Road Warrior

Green Shoots in the U.S. Economy

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Despite all the bickering and inaction of our leaders in Washington, D.C., the U.S. economy is like green shoots of grass emerging from the winter doldrums. What are some of the metrics indicating a comeback in the economy?

First and foremost is the housing industry, which represents directly or indirectly one in seven jobs in the U.S. Housing starts have been on a steady increasing trend since last August, and growth has particularly been observed in the southern and western states devastated by the Great Recession of 2007-2008. This could be the start of the rebound of the coastal, suburban and urban economies, and a cooling off of the Midwest and rural economies that have been fueled by the great commodity super cycle.

Factory capacity utilization, a measure of manufacturing health, is at nearly 80%, which is considered at capacity. A renaissance in manufacturing in the U.S. appears to be well underway with the use of automation, as well as quality and productivity driving the industry into a new era. The key issues in this industry will be recruiting and retaining quality workers.

Additional positive signs in the U.S. economy are the lead economic index (LEI) and the purchasing manager index (PMI). These indices predict where the economy is going into the future. Again, both measures have been positive since last August with the LEI increasing by over two points over the period. The PMI has been above 50 since August, which is a sign of a growing economy.

A struggling part of the U.S. economy has been unemployment, which was reported at 7.6% in March, and is 13.8% when U-3 thru U-6 workers are included, which contain discouraged workers and people who have just given up in the workforce. The unemployment rate is declining in part because the workforce participation rate is approximately 63%, a record low. If the participation rate was at 2007-2008 levels, the unemployment rate would be between 11% and 12% in the U.S. As a side note, approximately 19 million people are unemployed in the European region, with a 12% unemployment rate. Job growth appears to be an issue in many of the developed countries of the world.

The potential killing frost of the green shoots in the economy is Federal Reserve action in the U.S. and central bank stimulus abroad. This is an artificial steroid on the economy. Can the economy stand on its own after the stimulus is withdrawn?

 

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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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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