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February 28, 2006

Health care results

Rising health care costs continue to be an issue both for families and for the government. But N.C. State University's Mike Walden says that not everyone thinks these higher costs are a problem.

"They say this for two reasons, and I know this is against the conventional wisdom. But number one, they say that it does actually make sense for a society as it becomes richer, wealthier, that it will want to spend more on health care," explains Dr. Walden, an economist with the North Carolina Cooperative Extension Service.

"That is to say we are in total a much richer country today than we were, say, 30 years ago -- total as well as on a per person basis," he says. "And there's no rule that says we have to spend the same percentage of that wealth on health care. In fact there would be a lot to suggest that people would want to spend more. So that's point number one."

"Point number two is that we want to look at, yes, we may be spending a lot on health care, but what are we getting back in return?" Walden adds. "Some economists who've looked at that say we are getting a lot back in terms of prolonging life, treating illnesses and injuries.

"So you want to look at that payoff, and that payoff may be very high."

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February 27, 2006

The Bernanke Era

With Ben Bernanke having taken over as chairman of the Federal Reserve from the retiring Alan Greenspan, who headed the Fed for 18 years, economist Mike Walden says we can expect an interest rate hike in the short-run and more openness and clearer speech overall.

"I think, first of all, we should expect probably at least one more hike in interest rates," says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service.

"Some economists think that will be needed for the economy; others think it will be needed to show the world that Bernanke is an anti-inflationary chairman of the Fed, and the way the Fed demonstrates that is to raise interest rates," he explains. "But most economists think we are not going to have an entire year of rate hikes -- but maybe one or two more.

"We might also look for more openness on the part of the Fed," Walden adds. "Bernanke has said he wants the Fed to communicate more to the world, to the country, about where the Fed wants to take the economy.

"And then perhaps we will see clearer speech. Greenspan was, of course, known for talking but not really saying anything. He spoke in code. I think we might expect clearer speech from Bernanke."

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February 24, 2006

North Carolina jobs in review

Data about North Carolina jobs in 2005 are in. How did we do? Economist Mike Walden says, "not bad."

"If you look from December of '04 through December '05, the state was up on net 100,000 -- that's 1.7, 1.8 percent of our job base," says Dr. Walden, a professor and extension specialist at N.C. State University.

"We, of course, had some sectors of our economy that added jobs, some that didn't," he says. "The biggest gainers were in areas like professional and business services, health and education services, and government -- although I should quickly say that a lot of those new government jobs are teaching jobs. Teachers are classified as government employees in North Carolina.

"The manufacturing sector: We still saw losses there. And also the tech sector is still struggling.

"But I think, all in all, 2005 is going to go down as a good job growth year for North Carolina."

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February 23, 2006

Slower growth

The preliminary estimate for the nation's economic growth rate in the fourth quarter of 2005 was only 1 percent, and that's far less than in the rest of the year. But Dr. Mike Walden says most economists don't think that signals bad news for 2006.

"We think there are some special factors at the end of 2006 that really made for lower growth," says Walden, an economist with the North Carolina Cooperative Extension Service at N.C. State University.

"We had a big drop off, for example, in auto sales. We had a drop actually in federal spending," he says. "And we expect both of those as well as other factors to rebound in 2006.

"In fact in January we already saw high levels of auto sales," he adds. "And in fact there are some economists who are talking about very, very rapid growth in the early part of 2006, primarily due to much greater spending on Katrina cleanup."

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February 22, 2006

When outsourcing doesn't pay

Outsourcing is a big concern in the economy today. Many people think it's just a matter of time until all the good paying jobs leave the country. But N.C. State University's Mike Walden says that a "closer examination ... shows that outsourcing really doesn't pay for all businesses."

"It works best for a company that has standardized products they are making, that has stable demand and where their labor costs are high maybe 50 or 60 percent of their total cost," says Dr. Walden, an economist with the North Carolina Cooperative Extension Service and professor in the Department of Agricultural and Resource Economics.

