Here is the second edition of “Great Taste, Less Filling for the General Economy” this fall and winter, building off last week column. Last time we discussed housing and oil as two critical factors to observe. Here are some more factors that come into play.
Unemployment Rate: The U.S. economy is coming off several months of job loss. Unemployment has increased from 4.5 to 5.7% with a true unemployment rate including discouraged workers of nearly 10%. If the unemployment rate increases this fall and winter from 6 to 9% and rises to 12%, including the discouraged workers, a case could be built for a possible extended, steep recession. One key will be timing, particularly if there is a sharp rise during the holiday period. Higher rates will be observed on the East and West coasts and in Ohio and Michigan than the Midwest in general.
Consumer Spending: Consumers, which drive approximately 70% of the U.S. economy, have gone into hibernation. There appears to be a trend of reprioritizing and revolving consumer decisions particularly on high-end products and services. This consumer spending slowdown is the result of tapped out home equity and credit cards, resulting in liquidity crunch in the household. With 10% of home mortgages having negative equity and up to 17% of subprime loans behind on payments, any additional shock places the “r-word” in the headlines!
Next time I will build a case against recession!
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@example.com.