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					          The Rural vs the Non-Rural Economy:
                    How Are We Doing?

 ASFMRA Ag Pro Outlook
 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/econoutlook/goss-rss3.xml
The Current Economic Situation
 Investment Climate


          New Jobs,
           Inflation,
       Interest Rates &
          Economic
            Growth
Loan charge off rates & housing price growth, 1987-2009

   3.50%                                                             7.0%
               Charge off rate farm production (left axis)
               Charge off rate real estate (left axis)
                                                                     5.0%
   3.00%
               Housing Prices (QoQ) (right axis)

                                                                     3.0%
   2.50%

                                                                     1.0%
   2.00%

                                                                     -1.0%

   1.50%
                                                                     -3.0%

   1.00%
                                                                     -5.0%


   0.50%
                                                                     -7.0%


   0.00%                                                             -9.0%




                                                              '0 9
      '87
    Q1




                                                             Q3
U.S. Housing Affordability,1987-2009

                      10.0
                              Ye ar s w or k to buy hous e (ave r age =8.333)

                       9.5
 Years to buy house




                       9.0



                       8.5



                       8.0



                       7.5



                       7.0
                          7




                                                  0
                        '8




                                                '0
                       '1




                                              '1
                      Q




                                             Q
    Conclusions?
 Homeownership rates:
   1995 64.8%
   2005 68.9% (highest ever)
 Relaxing standards brought 4.5 million new and mostly unqualified
    buyers into market.
   With no growth in per capita income, housing prices would have to
    increase by 10.0% to return to historical ratio of 8.33 years of
    income
   Loan delinquency rate will rise by another 1.2% by end of quarter.
   These estimates assume no change in housing preferences
   These estimates assume that unemployment rates do not exceed
    10%.
   These estimates assume no change in the deductibility of home
    interest
Investment Climate
Stock values v. Corp.Profits, 1950-09 (Avg = 1.8; Current =1.2)


4.5

    4

3.5

    3
                              Carter begins
2.5

    2

1.5

    1

0.5
                                                                  Clinton begins



   Graph profiles S&P divided by Corporate Profits in billions
Value of $ vs Farm/nonfarm earnings, 1973-2008

                                                         4.5%
                    125.0
                            Value of dollar
                            Farm to non-farm e arnings   4.0%




                                                                Ratio farm to non-farm earnings
                    105.0                                3.5%


                                                         3.0%
  Value of dollar




                     85.0
                                                         2.5%


                     65.0                                2.0%


                                                         1.5%
                     45.0
                                                         1.0%


                     25.0                                0.5%
                        73

                        76

                        79

                        82

                        85

                        88

                        91

                        94

                        97

                        00

                        03

                        06
                     19

                     19

                     19

                     19

                     19

                     19

                     19

                     19

                     19

                     20

                     20

                     20
Bullish on Agriculture, Energy & Stock Market: Long
term
 Fast growth for emerging economies (China,
  India): Food & energy demand income elastic (e.g.
  income up 8%, food demand up 12%)
 Cheap value of dollar (makes U.S. food & energy
  more competitive abroad): U.S. trade deficit,
  budget deficit, higher inflation.
 Biofuels & alternative fuel production: wind farms,
  ethanol.
 S&P will rise by more than 20% (for next 2 years)
  Returning to long term relationship between profits
  and S&P.
Economic Medicine:
>Make 2001 and 2003 tax cuts on
dividends & capital gains
permanent
>Reduce Gov. spending to less than
20% of GDP
> Reject lifting the cap on
taxable social security wages
>Artificially supporting the
dollar is a losing proposition
Jobs
The Mainstreet Economy
 A monthly survey of community bank CEOS
 Colorado, Illinois, Iowa, Kansas, Minnesota,
    Missouri, Nebraska, North Dakota, 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
                    The Mainstreet Economy
             (index over 50 indicates expansion)

