A monthly survey of economic conditions in 10 Midwest and Great Plains states soared to a 4 1/2-year high this week but the barometer also indicated the rural economy is likely to slow in the months ahead.
Creighton University's Rural Main Street Index rose a-tenth-of-a-point to 59.8 this month. Any reading above 50 indicates economic expansion, and that's its highest tally since June of 2007.
When asked what they expected to be the biggest economic challenge for 2012, 26 percent of the bankers said a decline in agricultural commodity prices poses the largest test and one in four indicated they were most concerned about a shortage of jobs.
And increasingly, analysts view those developments as manifestations of larger macroeconomic trends.
As mounting financial pressures throughout Europe and Asia weigh on domestic markets, two prominent Midwestern economists offered their outlook for ruralAmerica.
Ernie Goss, Economist -CreightonUniversity: “Agriculture is very healthy and that's one of the reasons I'm expecting a little bit of the growth to come down for 2012.”
Noting robust economic growth in 2011,CreightonUniversity’s Ernie Goss andIowaStateUniversity’s David Swenson both predicted a potentially stagnant rural economy in 2012 and suggested that agriculture could feel some negative consequences.
Ernie Goss, Economist -CreightonUniversity: “I just don't think farm income is going to be quite, the growth rate is not going to be as strong. Secondly, you've got growth in the global economy has been expanding fairly briskly, particularly in Asian and even inEurope. Now, both of those areas growth is coming down as well. And finally you've got a cheap dollar and the dollar is rebounding. It has grown by about 5.3% over the last two months. With the growth and the value of the dollar that tends to push agricultural commodity prices down. We're likely to see that and likewise, of course in my judgment, Europe is in a recession right now and obviously when you're in a recession you buy fewer goods and a lot of those goods come from us in America.”
Swenson examined the renewable energy sector, stating the debates over tax breaks for biofuels are a moot point left now for economic historians to determine. Only weeks after the expiration of ethanol tax credits, ISU’s Swenson says demand will continue to drive prices in farm country.
David Swenson, Economist – Iowa State University: “in general both renewable fuels industry as well as the ag economists are saying the elimination of the subsidy for ethanol isn't going to have that big of an impact of both ethanol price as well as the prices received by farmers. So, because demand is maintained and because demand is maintained it provides a floor underneath of the prices of both ethanol as well as corn. So, that part is going to be sustained but there's other categories of renewable fuels.”
Goss contends another form of domestic energy could be a boon for rural coffers as long as federal officials develop a consistent policy.
Ernie Goss, Economist - Creighton University: “For example, natural gas, natural gas is a tremendous, tremendous, has tremendous, tremendous potential right now yet we see our own Energy Department saying no to exports, or at least they're saying no to exports of natural gas because it might raise the price in the domestic market. Now, that is just wrong, wrong headed. We don't have an energy policy, by the way, we need an energy policy, that would be at the state level and more at the federal level, not an energy update. We have policy of two months now, we have, for example, the Social Security tax cut is a two month extension. Now, I don't know why everyone is not just bowling over laughing about that. That is comical. How can anybody think that is wise?”
The social security tax cut mentioned by Goss was a short term compromise between the White House and Congress. But the decision over whether to extend the benefits to 160 millionU.S.wage earners now is destined for an election-year political battle when federal lawmakers reconvene in the weeks ahead. During his campaign, Republican frontrunner Mitt Romney has championed an aggressive trade stance against China– a chief trading partner with theU.S.
Mitt Romney, Republican Presidential Candidate: “Well, number one on day one is acknowledging something which everyone knows, they're a currency manipulator. And on that basis, we also go before the WTO and bring an action against them as a currency manipulator. And that allows us to apply selectively tariffs where we believe they are stealing our intellectual property, hacking into our computers or artificially lowering their prices and killing American jobs. We can't just sit back and letChinarun all over us. People say, well, you'll start a trade war. There's one going on right now, folks. They're stealing our jobs and we're going to stand up to China."
But both economists cautioned any political gains won through “hard-line” trade rhetoric could have dire financial consequences.
David Swenson, Economist –IowaStateUniversity: “You have to believe that the larger economy, the global economy as well as those folks who really speak for business, they're not going to allow this rhetoric to get out of hand. I think that this is the kind of territory that you negotiate, you don’t' take absolute and hard stands.”
Ernie Goss, Economist –CreightonUniversity: “I would be shorting farm income or those companies that are linked to it because that is absolutely a huge risk. Now, I'm not saying a trade war with China, I'm just saying anything -- when you start restricting trade it doesn't necessarily stop with China, it may move to South Korea, it could move on, which China would be bad enough. You get into a trade war with China that would not be -- it would not be pretty forChinaor theU.S. And I've seen a couple of our candidates talking about that, presidential candidates and bashingChina. Now, that may play well in the American elections, it's hard to win an election being pro-trade, it just is.”