According to a monthly survey of economic conditions in the Mid-American and Mountain regions of the U.S., economic confidence is growing in spite of high unemployment and inflationary fears, says Ernie Goss, the Jack MacAllister Chair in Regional Economics at Creighton University in Omaha.
But challenges still await the economy, Goss says. “I expect rising inflation and federal borrowing to push interest rates up significantly in 2011.”
According to Goss, his monthly survey indicates that business confidence in January rose to the highest level in almost six years in the Mid-American region. The survey’s Business Conditions Index points to healthy growth for the first half of 2011. However, while export orders show a healthy upturn, Goss says the inflation gauge is climbing. “The region will continue to expand at a healthy pace, but with rising inflationary pressures at the wholesale level for the first half of 2011,” he says.
The picture is equally positive for the Mountain region. Economic indicators point to healthy growth for the first half of the year, driven by higher energy prices and upturns in international sales. However, inflationary pressures will continue.
For the ag economy, Goss says producers have the Fed to thank. “No one inside or outside of Washington has done more, unwittingly, for agriculture than Federal Reserve Chairman Ben Bernanke,” Goss says.
“Since bailing out (my term) Bear Stearns in March 2008, the Fed, under the guidance of Bernanke, has expanded the nation’s money supply by 145%. This has had the impact of lowering the yield (interest rate) on short-term Treasury bills from 3.27% just before the recession began to today’s rate of 0.15%,” he says. “And due to the Fed’s unprecedented intervention in the nation’s long-term U.S. treasury market (via QE1 and QE2), the rate on the 10-year U.S. Treasury has plummeted from slightly over 4% to just under 3%.”
This action by the Fed has reduced the value of the dollar and stimulated demand for commodities, especially food, Goss says. “For example, over the past year, prices have soared by 18% for all farm products, by 43% for corn and 50% for all grains. The Fed and Bernanke must take credit, or blame, for skyrocketing farm prices, farm income and farmland values.”
Goss wonders if this is the next bubble to burst or if prices for non-food items will get on board and begin to rise rapidly as well. “I argue that it is a little of both,” he says. “While Bernanke will never assume the liability or credit for stimulating farm income, he has served up a healthy expansion for farm country.”
For more information and complete survey results, go to http://www.creighton.edu/business/economicoutlook/index.php.
--Burt Rutherford is BEEF Senior Editor