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Questions of the dayQuestions of the day

Will it be a U.S. recession or a global recession?

David Kohl

July 6, 2023

3 Min Read
When will the stimulus funding run out?worananphoto/Getty Images

Recently, I taught at the 73rd Graduate School of Banking at Louisiana State University. As a matter of fact, this year was my 33rd year teaching at the school. I team teach a course called Interpreting Economic Change with Dr. Tom Payne, Dean of the College of Business at Tennessee Tech. Throughout the class, we utilize clicker technology to interact with the students on popular questions of the day. Let's examine some of the questions and the results.

Next recession

The chance of a recession is a hot topic in the U.S. and globally. Germany just entered a recession in 2023 with two consecutive quarters of negative economic growth. The Euro sector has followed them also with two quarters of negative economic growth. We asked the students, “When will it be the United States’ turn?” Forty-three percent of the students indicated that a recession would begin in the first half of 2024, 25 percent said the last half of 2024, and 13 percent said in 2025.

Surprisingly, nearly 20 percent felt there would be no recession. Going forward, it will be interesting to see what happens to the remaining stimulus monies from the pandemic and when people will max out their credit cards. The projections for when the saved stimulus funds will be spent are in late 2023 or 2024. One can already observe slowness in the retail and manufacturing sectors.

Layoffs are occurring in the technology sector and at the executive levels while maintaining employment strength in the service industry and blue-collar jobs. The yield curve, which compares the short-term interest rates versus long-term interest rates, has been inverted since May 2022.

Historically, when the yield curve is inverted a recession occurs 12 to 18 months later. This would indicate that a recession would occur in late summer or fall 2023. Perhaps the question becomes, will it be a U.S. recession or a global recession? The agriculture industry’s dependence on export markets could be dramatically impacted by a global recession, particularly in sectors such as cotton, soybeans, hogs, and dairy.

Stock market

This year’s class was asked about their predictions for the Dow Jones Industrial Average (DJIA). A majority, more specifically 55 percent, of this year's group indicated that the DJIA would trade sideways for the next year with considerable volatility within the year. Twenty four percent indicated that the DJIA would be between 25,000 and 29,000 points with a recession and higher interest rates being the caveat. A similar survey was administered in last year’s class and the majority indicated that the DJIA would be 33,000 points in 2023, which was spot on and accurate. Shout out to the class of 2022!

Top of mind

Wow, the hottest topic at the school this year was the explosion of artificial intelligence (AI) used in banking. Examples were how AI is being used to write loan narratives for loans up to $1 million and developing loan and purchase agreements. In faculty discussions, our concern was that one needs to critically think about both the positive and negative applications to the banking industry. Interconnectedness of data and information provided by AI can provide linkages of high tech to high touch, or the human element. This technology is accelerating and will be a major disruptor in business, banking, and particularly the agricultural industry.

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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