Now in the final quarter of 2015, my travels and lectures continue to connect me with various lender, producer and agribusiness groups. During recent sessions, I overheard statements from other experts such as, “China’s economy has little effect on the U.S. and financial fortunes” or “the U.S. economy is performing quite well.” Synthesizing these remarks, I am not sure all the dots are currently being connected.
The global economy slowdown, specifically, in the emerging nations is well underway. These nations, Brazil, Russia, India, China and South Africa along with South Korea, Indonesia, Mexico and Turkey, also known as BRICS KIMT nations accounted for over half of the world’s economic growth from 2002 to 2012. The BRICS nations also account for approximately 40 percent of the world’s population. Combined, these nations are approximately the same size as the U.S. economy.
Now, half of these nations are in recession or teetering on the brink of zero to negative growth. Indeed, China does matter to the agricultural and rural economies, but to the remainder of the U.S. economy, as well. China’s unofficial growth rate is about 2-5 percent. This slows the demand for exports which increases the appeal for more economic stimulus as a second largest economy in the world transitions from an economy of infrastructure building, manufacturing and exporting to a consumption, service-based economy. China’s economic slowdown will ripple throughout the Asian, European, Latin American, and South American economies. It’s only a question of how much time before it spreads to the remainder of the U.S. economy.
Speaking of U.S. economy, it is now beyond its 70th month of business expansion. Since the Great Depression, the average expansion was 58 months and since 1969, the average is 84 months. Signs of the expansion abating include softening of the lead economic indicators, slowing of the manufacturing sector and inventory buildup as a result of the strong dollar. Lower fuel and oil prices have cut consumer costs but that savings is now utilized for increased healthcare costs and other inflationary components of the economy.
The Federal Reserve recently placed a hold on the interest rate hike for a specific reason. Deflationary headwinds throughout the global economy along with suppressing latest job reports are fortuitous of storm clouds for the U.S. economy. Later this year and more specifically, into 2016, the U.S economy will see marked changes.
Recent corrections in the equity markets will impact consumer behavior with 50 percent of stocks in bearish territory showing declines of more than 20 percent. On the front lines, my trucker friends and dispatchers indicate load traffic is slowing down. This is a symptom of a slowing economy.
In summary, be prepared for a rocky ride of economic turbulence. While agriculture is increasingly globally connected, this is also true of world economies. As economic scenarios continue to play out in the emerging nations, it will be interesting to see which options the pilots of our economy choose with political dysfunction, global military and social tensions on the rise. Stay tuned!
P.S. The U.S. economy’s business expansion very well may not make it into triple digit numbers.