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The Index of Consumer Sentiment tells the story about the economy.

David Kohl, Contributing Writer, Corn+Soybean Digest

February 8, 2022

3 Min Read
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With inflation raging and uncertainty around the world regarding COVID-19, geopolitics, and military action, the economic outlook can be quite unsettling. Similar to the gauges on a tractor or a combine, a dashboard of economic indicators can provide some perspective of what may be around the corner. Some critics say that economic indicators no longer work because paradigms are rapidly shifting as a result of the pandemic. However, there are a few indicators that can provide a glimpse of what is on the horizon of the economic landscape. Let's examine two of my favorite metrics.

Consumer sentiment

The Index of Consumer Sentiment is one that provides insight into consumer behavior, which drives over 70 percent of the U.S. economy and nearly 60 percent of the rich nations’ economies around the globe. When the consumer engine is humming, confidence is high, and the index will often exceed 90. The index exceeded 90 over 95 percent of the time during the longest economic expansion lasting 128 months that ended with the pandemic. When the index is under 80, consumers are less confident. In the last six months, the metric has been in the high 60s and low 70s. This means that retail services and the service-based economic engine is sputtering.

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Oil and energy prices

Energy prices are a closely watched gauge for the future direction for both the agriculture and general economy. Since 1969, this indicator has been a leading factor for almost every recession. Examine the actual prices, but also pay attention to the volatility of prices. The whipsaw effect in recent months from negative prices to almost $100 per barrel impacts purchasing behavior. This variable is a key factor behind headline inflation, which includes food and energy prices, increasing from 2.6% to 7%. Businesses and consumers are observing higher prices at the gas pump, increased fertilizer and chemical prices, and inflated food prices. Expect continued volatility as the result of the transition from fossil fuels to green energy. Geopolitics and military actions along with the economic health of the U.S. and global economy can result in wide swings in energy prices.

One of my favorite pastimes is connecting the dots by examining economic metrics and then confirming my theories with people on the front line. Two of my favorite groups of front-line workers are truckers and shoe shiners at the airport. When the economy is booming, back hauls are plentiful for truckers, and tips paid to the shoe shiners and the number of shoeshine customers are strong. When the housing market is strong, you can observe a higher number of movers on the interstate. In the great recession, traffic was at a bare minimum. Just as you would check the gauges on your tractor, take some time to examine your dashboard of economic indicators to get an indication of how the general economy may affect your business in the months and years to come.

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Source: David Kohlwhich is solely responsible for the information provided and is wholly owned by the source. Informa Business Media and all its subsidiaries are not responsible for any of the content contained in this information asset. 

About the Author(s)

David Kohl

Contributing Writer, Corn+Soybean Digest

Dr. Dave Kohl is an academic Hall of Famer in the College of Agriculture at Virginia Tech, Blacksburg, Va. Dr. Kohl has keen insight into the agriculture industry gained through extensive travel, research, and involvement in ag businesses. He has traveled over 10 million miles; conducted more than 7,000 presentations; and published more than 2,500 articles in his career. Dr. Kohl’s wisdom and engagement with all levels of the industry provide a unique perspective into future trends.

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