attack on U.S. soil and the damage to consumer confidence that such an attack would cause.

The Federal Reserve already has lowered interest rates to a point that further reduction would be difficult, Waller said. The Federal Reserve also would need to act cautiously to avoid sending a signal of desperation to the markets, he added.

One response to a recession would be a tax cut that would spur consumer spending, but Waller noted these cuts probably would result in a federal deficit that would add to the national debt.
Waller pointed out the national debt had been trimmed during the 1990s, which will ease the impact of increasing the debt.

He also said a war with Iraq probably would be short and therefore not cause too much economic uncertainty.