December 30, 2019
Under normal circumstances, the U.S. economy would be poised to greet 2020 with optimism. Signals suggest exports will be more competitive.
The economy, consumer spending, business investment, unemployment, interest rates, inflation and wages look good. But, here comes that dismal economist with his legendary BUT…
GUARDED OPTIMISM FROM SOME
As most of you are aware, more than 80% of farm household income comes from non-farm payrolls. So, more farm families pay attention to what’s happening in the general economy.
The general economy will continue to grow slowly. The three major components of economic growth – consumer spending, business investment and government spending – are all projected to continue to grow, but at lower rates.
Wages are improving and will likely continue to do so for basic and skilled workers in the 2 to 4% range, weakest in manufacturing. Unemployment has been a remarkable success for the Administration and is likely to remain steady.
Thanks to the Federal Reserve System, interest rates have been driven down, and won’t go much lower. This will likely weaken the U.S. dollar, making U.S. commodities and goods more competitive on world markets.
That’s good news for U.S. exporters because the dollar has been generally trending stronger since 2018. Lower interest rates as a farm expense will also be good news for agricultural producers.
Ah yes, that dreaded dismal BUT… Many analysts think a recession is overdue and likely by the end of 2020. The weakness in U.S. manufacturing is leading many analysts’ recession fears.
As consumers and business managers see signs of this, they will pull back spending, likely faster than government can increase spending. The economy will contract and, if protracted, the recession will have arrived.
The Federal Reserve’s recent cut in interest rates leaves them little room for further action if the economy goes south. It is also projected that food productivity gains here and abroad will be faster than food demand growth.
This excess capacity will further push food prices down. Hungry nations will delight in the mixed blessings of high productivity-based lower prices as well as relatively lower currency prices from the weaker dollar.
American farmers, however, will see adverse financial impacts.
And, the elephant in the room might be the uncertainty with trade. Whether the President places further tariffs (taxes) on China and other trade partners, or begins suspension and roll-back of tariffs, is unknown and of major importance to American farmers.
THE BALANCING ACT
Farmers and ranchers have walked this high wire before. If you have a reserve, an understanding banker, or a risk management program, you may maintain your balance through what 2020 has to throw at you.
It’s an election year and those good folks that represent you aren’t likely to ignore you (think another Market Facilitation Program and subsidized crop insurance). The President, Senate and House will likely mend differences with the USMCA, reducing shakiness in our strongest markets.
Plan for a rocky time in the general economy late 2020 and 2021. How’s that for “2020 eyesight?”
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