Wednesday, February 13, 2008

A recession for all...

I have sensed a touch of schadenfreude in a few grain farmers as prosperity rains down in the form of record prices. Much of the country teeters on the brink of harder times and, well,... we aren't.

But they probably had it coming. At any rate, the slowdown is not being shared equally.

In Florida, Nevada and Arizona the story is similar: plunging house prices, rising foreclosures and disproportionate increases in unemployment. Not all is gloomy: in these states, as in the rest of America, strong global growth and the weak dollar have buoyed export industries and boosted tourism. (Orlando International Airport, the gateway to Disney World, saw a record number of passengers last year.) But these positives have failed to counter the drag from housing and weaker consumer spending. Mark Zandi, chief economist at Moody's, reckons that all four bubble states, along with Michigan, are already in recession. Together, he points out, they make up 25% of America's GDP.

Move inland from the coasts and away from the industrial Midwest, however, and the picture, for now, looks less grim. A belt running from Texas north-west across the Great Plains and the Rocky Mountains has been doing particularly well, thanks to soaring exports and high commodity prices. Ethanol subsidies and “agflation” have brought a bonanza to the farm states. Agricultural exports are up almost 20% compared with 2006, while farm incomes are growing smartly. Extractive industries are booming. Miners find it worthwhile to dig for copper in Butte, Montana, even though the operators say it is the worst-grade ore in the world. These states now have some of the lowest unemployment rates in the country. With far less of a housing boom, they have also avoided the worst of the subprime bust.

For politicians from Butte to Topeka, the question now is whether this good fortune will continue. Regional disparities, both in good times and bad, are no surprise in a vast continental economy. During the 1991 recession California and New England suffered disproportionately, thanks to banking crises and defence cutbacks. The 2001 downturn hit states with high-tech hubs hardest at first, while its hangover lasted longest in the industrial Midwest. This time a lot depends on the rest of the world. If emerging economies remain resistant to an American recession and commodity prices stay strong, America's exporting regions will benefit. [More]

Even though it was a mirage, farmers are no longer estranged from the rest of the economy. And economic pain will filter down to us. The most profound connection won't be from GDP either.

Virtually all producers now have family and a majority of their friends outside agriculture. Our children are feeling the squeeze, our brother worries about his job, our golfing buddy just lost his health insurance - the ties are personal, not just financial.

So while we can feel the bullet whistle by, it is likely striking closer to the heart than we think.

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