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Economy's good, but recession could be on horizon

Association of Equipment Manufacturers says net farm income expected to increase 7.3% in 2019

November 7, 2019

3 Min Read
NolanBerg11/ThinkstockPhotos

The United States economy is in the midst of the longest expansionary period in the nation’s history. But the question that’s seemingly on everyone’s mind today is whether or not another recession is imminent. Economic indicators lead Benjamin Duyck, Association of Equipment Manufacturers Director of Market Intelligence, to believe a recession could take place as soon as 2021.

“While we have a strong labor market and consumer spending, the biggest impediment to the market right now is the fear that consumer confidence might deteriorate,” said Duyck, who shared a wealth of information and insights to AEM members in attendance at the association’s Thinking Forward event, held earlier this month at the Milwaukee School of Engineering in Milwaukee, Wisconsin. “Right now global trade wars and strong protectionism are grinding on both the overall economy and the manufacturing sector. They are really having a negative impact.”

The consensus is that – because of the inversion of yield curves, which is widely considered to be a decent indicator – a recession could be on the horizon 12 months to 18 months into the future.

Overall economic outlook

Global economic growth has slowed considerably this year. Gross domestic product growth sits at 2.3%, but is expected to increase to 2.5% in the short term and 2.7% in the long run – the average growth rate for the last few decades.

Related:Dairy prices surge to five-year highs

Zeroing in on the U.S. economy – employment is strong, and consumers are spending. However, industrial production was down earlier this year (before rebounding as of late).

“It’s a little bit of a canary-in-the-coal-mine scenario,” said Duyck. “And while things have picked up a bit over the last several months, the decline in industrial production – along with a weakening of the ISM PMI – has raised questions regarding how well the U.S. economy is actually doing.”

Since the U.S. has experienced economic expansion for so long, Duyck said some manufacturers are looking at points or reversal, and are acting more conservatively in this market as a result. However, he noted, real income wages have increased for U.S. workers over the last several months.

“And that’s always a good sign,” he added.

Agriculture outlook

The ag industry saw significant growth for several years leading up to 2013 or 2014, primarily driven by an uptick in farmland values and commodity prices. However, as commodity prices increased, so did global production. And when that occurs, prices have nowhere to go but down.

“The commodity prices increased because of natural events,” said Duyck. “And since prices were higher, other countries began to produce more because it’s so profitable. All of a sudden, the natural event is no longer a factor and production levels in the U.S. are still high. There’s overproduction and commodity prices fell.

Related:Ag Economy Barometer jumps 15 points

“At this point, it just comes down to production outrunning demand,” he said. “And it’s important to remember that, in economics – without too much interference from the government – that will automatically correct itself.”

According to Duyck, the biggest driver behind the ag market is farm income. Net cash farm income is expected to increase about 7.3% in 2019. Adjusted for inflation, he said, it’s about an increase of 5.4% when compared to the last two decades.

"We need to start thinking about what happened with the major jump from 2011 through 2013 as a bubble," said Duyck. "There's every reason to believe that our current scenario will continue.”

Source: Association of Equipment Manufacturers, which 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. 

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