In the last article we discussed housing as a variable to watch in the economic recovery. Now let’s examine a few other factors.

Unemployment is usually considered a lag indicator. That is, it shows what has happened after the fact, as opposed to predicting what will happen in the future. Unemployment levels could exceed 10% this winter and spring. The retail and finance sectors will cut jobs initially; eventually, the government and educational sectors will trim their workforces as tax revenues decline at federal, state and local levels. This may not occur until 2010.

Consumer spending is at a standstill. With net worth of households down 11% in the third quarter of 2008, and in some cases down 25% for the year, people are feeling less wealthy and have less desire to spend on consumer goods. Consumer spending accounts for two-thirds of the U.S. economy. Sharp drops in fuel prices and interest rates may bring consumers out of their financial bunkers; however, with credit card delinquency at an all-time high, it may be a while before this occurs.

Business spending is another variable to watch. Confidence has waned given global economic dynamics. This influences long-term capital investment decisions resulting in businesses purchasing fewer large-ticket items. Economic recovery may be headed in a positive direction when business spending starts to increase.

Inflation, deflation and currency exchange values will be the talk of 2009. Deflation is a broad, sustained decline in prices. The Federal Reserve and governments worldwide will focus on avoiding this trend. However, too much stimulus will result in inflation and devaluation of the dollar. Until this balance is seen for two to four quarters, expect to see volatile economic times.

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.