The Economy Does Not Feel Right

As I travel the roads of America, many people are saying the economy just does not feel right. Some will indicate it’s like the 1970s; others fear China is like Japan in the 1980s, ready to take leadership in the global economy. Well, where are we?

International economies are starting to see their domestic growth catch up to the U.S. Since 2001 and the recession “lite,” the U.S.’s recovery has been fueled by borrowing on the international markets and the strong housing markets that propelled equity borrowing.

Higher interest rates may promote savings and slow growth in the U.S. Japan, China and the European economies are starting to gain some momentum. Capital may flow to these regions of the world that have seen little investment in the past decade.

The question in the U.S. will be whether higher interest rates will lead to more savings and less appeal for consumers to cash out equity built in their homes in order to conserve.

Will the eroding affordability of homes, slowing demand and over supply, along with decreasing real wage growth and earnings, push housing starts down?

Will technology and equipment spending decline, slowing productivity? Could the growing wage pressure drive up unit cost and slow business profits, which will cool the economy?

These are all questions to be answered under Ben Bernanke’s watch, and only time will tell. Yes, something just doesn’t feel right.

My e-mail address is:sullylab@vt.edu

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.

To see Dave Kohl's previous road warrior adventures type Dave Kohl in the Search blank at the top of the page.

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