Farm Financial Management Ernie Goss Ph'D' Professor of Economics, Creighton University

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The Farm Non-Farm Economies The Importance of
Open Markets

• Farm Financial Management Ernie Goss Ph.D.
  Professor of Economics, Creighton University
  MacAllister Chairholder
• www.twitter.com/erniegoss
• Websites
• www.ernestgoss.com www.outlook-economic.com
• Podcast Itunes http//coba3.creighton.edu/econou
  tlook/goss-rss3.xml

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The Current Crisis
Investment Climate
New Jobs Interest Rates Economic Growth
Housing
Trade

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Heartland Trade Report, 2007-09produced in
cooperation with Creighton University
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Benefits of trade (for each 1 million of exports)
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Threats to trade

• Exportshigh value of the dollar
• 2009 Stimulus Bill (Buy American)
• Cap trade (tariffs on CO2 emitting countries
• Limiting H1 Visas only 65,000 of 163,000
  applicants last year received them.
• Preventing Mexican trucks from crossing into U.S.
  (temporarily restarted).
• H1N1 flu virus
• Exaggerated health concerns regarding foreign
  food

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U.S. housing vacancy rates andHousing price
growth, 1999-2008 (Quarterly Case-Shiller Index)
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U.S. Housing Affordability,1987-2009
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How big is (was) the problem (bailout)?

• Homeownership rates
• 1995 64.8
• 2005 68.9 (highest ever)
• Relaxing standards brought 4.5 million new and
  mostly unqualified buyers into market.
• Initial price tag was 450 billion
• With no growth in per capita income, housing
  prices would have to drop by another 9 by the
  end of 2009 to return to historical ratio
• This estimates assumes housing prices do not
  plummet below pre-bubble trend
• A partial solution 1) Tax credit for all for
  home purchases, 2) Reduce the hours to achieve
  active home investor status (500 to 50) 3)
  Reject the deductibility interest limitation for
  high income workers

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Investment Climate
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Stock values vs. U.S. economy, 1952-2009
Carter begins
Obama begins
Clinton begins

• Graph profiles SP divided by Gross Domestic
  Product (times 100)

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(No Transcript)
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SolutiongtMake 2001 and 2003 tax cuts on
dividends capital gains permanentgtReduce Gov.
spending to less than 20 of GDPgt Reject lifting
the cap on taxable social security wages
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Jobs
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The Mainstreet Economy

• A monthly survey of community bank CEOS
• Colorado, Illinois, Iowa, Kansas, Missouri,
  Nebraska, South Dakota, Wyoming
• Intended to gauge the economic conditions in the
  non-urban areas of region
• Average community size is 1,300 population
• Available at
• www.outlook-economic.com
• www.economictrends.blogspot.com

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The Mainstreet Economy(index over 50 indicates
expansion)
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The Mainstreet Economy, 2006-09
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The Regional EconomySurvey of Purchasing
Managers Business Leaders

• A Partnership Among Creighton University, and
  State Purchasing Management Associations

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Monthly Survey of Business Conditions

• Leading Economic Indicator
• Released First Business Day of Each Month to
  Media
• Released Via WWWeb
• www.outlook-economic.org
• www.ernestgoss.com
• Appears in media throughout U.S.
• Survey of supply managers in over 900 firms

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Business Conditions Index, 2003-09
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Prices Paid Index, 2003-09
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Important indicators keep an eye on

• The employment report for May will be released on
  June 5th . I expect the report to show job
  losses (and large) for a 20th straight month and
  an increase in the unemployment rate to 9.1.
  (www.bls.gov)
• First time and continuing claims for unemployment
  insurance. Released every Thursday. First time
  claims below 450,000 and continuing claims less
  than 5.0 million would be bullish. I dont expect
  this though. They will be worse. (www.doe.gov
  ).
• Keep an eye on the yield for 10-year U.S.
  Treasuries. Current yields are artificially low
  and reflect unprecedented fear among investors.
  Large increases will tell us that either 1)
  global investors are taking funds out of the U.S.
  market, or 2) inflation expectations have
  increased, or 3) investors have reduced the risk
  perceptions and are pulling money out of
  treasuries and putting it into equity markets
  (http//finance.yahoo.com )
• Case-Shiller home price indexif the declines
  become smaller and smaller, iit will be very
  bullish.
• Gold prices (safe haven buying)

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The Quantity Theory of Money

• Currently
• Money Velocity Prices Quantity
• 2010
• Money Velocity Prices Quantity

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30 Year Mortgage Rate 2007-10
For each 1 increase in the deficit as of GDP,
the mortgage rate increases by 0.3
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The Risk Factors (Long Short Term)

• Taking cap off of taxable social security wages.
• Cap trade (650 billion over 10 years)
• Limiting interest deductions on high income
  workers.
• Anti-trade language in Stimulus Bill and cap
  trade
• The biggest risk is housing prices dropping by
  another 25 for 2009 (overwhelming pessimism)
• Asian reduced buying of U.S. Treasuries (Chinese
  de-link their currency to dollar).

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The Outlook

• From Goss
• Year over Inflation will remain very low (lt 1.0)
  for most of 2009 as large commodity prices pass
  through the system. However, inflation will pick
  up considerably in 2010 rising to 4 - 5 by the
  end of 2010.
• Despite the Feds efforts, mortgage rates will
  rise by 2 by the second quarter of 2010.
• Annualized inflation will rise to 4 - 5 by the
  second half of 2009.
• From the National Association of Business
  economics
• The current cyclical downturn will rival that of
  1973-75.  In the current downturn real GDP is
  predicted to decline 2.8, slightly less than the
  3.1 during the early 70s. 
• Economic weakness will be dominated by a
  retrenchment in consumer spending reflecting
  large employment and wealth losses. 
• The jobless rate will peak at 9.0 by the end of
  the year. 
• House prices are predicted to decline 5 during
  2009, though the SP 500 index is expected to
  rise a solid 8 by December 31, 2009. 
• From the Conference Board
• The unemployment rate will peak at 10.1 percent
  in 2010.
• Housing starts will grow from 540,000 in 2009 to
  730,000 in 2010.
• The economy will grow by 1.6 percent in 2010.
  This is well short of the potential of 3.5 to
  4.0.