The Federal Reserve’s action to raise interest rates and a negative second quarter GDP number have many experts saying the U.S. is in recession. While others argue its not because of factor like the low unemployment rate. So what are some of the trends we’re already seeing and what’s likely down the road?
The U.S. has had two negative quarters of GDP. So that meets the textbook definition of a recession right? Actually, the National Bureau of Economic Research makes the call.
Tom Bailey, Rabobank Consumer Food Team Sr. Analyst, says, “They’re really looking for more signs of economic pain than what we’re seeing to make that call.”
And with low unemployment he says that may be an offset. Despite that consumer spending is slowing and shifting, even for food. And historically consumers also trade down at the grocery store especially from high cuts of meat to lower alternatives like ground beef.
Jackson Takach, FarmerMac Chief Economist, says, “So I expect to see some maybe a little bit of a drag in the livestock sector, a little bit of a drag in the alternative proteins and a little bit of a drag in some of the fruits, nuts and higher order goods.”
Restaurant sales are already down 10% which Bailey says is hitting the dairy sector with cheese sales trailing down. “And we’ve seen our Class 3 milk prices, which is the price used to make cheese is down about 10% since June.”
Economist are also keeping an eye on a possible global recession as it can slow demand, especially if the U.S. dollar becomes a safe haven for investors. Takach says, “As the dollar strengthens commodity prices tend to fall and we also tend to sell less so it’s a double whammy effect on ag producers.”
At the same time both experts see energy prices continuing strong and higher input prices but tight global supplies for especially grains, should keep commodity prices intact. The good news as well is agricultural is generally more buffered from recession and even the current CPI and GDP data don’t suggest a deep or sustained recession.
