the us economy: an update dave shideler larry d. sanders april 2013 oklahoma state university
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THE ECONOMY, POLITICAL CHANGE & THE NEXT FARM BILL
The US Economy:An Update
Dave ShidelerLarry D. Sanders
April 2013Oklahoma State University
22
Agricultural Industry,
Agribusiness, Rural America
Global Markets
Jobs
Energy
Federal Budget
Capital
Macroeconomy & agriculture--linkages
3
HOW THE ECONOMY WORKS…
4
JOBS & THE ECONOMY…
Jobs: http://tipstrategies.com/archive/geograp
hy-of-jobs/
5
7.7%7.8%
7.6%
Net Farm Income & Direct Government Payments (1991-2013F)
020406080
100120140
1991
1993
1995
1997
1999
2001
2003
2005
2007
2009
2011
2013
net farm income
govt payments
NFI-G
6
$ Billion
$128.2 b.
$10.9 b.
$117.3 b.
Note: OK producers received $110.8 mil. in govt. payments in 2011& $1.5 bil. in NFI; G/NFI = 7%.
US AGRICULTURAL TRADE BALANCE, 1991-2013 ($MIL/FY; AGRICULTURAL PRODUCT ONLY)
0
20000
40000
60000
80000
100000
120000
140000
160000
Series2 Series1
$143.5 b.Exp.
$117 b.Imp.
$26.5 b.surplus
http://www.fas.usda.gov/gats/BICOReport.aspx
82006 2007 2008 2009 2010 2011 2011
-
20,000,000
40,000,000
60,000,000
80,000,000
100,000,000
120,000,000 US Exports of Agricultural Products
Pacific/Asia
Canada/Mexico
European Union
Mideast
Central, S.Ameria, & Caribbean
Year
Thousands o
f D
ollars
2012
9http://www.oilnergy.com/1gnymex.htm
SEQUESTER & BUDGET OVERVIEW
CURRENT MACRO-ECONOMIC POLICY SITUATION 2012 “fiscal cliff” successfully
avoided/delayed Compromise found half of $1.2 trillion in deficit
reduction Pushed sequester of $600 bil. forward to March
New 2013 “dual cliff” Debt ceiling
Artificial Congressional requirement to increase debt ceiling to allow gov’t to pay bills
Complicated with Budget Continuing Resolution (CR) Sequestration to find remaining $600 bil—Began
March 1 Half defense spending; half other program
spending; Some programs are exempt (SS, Medicare, Medicaid, SNAP, etc.)
CONGRESS ATTEMPTS TO “KICK THE CAN DOWN THE ROAD” … AGAIN
Congress voted earlier this year to keep $16.4 trillion debt limit but won’t apply until mid-May
Passed HR 933 Continuing Resolution (CR) 26 Mar & signed into law Leaves sequester $85 bil. cuts in place Includes special funds for a few programs
including meat inspection & military college aid
Funds Federal govt thru Sep. (no more Mid-May deadline)
Obama budget is different from these actions
SEQUESTRATION: REFERENCE POINT…
If you’ve heard some pundit/politician say “the current crisis of sequestration is silly, stupid and unnecessary”, they are generally correct.
If you’ve heard them say “this will have catastrophic impacts on the general economy”, they are generally incorrect.
If you’ve heard them say “this will have little/no impact on the economy”, they are generally incorrect.
SEQUESTRATION During fiscal negotiations in 2011, a compromise
was reached to allow Congress & the President time to find cuts/revenues to reduce the budget deficit
Part of the agreement voted on & passed by both Houses was a backstop that, if they did not find solution, sequestration would impose automatic across-the-board cuts
The idea was they would surely do anything to avoid the sequester
The deadline for sequestration was subsequently extended to March 2013
Sequestration is now in effect & cuts are occurring
SEQUESTRATION EXEMPTIONS
“Most exempt programs are mandatory,and include Social Security and Medicaid; refundable tax credits to individuals; and low-income programs such as the Children’s Health Insurance Program, Supplemental Nutrition Assistance Program, Temporary Assistance for Needy Families, and Supplemental Security Income. [child nutrition programs, commodity supplemental food, & certain conservation programs*]
Some discretionary programs also are exempt, notably“all programs administered by the Department of Veterans Affairs. Also, subject to notification of Congress by the President, military personnel accounts may either be exempt or reduced by a lower percentage.”
