IU Kelley Futurecast: AI and energy infrastructure may buoy US economy in 2026

(Press-News.org) INDIANAPOLIS — The U.S. economy is expected to see continued growth, although at a lower level than in recent years at 1.8%. But it could be buoyed by continued investments in artificial intelligence and the corresponding energy infrastructure supplying it, according to an economic forecast from the Indiana University Kelley School of Business.

“Investment in AI will likely be the dominant economic story of 2026,” said Kyle Anderson, clinical assistant professor of business economics, faculty char of the Evening MBA Program and assistant dean for academic programs at Kelley Indianapolis. “While investment will continue, there are concerns about over-investment, reminiscent of the early 2000s dot-com bubble.

“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.”

Nationally, job creation will not be strong enough to keep the unemployment rate from rising to 4.8% in 2026. Companies will hope to use AI to drive productivity gains and increase output without increasing labor.

The IU Kelley School of Business presented its annual economic outlook today at the first stop in its statewide Futurecast tour, which includes projections for Indiana, financial and global markets, and local economies. The event took place at the Indianapolis Artsgarden.

Carol Rogers, director of the Kelley School’s Indiana Business Research Center, noted the strength of the Indiana economy between the second half of 2024 through the first half of this year. Real GDP grew 2.6% statewide, compared to 2.1% in the nation. While Indiana maintained its economic momentum, growth among its neighbors was “lackluster” — hovering just below or just above 1% in Michigan (0.4%), Kentucky (0.9%), Illinois (1.3%) and Ohio (1.4%).

“This contrast with our neighbors in terms of real GDP expansion has persisted since 2019, just before the pandemic,” Rogers said. “Indiana is an economic outlier in the Midwest, with its surge in nondurable goods manufacturing explaining Indiana’s comparative strength.”

Rogers pointed to the importance of chemical manufacturing in Indiana, which represents nearly two-thirds of the state’s non-durable goods manufacturing. Not surprisingly, she said, much of this involves the production of pharmaceuticals.

But growth in durable goods manufacturing — industries where Indiana has a legacy in automotive and machinery — has lagged the nation. Rogers said that GDP growth in Indiana’s durable goods production has not kept pace with the nation.

Hoosiers in manufacturing earned only 84.8% of the national average for an hour of work in August 2025. Average hourly earnings in manufacturing grew 2.6% in Indiana compared to 3.8% nationwide between August 2024 and August 2025.

“The headwinds in manufacturing will likely make it hard for growth in Indiana to beat the 1.8% GDP growth forecasted for the national economy,” she said.

The news will be better for the city of Indianapolis and surrounding counties, said Phil Powell, executive director of the Indiana Business Research Center and clinical professor of business economics and public policy at the Kelley School. The Indianapolis metropolitan area should enjoy 1.5% to 2% real GDP growth next year. Unemployment is expected to increase from 3.6% to just over 4%.

Powell highlighted the impact that capital projects will have, including the revitalization of Circle Center, expansion of convention facilities that includes addition of a 40-story hotel, and completion of the new IU Health campus. Other expected boosts will come from investment by IU and Purdue in new research facilities, the completion of the Elanco headquarters and its One Health District, and the evolution of 16 Tech as an entrepreneurial hub. Other development is happening in suburban counties.

“While capital projects will fuel economic expansion, slowdowns in logistics and manufacturing — two important contributors to the Indianapolis economy — will keep the economy from growing at its full potential,” Powell said.

Russell Rhoads, clinical associate professor of financial management at Kelley Indianapolis, said 2025 is shaping up to be the third consecutive year of double-digit performance for the S&P 500.

“With the Fed set to continue cutting rates in 2026, a positive year may be on tap for stocks once again,” he said. “But repeating the strong performance of the past three years could be difficult due to elevated valuations, along with slower economic activity expected in 2026.”

Other key points from the Futurecast:

The world economy suffered less from ongoing trade conflicts than expected, but the level of uncertainty remains high. It is expected to grow by 3.2% in 2025, and slightly slow down to 3.1% in 2026. U.S. inflation will remain elevated around 3%, because tariff pricing pressures will offset the disinflationary benefits of weakening demand.  Kelley faculty will present their forecast in 10 other cities around the state. They will be joined by local panelists from other IU campuses and other universities, offering perspectives on the global, national, state and local economies, as well as the financial markets. The tour is sponsored by the Kelley School of Business and its Indiana Business Research Center, the IU Alumni Association, IU campuses, and numerous community organizations.

A detailed report on the outlook for 2026 will be published in the winter issue of the Indiana Business Review, available online in December. In addition to predictions about the nation, state and Indianapolis, it also will include forecasts for other Indiana cities and key economic sectors.

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