Road Warrior

Economic indicators and confusing signals

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The U.S. economy is showing mixed signals. The lead economic index (LEI) which foretells the future of the economy has been increasing in recent months, most recently up 0.4%, which is bullish for the economy. Sixty percent of the factors that make up the LEI are exhibiting positive signs.

The purchasing manager index (PMI) also illustrates a positive growth oriented economy for the next few months. The readings have consistently been above 50, a metric that suggests an expanding economy.

Another positive sign is 78.6% factory capacity utilization.  For comparison, at the height of the great economic recession of 2009, this figure dropped to 68%, the lowest ever recorded.

Confusing Signals

Despite the forward-looking good news, housing, which is a pivotal part of the economy, is still struggling. With one in seven jobs in America tied to housing, this engine of the economy is improving at a modest pace. Ideally, housing starts range between 1.1 million and 1.5 million annually.  In recent months, this metric has been in the 900,000 range, and it increased to 1.072 million in April. Reasons for the struggle include higher mortgage rates, students with over $1 trillion of student loan debt collectively, increased regulation of mortgage lenders, the desire to rent rather than own a home, and affordability of housing with flattening or reduced wage scales.

Another area of the economy that is struggling is unemployment. While the rate has declined to 6.3%, the U-6 unemployment rate which includes the long-term unemployed, discouraged workers and people mismatched in the workforce is at 12.3%. While many jobs are available, the particular skill sets needed may not be available, creating a gap. This is particularly true in the agriculture industry with more use of technology and innovation, which requires a highly skilled agricultural workforce.

Oil prices remain stubbornly high impacting consumer purchases.  Copper prices, a bellwether of world economic growth and inflation, have declined by approximately 25% year-over-year. Yes, first quarter gross domestic product (GDP) growth was a paltry 0.1%. Everyone he is blaming the winter weather, but there may be other factors involved.

Further tracking of economic indicators in the summer and fall may provide a clear path, but for now the economy is muddling along!

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What's Road Warrior?

Dave Kohl is an ag economist specializing in business management and ag finance. He can be reached at sullylab@vt.edu.

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