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Corn+Soybean Digest

Is It Great Taste Or Less Filling For The Economy? Part 1

The title sounds like an old light beer commercial from the 1970s and 1980s. However, this headline is very fitting because as the economy moves into the pre- and post-election cycle and holiday period, either side of the title could be appropriate.

The official definition of a recession is two consecutive quarters of negative economic growth as measured by gross domestic product (GDP). However, many would say that if your business is retail, housing, airlines or auto, the recession – and in some cases the depression – is alive and well. Second, one major reason for the recession feeling is that the U.S., and now the globe, is coming off 25 years of growth fueled by appreciating balance sheets, i.e. stock and housing. This created a feel-good factor and spurred growth of the service and consumption based sector.

Key factors to observe in the general economy this fall and winter for the case of a recession are:

Housing inventory (not sold) remaining high and housing starts, which make up 6-8% of our economy, remaining at the 900,000 annual level. Just as a reminder, at the peak two years ago it was 2.4 million.

Oil price of $150-200 a barrel created by weather, a cold winter, hurricane, political and military events, along with strong global demand and low value of the dollar could lead to a recession. This would spill over into the agricultural economy, creating havoc for the livestock sector first and second to the crop enterprises.

I will continue this discussion next week.

Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at sullylab@vt.edu.

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