AI and energy infrastructure may buoy US economy in 2026

The US economy is expected to continue to grow, albeit at a lower rate than in recent years, at 1.8%. But that could be helped by continued investment in artificial intelligence and the related energy infrastructure that powers it, according to an economic forecast from Indiana University's Kelley School of Business.

“Investing in AI will likely be the dominant economic story of 2026,” said Kyle Anderson, clinical assistant professor of business economics, director of the evening MBA program and associate dean of academic programs at Kelly Indianapolis. “While investment will continue, there are concerns about overinvestment reminiscent of the dot-com bubble of the early 2000s.

“Uncertainty around US trade policy will remain high. Legal issues and constantly changing tariff rates and administration policies 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 hope to use AI to improve productivity and increase production without adding to the workforce.

The IU Kelley School of Business released its annual economic forecast today at the first stop of its statewide Futurecast tour, which includes forecasts for Indiana, financial and global markets, and local economy. The event took place at the Indianapolis Art Garden.

Carol Rogers, director of the Indiana Business Research Center at the Kelly School, noted the strength of Indiana's economy from the second half of 2024 through the first half of this year. Real GDP grew 2.6% statewide, compared to 2.1% nationally.

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 growth has persisted since 2019, just before the pandemic,” Rogers said. “Indiana is the economic leader in the Midwest, and its comparative strength comes from dramatic growth in non-durable goods manufacturing.”

Rogers pointed to the importance of chemical manufacturing in Indiana, which accounts for nearly two-thirds of the state's nondurable goods production. Not surprisingly, she said, much of this is related to pharmaceutical production.

But growth in durable goods manufacturing—industries in which Indiana has a heritage in auto and engineering—has lagged the nation. Rogers said GDP growth in Indiana's durable goods manufacturing industry is lagging behind the nation's economic growth rate.

In August 2025, manufacturing workers earned only 84.8% of the national average per hour worked. Between August 2024 and August 2025, average hourly manufacturing earnings in Indiana grew 2.6%, compared to 3.8% nationally.

“Due to manufacturing headwinds, it will likely be difficult for Indiana's growth to exceed the 1.8% GDP growth projected 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 Kelly School. Indianapolis agglomeration next year real GDP growth will be between 1.5% and 2%. Unemployment is expected to rise from 3.6% to just over 4%.

Powell highlighted the impact that capital projects will have, including the revitalization of the Circle Center, expansion of meeting facilities including the addition of a 40-story hotel, and completion of the new IU Health campus.

Other expected incentives will come from IU and Purdue's investments in new research facilities, the completion of Elanco's headquarters and its One Health District, and the development of 16 Tech as an entrepreneurial hub. Other development is occurring in suburban counties.

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

Russell Rhodes, clinical assistant professor of financial management at Kelly Indianapolis, said 2025 will be the third year in a row that the S&P 500 will post double-digit gains.

“With the Fed set to continue cutting rates in 2026, the year could again be positive for stocks,” he said. “But repeating the strong performance of the last three years may be difficult due to elevated valuations as well as the slowdown in economic activity expected in 2026.”

Other key points from the Futurecast:

• The global economy has been less affected by ongoing trade conflicts than expected, but uncertainty remains high. It is expected to grow by 3.2% in 2025 and slow slightly to 3.1% in 2026.
• US inflation will remain around 3% as tariff pricing pressures offset the disinflationary benefits of weaker demand.

Kelly's faculty will present your forecast in 10 more cities around the state. They will be joined by local experts from other IU campuses and other universities who will offer perspectives on global, national, state and local economies, as well as financial markets.

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