State of the Economy: Part 4
You hear in the news that the recovery since the last recession in early 2000 was a jobless recovery. The data on unemployment would confirm those thoughts. The unemployment rate was between 4 and 4.3% in the late stages of the “dot com” boom. When the recession cycle started, unemployment increased to 6% for 2002. Currently, the rate is 5.2%, well above recession rates. This is the result of many jobs, both blue and white collar, being exported outside the U.S. and the overall restructuring of our economy.
The industrial production index is now above pre-recession rates; however, factory utilization, measured by capacity, is still below 80%, which was the level before the last recession.
The consumer price index (CPI) in recent months is showing nearly a 5% annual inflation rate. The Federal Reserve likes to keep this inflation rate to no more than 4%. This is one of the reasons the U.S. has seen a dramatic increase in short term rates.
Finally, a simple rule to measure growth in the economy is to find the difference between the 10-year bond rate and the 90-day treasury rate and add 1%. Currently the 10-year bond rate is 3.9% and the 90-day treasury rate is 2.9%. Calculating the math would find the growth for the U.S. economy is 2%.
Perspective Most countries’ goal is to maintain the consumer price index for inflation between 1.5 and 2.5%, which is called inflation targeting, or the Taylor rule.
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Editors' note: Dave Kohl, The Corn and 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.
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