Special rules may also limit cuts to selected programs, such as Medicare. (CRS, Jan 2013)
WHAT MUST BE DONE THIS YEAR…
$85 billion in cuts required; half from defense; half from non-defense federal programs
Across-the-board Noted exemptions, make cuts in non-
exempted programs deeper Expect 5-10% cuts in non-defense
programs if sequester goes into effect Details unsure; awaiting OMB
instructions
PRELIMINARY OMB ESTIMATES OF FY13 CUTS…
Funding category
Defense Nondefense
Nonexempt discretionary
9.4% 8.2%
Nonexempt mandatory
10% 7.6%
Medicare & mandatory selected health programs
n/a 2%
CRS, January 2013
2012 Federal Budget (Billion Dollars)
Mandatory, 2,079DOD/DHS/VA,
850
Interest, 340
Other, 490
2011 Budget Breakdown (Billion Dollars)
0 5 10 15 20 25 30 35
SBA
FAA
FBI
EPA
Commerce
Interior
Labor (no UIB)
Farm Programs
Energy
Justice
EXEMPTIONS FOR SELECTED USDA PROGRAMS…
SNAP, Child nutrition programs, commodity supplemental food programs
Programs supported by CCC: “…commodity loan contracts entered into before the sequestration order shall not be reduced.”
“it is unclear whether the Section 256 special rule applies to any of the more recent farm commodity, conservation, and other programs that are funded by the CCC.” (CRS, January 2013)
Farm Credit Operating Expenses Fund & Insurance Fund, Biomass Energy Development, FCIC Fund
USDA SEQUESTER CUTS—REDUCE FARM BILL SPENDING BY OVER $6 BIL.
8.5% cut in direct pay (MILC, SURE, NAP) Cuts in conservation programs—technical
assistance Suggested furloughs NASS suspends some reports Also, moving some WIC applicants to
waiting lists because of cuts Ag research cut Rural housing cut Farm loans cut
21
OTHER AGENCIES
Furloughs/reduced hours/reduced service: IRS, EPA, HUD, NOAA, NPS, FAA
RURAL PROGRAM IMPACTS Safety Net and Income programs are exempt
Includes Medicaid, SNAP, CHIP, Child Nutrition Benefits, TANF, SSI, Social Security programs, Veterans Benefits
Loan obligations made prior to March 1, 2013 under Low-Rent Public Housing
Health Care cuts capped at 2% Medicare service provider payments reduced by 2% Community health centers Indian Health Services
Federal Payroll associated with mandatory funds (military payroll is at the discretion of the President)
Programs subject to obligation limitations in appropriation (e.g., Federal Hwy aid; Hwy Traffic Safety Grants; Motor Carrier Safety Grants, Ops & Progs; Grants-in-Aid for Airports)
23
24
THE FLAW IN AUSTERITY ARGUMENT
Reinhart & Rogoff 2010 report that “90% debt/GDP” caused dramatic decline in economic growth quickly embraced by conservatives/others as the proof for dramatic budget cuts
Recent study shows their study flawed, & no certain correlation between ratio & economic growth
Many economists were suspicious of the study from the beginning Not because of data errors, but because of their premise. In times of crisis when the private sector shrinks, the only way
to grow the economy is to temporarily expand government spending.
The debt will be repaid in future years because of the healthier economy repaying its share of taxes.
Reinhart/Rogoff & their supporters continue to disagree w/that, without any factual basis.
25Source: US Bureau of Economic Analysis, 2009 (www.bea.gov) http://zfacts.com/p/318.html
US Budget Surplus/Deficit ($bil.)
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009 20
120
120
1
-1800
-1600
-1400
-1200
-1000
-800
-600
-400
-200
0
200
400
-330
-225-177
-151-50
70
124
232 268
-157.8
-374-413
-331
-314-162
-1173
-1588 -1537
-1550
-1300
?
26
http://www.businessinsider.com/imf-world-gdp-growth-forecast-2013-map-2013-4?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Money%20Game%20Chart%20Of%20The%20Day&utm_campaign=Moneygame_COTD_041613
27
28http://climate.ok.gov/index.php/climate/climate_trends/precipitation_history_annual_statewide/CD00/prcp/Annual/oklahoma_south-central_u.s
29
WEATHER PROJECTIONS
Short-intermediate term: Climatologists predicting
3-15 years of ongoing drought pattern in OK- TX region 2011+
Longer term: Continued debate about
global climate change Risk & uncertainty
require adaptation and mitigation options & consideration of public & private investment
If govt. isn’t funding, what will the private sector be likely to do?
