COLUMBUS — It came as no surprise when economists said in late November that the American economy is, indeed, in the throes of recession. Has been for nearly a year, they asserted.
And the public just laughed, almost congratulating the government for seeing what most average Joe’s pocketbook was already showing.
But for one section of the economy — for the American farmer — things may not look quite so dim. That’s according to Bob Young, chief economist for the American Farm Bureau Federation, who shared with farmers a pat on the back for managing the past year, and a glimpse into his crystal ball for what the next year might hold.
Young spoke at last week’s Ohio Farm Bureau Federation annual meeting in Columbus.
Young said no matter how you feel about the newest president-elect, there’s one fact that can’t be ignored: Throughout history, the Standard & Poors index has risen an average 66 percent when a Democrat president is in office, contrasted with a slimmer 23 percent climb during Republican watch.
“That said, it was only going to go one way from 2004 to 2008,” Young said.
And, indeed, the numbers prove it. On Halloween 2007, the global stock market was valued at $63 trillion, he said. Within the year, the market evaporated to a stark $33 trillion.
“Thirty trillion just went poof,” Young said.
Add to that the biggest drop in history for real estate values and increasingly shrinking household wealth, and it’s no wonder many Americans have lost faith in the value of the green-inked bills in their wallets, he said.
“Folks got very scared in Washington, and banks stopped lending to each other, essentially.”
“The Fed has done about all they can do. They’ve simply run out of levers to pull.”
American Farm Bureau Federation
chief agricultural economist
“Think of it this way: If you had to lay down cash for every [purchase], how many things would you pass on? That’s what the banks were doing. Without that credit, business can’t work.”
Now that interest rates are at historic lows, Young and fellow economists believe the number can’t go down further, and that it can only climb. That’s putting businesses of all kinds in another bind.
“If you know the rate is going to go back up, why loan now? You’ll wait to loan money until you can collect higher interest off it and make some money,” Young explained.
“The Fed has done about all they can do. They’ve simply run out of levers to pull,” he said.
On the farm front, things today are looking kind of bleak.
Prices are down across the board, a stark contrast from where prices were earlier this year. Young blamed those high prices on speculative demand and a “frenzy in the markets” that was bound to end.
“Here we are on the back end of that, and I don’t think anyone is surprised. It had to go away,” he said.
Yet farmers are seeing a real bright spot in the overall economy, Young believes.
Nationally, net farm income for the year was up $90 billion over 2003, when farmers hit rock bottom in the markets.
Economists predict to watch commodity prices fall and input prices climb in 2009, marked by a “noticeable” decline of $15 billion in farm income. Also expected are ag land prices under significant pressure, according to Young.
“But it’s still not too bad,” Young said. “The last five years have been one of the bright spots out there. And the balance sheet is in the best shape it’s ever been.”
“You’ve got to be proud of the American farmer. As a group you’ve been very prudent, not taken on a lot of debt, and are watching.
“Good business is still good business.”
Going into the new year, Young said job losses, which have topped 1 million nationwide this year, will continue, but economists are expecting the economy to turn around in late 2009.
“It takes time for credit to recover, and we’ll be looking at the political changes, too,” he said.
Another worry is deflation, he pointed out.
“When society is in the mindset that prices are coming down, nobody buys because they’re waiting on that lowest price.
“Once you get into that mindset, it’s hard to get things kicked back around.”
He and others in his position look for another economic stimulus package to go into effect in January or February 2009, and for the promised money to hit the road late in the year.
“It just takes time for stuff to occur,” he said.