                            Oct-08   Sept. 2009    Oct. 2009
Area economic index          34.4       36.5         37.5
Loan volume                  50.8       49.3         42.4
Checking deposits            59.8       61.9         61.0
Certificates of deposit      65.0       50.1         51.7
Farmland prices              60.5       41.1         43.0
Farm equipment sales         47.2       38.6         36.7
Home sales                   29.0       42.7         46.7
Hiring in area               35.8       27.0         35.6
Retail business              28.3       32.8         36.7
Confidence index
                             27.2       43.5         58.7
                                         Rural Mainstreet Economy, '07-'09

100                                                                                                                   100

                                                   Economy   Farm equipment sales        Farm land prices
90                                                                                                                    90


80                                                                                                                    80


70                                                                                                                    70


60                                                                                                                    60


50                                                                                                                    50


40                                                                                                                    40


30                                                                                                                    30


20                                                                                                                    20


10                                                                                                                    10


  0                                                                                                                   0
        7              7            07         8                                     9                            9
      '0             '0        .'            -0                                    -0                           -0
   n.           ay           pt           Jan                                   Jan                           ep
Ja          M              Se
                                                                                                            S
      Other Banker Survey Outcomes, Sept. & Oct.
      2009
   Bank CEOs expect holiday retail sales to shrink by 1.5
    percent from last year.
   Over three fourths of bankers support an extension
    and/or expansion of the tax credit for first time home
    buyers.
   Six of ten bankers report their FDIC premiums are up
    more than 250 percent from last year.
   More than 52 percent of bank CEOs reported that
    farmland prices have declined while only 8 percent
    indicated an increase over the past 6 months.
        The Regional Economy:
    Survey of Purchasing Managers&
           Business Leaders




 A Partnership Among Creighton, and State
       Supply Managers Associations
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
                 Business Conditions Index, 2003-09
80


70


60


50


40


30                                                                        U.S.               Mid-America


20
                                                                                                                                       9
           '03         .   '0
                              3
                                          '0
                                               4
                                                        '0
                                                           4        '05                '06                            '08         . '0        -0
                                                                                                                                                9
      ch            pt                 c.            ne          n.                ril                           ch             eb          ep
 ar              Se               De               Ju          Ja                Ap                         ar              F              S
M                                                                                                          M
  Prices Paid Index, 2003-09

105

 95

 85

 75

 65

 55

 45

 35                                            U.S.
                                               Mid-America
 25

 15




                                                                  9
        3




                         4




                                     04
                         3




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                                       4




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        Important indicators: keep an eye on:
   The employment report for October will be released on Nov. 6. I expect the report
    to show job losses (above 200,000) for a 24th straight month and an increase in the
    unemployment rate by 0.2% (www.bls.gov).
   First time and continuing claims for unemployment insurance. Released every
    Thursday. First time claims above 550,000 will be bearish. I expect this number to
    drop below 500,000 by December 2009 (www.doe.gov ).
   The first and most important indicator for November will be the Mid-America and
    U.S. October PMIs released Nov. 2nd . ( www.outlook-economic.com and
    www.ism.ws ). A drop in the national will be bearish (under 50 will be very, very
    bearish).
   Keep an eye on the yield for 10-year U.S. Treasuries. If this yield approaches 4.0%
    within the next month the Fed will be “between a rock and a hard place.” The
    rapidly rising yields reflect: 1) Concerns regarding the large increases in the U.S.
    budget deficit, 2) Rising inflation expectations (but not a large factor yet) and 3)
    Investors reduced the risk perceptions and are pulling money out of treasuries and
    putting it into equity markets (a good thing) (http://finance.yahoo.com ).
   Investors will be closely watching retail sales to detect a weak consumer. A weak
    October reading will be a bad signal for the holiday buying season. Released
    November 16 (www.census.gov).
  Reducing Investment Risk

 Prepare for tax increases-municipal bonds
 Prepare for higher inflation--TIPS
 Prepare for higher interest rates—stocks
 Prepare for slower U.S. growth—foreign stocks
 Prepare for wage & price controls in healthcare
 Prepare for volatility and downturn in the value of
  the dollar---food & global manufacturers

				
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