Outlook: The U.S. economy continues its slow walk back to pre-recession levels, with unemployment being among the slowest of indicators to return.
The U.S. economy is expanding, the agricultural sector is at or near record levels, the Stock Market is breaking records, the global economy is doing better, state economies in the region are doing better, and all that is expected to continue in 2014. So, why do most Americans still think we’re in a recession? Two words: unemployment and uncertainty?
Unemployment has been above 7 percent for over 4 years, above pre-recession levels for over 5 years, and isn’t likely to return to those levels for another few years. Wages are soft, and employers continue to threaten benefit cuts.
The U.S. economy continues its slow walk back to pre-recession levels, with unemployment being among the slowest of indicators to return. Household median income has declined over 5 percent since the meltdown. While higher-wage occupations have generally recovered, mid-wage occupations have not. Instead, the growth has been in lower-wage occupations. This is forcing many Americans to lower expectations about lifestyle and living standards.
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With the Federal Reserve continuing monetary easing and the Federal government continuing to reduce spending, inflation continues to be slight. The federal budget and debt ceiling crises reduced the level of growth for 2013, and ongoing sequester cuts could do so in 2014 on a smaller scale.
Monetary and fiscal policy are moving in opposite directions: the Fed continues quantitative easing, resulting in near-zero interest rates, increasing money supply with only a slight potential for inflation. The federal government continues to reduce spending, resulting in less economic activity and less inflationary pressure. The potential tightening of monetary supply by the Fed sometime in 2014-2015 will likely result in economic challenges in late 2014 or 2015.
Key indicators are generally positive nationwide, as well as in the Oklahoma-Texas region. A review of investment sector and federal and private sources suggests optimism for the 2014 economy in general. GDP will grow, unemployment will decline, business investment and consumer spending will grow while the federal budget continues to decline.
Inflation and interest rates will see slight increases. Agricultural production and income will be down slightly in the region while the natural resource sector will likely be steady to up. Regional wages will also likely be steady to up. Unemployment will continue its slow decline. The global economy continues generally steady with Europe and China improving and other developing and emerging economies mixed.
Politics and policy continue to make a witch’s brew of the economic outlook. Sequestration coupled with the lack of a deal on the federal budget and debt ceiling temporarily reduced the level of economic growth. The can was kicked down the road in hopes of an eventual deal by early January 2014. While all sides say they will not repeat the federal shutdown, no progress had been made by early December.
This level of uncertainty, in addition to a projected downturn for net farm income suggests the continued importance of risk management and longer term strategic planning. With 2014 a mid-term election year, it is unlikely that the rhetoric of politics will be dialed down. Producers and agribusiness managers will need to be keen on interpreting the facts from spin, and how such information is likely to affect profitability into the future.
Sanders is a Professor and Economist, Department of Agricultural Economics, Oklahoma State University.