Farm Progress

Are We Out of the Economic Woods Yet? Part II

David Kohl, Contributing Writer, Corn+Soybean Digest

May 11, 2010

2 Min Read

In my last article, a compelling bullish stance was taken on the economic outlook. The lead economic indicators including both the Leading Economic Index (LEI) and the Purchasing Manager Index (PMI) are showing strong responses to world economic stimulus. The monthly index was just released pointing to a PMI reading above 60, which is a stark contrast to the near record lows recorded in the Great Recession.

Now, let’s get bearish. First, housing starts have not rebounded to the normal levels of over 1 million annually. Housing starts are currently at a 600,000+ level, and while they are improving, they are significantly lower than normal for a large part of the U.S. economy. With a large number of homes with negative equity, nearly 24% nationwide, this large sector of the economy is a significant headwind. This is particularly true in states such as Nevada, Arizona, Florida, Michigan and California where 70%, 51%, 49%, 39% and 35% of houses, respectively, have negative equity. The housing market may be down for an extended period in these areas, which will be a drag on the economy.

Another factor that is worthwhile to observe is factory utilization. Current levels have improved from record lows of 68% to over 73%, but they are still far from the norm of 80-81%. Many factories are in major production for goods that are being exported or filling inventory requirements.

Unemployment is a significant headwind, standing at 9.9%; however, real unemployment including discouraged workers and others is closer to 17%. Over 8 million jobs have been shed which has improved productivity, but is bearish to the retail markets that are demanding play off strong employment figures.

The huge Papa bear coming out of hibernation is the government debt and federal spending. It appears the can is being kicked forward. Are Greece and the Euro sector foretellers of issues in the U.S.? Watch states such as California, Illinois and New York with large debt issues as the early warning signs.

The bottom line is that the U.S. and global economies are not out of the woods yet!

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 [email protected].

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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