OKLAHOMA ECONOMY UPDATE
LQ%chg, 2002-
11%chg, 2010-
11Total Output 16%* 1%
Agriculture 1.38 -12% -15%Mining 5.78 4%* 3%Utilities 1.33 6%* -8%Construction 1.01 -11%* 0.3%*Manufacturing 0.91 37%* 4%Wholesale Trade 0.88 18%* 6%*Retail Trade 1.08 21%* 2%*
Transportation 1.11 25%* 0.1%Information 0.61 19% 2%Finance 0.59 21% -0.1%
Real Estate 0.77 15%* -2%*Prof. & Tech. Svc 0.58 24% 4%
Management 0.60 12%* 0.4%*Admin & Waste Svc 1.03 36%* 2%Educ. Svc 0.50 -3%* -1%Health Care 0.97 33%* 4%*
Arts & Rec 0.61 60%* 6%*
Accomm. Svc 0.88 20%* 3%Other Services 0.98 -13% -1%Government 1.37 7%* -1%
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UNEMPLOYMENT RATES BY COUNTYSOURCE: BLS,HTTP://WWW.BLS.GOV, ACCESSED 3/6/13 @ 3:30 PM
Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec Jan
Feb
Mar
Apr
May Jun Jul
Aug
Sep
Oct
Nov Dec
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
0%
2%
4%
6%
8%
10%
12%
Metropolitan Micropolitan Non Core State US
UNEMPLOYMENT RATESSOURCE: BLS,HTTP://WWW.BLS.GOV, ACCESSED 3/6/13 @ 3:30 PM
EMPLOYMENT GAINS AND LOSSESJob Gaining Industries
(Top 5 in descending order of jobs gained)
Job Losing Industries(Top 5 in ascending order of
jobs lost)
Annual Change (Dec ‘11 – `12) Annual Change (Dec ‘11 – `12)
Accommodation & Food Services (6,700; 5.2%)
Health Care & Social Assistance (-2,600; -1.4%)
Wholesale Trade (5,400; 9.0%) Prof., Scientific, & Tech. Services (-1,400; -2.2%)
Retail Trade (5,400; 3.2%) Information (-500; -2.1%)
Manufacturing (5,000; 3.8%) Other Services (-200; -0.3%)
Local Government (4,600; 2.3%)
Source: Compiled from OESC Economic Research and Analysis, “Oklahoma Employment Report,” December 2012
GROSS RECEIPTS TO STATE TREASURY
Source: “Gross Collections Dip in February,” News Release from State Treasurer Ken Miller, March 4, 2013. http://www.ok.gov/triton/modules/newsroom/newsroom_article.php?id=222&article_id=11052
Gross Receipts to State Treasury
Source: “Gross Collections Dip in February,” News Release from State Treasurer Ken Miller, March 4, 2013. http://www.ok.gov/triton/modules/newsroom/newsroom_article.php?id=222&article_id=11052
Source: “Gross Collections Dip in February,” News Release from State Treasurer Ken Miller, March 4, 2013. http://www.ok.gov/triton/modules/newsroom/newsroom_article.php?id=222&article_id=11052
HOW USDA DEFINES RURAL
Currently, “rural” used as an eligibility criteria only for Rural Development programs
Rural defined as any area other than:i. A city or town that has a population of greater than
50,000 inhabitants;ii. And, any urbanized area contiguous and adjacent to
a city or town described in clause i. Exceptions1. Water and Wastewater Grants/Loans require
population to be no greater than 10,0002. Community Facilities program require population to
be no greater than 20,0003. Housing programs limited to 20,000 population in
nometro, 10,000 population in metro counties
HOW USDA DEFINES RURAL (CONT’D.)
“Rural in Character” exception (require Undersec. approval):
Urbanized area, as defined above, that has 2 points more than 40 miles apart AND is not contiguous with a city or town of population greater than 150,000 inhabitants;
And it is within ¼ mile of an eligible rural area. “Grandfather” clause (Housing only):
An area designed as “rural” prior to 1990 but became “not rural” due to the 1990 or 2000 Censuses is able to maintain its rural status until the 2010 Census data is available, and the population does not exceed 25,000, the place is still ‘rural in character’, and it has a serious lack of mortgage credit for lower and moderate-income families
Proposed definition:Anywhere except an incorporated municipality or unincorporated area greater than 50,000 total population Allows the “Grandfather clause” to expire Proposal to give preference in the
evaluation criteria to smaller places
Unrelated, but not:Cotton County is now included in the Lawton, OK Metropolitan Statistical Area (i.e., it is now a METRO county)
41
RFS & BIOFUEL ADDENDUM
ENERGY EQUIVALENT , AVERAGE FUEL PRICES (JULY 2012)
Gasoline $3.52 Diesel 3.36 CNG 2.05 E85 ethanol 4.58 Propane 3.64 B20 biodiesel 3.50 B99-B100 4.16
US-DOE, Clean Cities Alternative Fuel Price Report, July 2012.
QUANTITY OF FEEDSTOCK REQUIRED FOR A2,000 TONS PER DAY BIOREFINERY
350 days of operation per year
700,000 tons of biomass per year
17 dry tons per truck
118 trucks per day
24 hours per day
4.9 trucks per hour ? cost of road
maintenance
Slide courtesy of F. Epplin 2012
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