The recession may be over, but it will be a lingering threat for some time to come and consumer income is a factor to watch, says Ed Siefried, chief economist for M.Rae Resources Inc., a community bank investment firm. Siefried, a professor emeritus of economics and business at Lafayette College, spoke this week at The Executive Program for Agricultural Producers
Siefried believes it is important for farmers to understand consumer spending and monitor what happens in the general economy because it directly affects farm prices and farmer decisions for building their businesses.
“Consumer income affects crop prices. Not as much as weather. Not as much as supply, but it has an effect,” he says.
The recession is lingering as the housing industry fights to come back, says Siefried. “The U.S. has never had a sustained recovery unless we’ve had a recovery in housing,” he adds.
Part of the reason for lackluster housing starts is that a “lite economy” has taken hold, he says. The savings rate was 4.0% in first quarter, 5.9% in 2nd quarter and 5.5% in the 3rd quarter of 2010. A higher savings rate is good news and bad news. Households are repairing their balance sheets for the future, but the paradox of thrift means there is less spending, fewer jobs.
New monetary policy initiatives, such as quantitative easing (QE2), should help stimulate spending as it pushes down longer term rates.
“QE2 is going to create hundreds of thousands of jobs and that is going to boost income. It will keep your crop prices high. That you can plan for, but the weather and crop yields, you can’t. Monitor consumer spending and the general economy and try to build your business on the things you can plan for,” Siefried adds.