I can hardly believe we are already into the second half of 2015! So far, we have seen a severe winter followed by droughts and floods which all showcase Mother Nature as a primetime economic player yet again.
Charles Dickens writes in the opening lines of A Tale of Two Cities, “It was the best of times, it was the worst of times.” As one crisscrosses the United States (U.S.), Dickens’ famous line closely describes the country’s overall economic state. The “flyover states,” as coined by Wall Street and Washington D.C. insiders, find their economies moderating.
Agriculture and rural areas predominant in these states are aligned with emerging nations’ economies which are frequently export driven. With abundant oil production and healthy inventories, energy-producing states such as North Dakota, Ohio, Pennsylvania, Oklahoma, Louisiana and Texas find some of their regional economies suppressed. The Organization of the Petroleum Exporting Countries (OPEC) is increasing production. However, OPEC’s ability to continue at current production levels and maintain long-term economic viability will be tested. Thankfully, technology and innovation in the oil and gas sectors have lowered the time and the cost of production which benefits the consumer.
The agriculture economy, specifically grain and row crop sectors, is challenged by supply and demand imbalances, a strong dollar, and uncertainty in the biofuel mandates. Manufacturing related to export markets is also currently challenged by the strong dollar resulting in inventory buildups and possible layoffs. Alternatively, as if stuck in slow motion, the coastal and southern economies are finally accelerating away from the 2009 great recession. In May of this year, the U.S. economy gained 280,000 new jobs. Any number above 225,000 is bullish for the employment picture. Consumers have benefitted from a reduction in oil prices, which is linked to reduced fuel costs. On average, the national lead economic indicators point to a strong economy over the next three to six months.
Another factor to examine on the general economy dashboard is consumer sentiment. As published in the University of Michigan’s 2015 Survey of Consumers, consumer sentiment for June is 96.1, the highest level since January. Any number above 90 is considered strong and below 80 is weak. The recent number indicates a strong potential for consumer spending which is a driving force for economic growth.
As a personal side note, I have noticed commercial flights are at full capacity. I suggest formulating an alternate plan when traveling by air because finding substitute flights with open seats is extremely difficult and somewhat tricky. Overcrowding may be an indicator of the consumer’s willingness to spend more on travel, or perhaps just the airlines trying to maximize profit!
Overall, the United States economy at halftime will grade out strong for the coasts and in the southern part of the country. Weather will of course, continue to play a large role in our overall economic state. In any scenario, however, a sense of caution is prudent in the flyover states.
For more from Dr. Kohl, follow his "Road Warrior" blogs.