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Analysts say economic outlook tied to November elections

Is there a chance the agricultural economy will continue to worsen in the next 12 months? Is the Fed finished or will there be another rate hike soon? What's going to happen to the U.S. stock market? Will the run continue or will it crash?

The U.S. economy is teetering on the edge of a cliff and which way it heads may depend on the outcome of the November presidential election, says Ed Seifried, economics professor at Lafayette College in Easton, Pa.

Seifried, speaking at the North American Agricultural Finance Conference in Winnipeg, Manitoba, Canada, said, "The political outcome of the November election is critical to our economy."

The last time the U.S. economy experienced a recession was in the period between July 1990 and March 1991. That means the United States has surpassed its previous record of 106 months without a recession, with a new record of 114 months and counting. "This new record should worry you because the average time between recessions is 50 months," Seifried says.

The Composite Leading Index, made up of economic indicators such as consumer goods orders and building permit numbers, is often used to predict the United State's future economic health.

If the index rises monthly, economists predict good economic conditions on the horizon. If the index falls three consecutive months, with a drop greater than 1 percent in each of those three months, Seifried says, you should "cry recession and be on the alert for an economic downturn."

In the past three months, the Composite Leading Index has dropped continuously, but not by more than a 1-percent margin. In May, the Composite Leading Index was at 106.0. It dropped to 105.9 in June and then dropped again in July to 105.8.

The number of houses being built across the United States is another economic health indicator that has been off in recent months. According to Seifried, housing starts are off dramatically from the potential maximum of 1.9 million homes per year. Recorded housing starts in recent months were 1.656 million in April, 1.596 million in May, 1.563 million in June, 1.526 million in July and 1.531 million in August. In comparison, housing starts during the 1990-91 recession ranged from 987,000 to 1.106 million.

Based on the results of the November election, Seifried says, the economy could either continue to prosper or slide into a recession. "We're at a crossroads," he says. "November is going to be the key to the United State's economic health in 2001."

The perfect recipe for continued economic health, according to Seifried, will be the election of either a Democratic or Republican president with the opposite party controlling Congress. Seifried is of the belief that the markets will not react well to either a George W. Bush win and a Republican sweep in Congress, or an Al Gore win if the Democrats regain control of Congress.

Seifried says he worries about a Bush win and a Republican-controlled Congress, which he sees as a possible outcome of the November election. On the other hand, he says, a Gore victory with a continued Republican majority Congress may mean continued economic health and prosperity.

Tim O'Neill, executive vice president and chief economist at the Bank of Montreal in Toronto, Ontario, Canada, agrees that political gridlock is beneficial for the U.S. economy.

While he's more optimistic about the continued health of the U.S. economy, O'Neill admits the risk is there for an economic recession. "We're in a period of transition. If you do end up making a policy mistake when you have a tight labor market, it can be more costly to the economy."

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