"It doesn't work as well for products that are unique, that have unique features; where demand is unstable so you have to be in close contact with your customers; and where labor costs are low -- maybe 25 percent or less," he adds.

"Other factors to consider that may work against outsourcing: the instability of a foreign country's political system, inadequate laws and inadequate infrastructure."

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February 21, 2006

Optimism on jobs

Probably the most important economic statistic for most households is job availability and growth, and N.C. State University economist Mike Walden says there's reason to be optimistic about job growth in the coming year.

"We are seeing a lot of business investment. Businesses are investing in new equipment; they are investing in new technology," explains Walden, a specialist with the North Carolina Cooperative Extension Service and professor in the Department of Agricultural and Resource Economics.

"The deal here is that we see a very close correlation over time to this investment by businesses, in equipment and technology, and their workforce. That is to say, when business are buying new equipment, when they are expanding, when they are purchasing modern technology -- that usually means that in a couple months they will be adding employees," he says.

"So if you use this as a basis, we could see perhaps 2.5 million net new jobs created in the country in 2006, which would be more than in 2005."

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February 20, 2006

Income convergence

For decades, North Carolina and most southern states had incomes much lower than for the nation. But N.C. State University's Mike Walden says that's changing.

"If we go back not too far, 1970, the average person in North Carolina had an annual income about 80 percent of the national average. Today it's over 90 percent," says Dr. Walden, an economist with the North Carolina Cooperative Extension Service.

"And some people say that when you account for the lower cost of living here in North Carolina than the nation, we are probably at the national average," he adds.

"So our incomes in North Carolina on average have certainly converged toward national incomes, and this is based on both people getting wage increases as well as the occupational mix of our state changing. We have many more high paying jobs today than we did 30 years ago.

"This is really a central idea in regional economics," Walden concludes, "that over time high- and low-income areas will get closer together."

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February 17, 2006

The product cycle

New products are being introduced and made all the time. And you're most likely to see these products being made -- at least initially -- in regions with a highly skilled labor force, says N.C. State University economist Mike Walden.

"What we typically see is that new products are made in regions of the country or the world where there are a lot of highly educated, skilled folks. They usually are highly paid," says Walden, an economist with the North Carolina Cooperative Extension Service and professor with the Department of Agricultural and Resource Economics. "That's the kind of labor base you need to innovate.

"So you have the new products begun there. They are often manufactured there, too, initially in order to kind of work out the kinks," he adds. "Then, however, when the manufacturing of the products becomes standardized and very simple -- that's when you often see the production migrate, and migrate to lower-wage regions where the companies can take advantage of lower wages and lower costs.

"And we've seen this kind of pattern in such diverse industries as textiles, which moved from New England
to the southern states, now moving offshore; the auto industry; and computer components.

"And what this really says is for those regions that are innovative -- high skilled and high cost -- they have to continue to innovate."

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February 16, 2006

What causes economic growth

N.C. State University's Mike Walden discusses one of the most central questions in economics: What causes some regions to grow faster than others?

"A lot of research has been done as you might expect, and there are, I think, some fairly definitive conclusions," says Walden, an economist with the North Carolina Cooperative Extension Service.

"At the top of the list is available labor. A business is attracted to a region if there is labor they can hire and that labor is well-trained.

"And this does not necessarily mean cheap labor: Businesses are willing to pay more for labor if that labor is correspondingly more productive.

"Also, businesses need power: They need electricity. They need natural gas. They need utilities like water, sewer. They need transportation, so things like interstates and airports are important," he adds.

"And then on the tax front, certainly businesses would not like to pay as many taxes as somewhere else but they don't necessarily want low taxes.

"If a business can see that the taxes are going to things that they like -- education, public safety, transportation -- then actually a higher tax base, but funding these necessary services, may actually be better at attracting business."

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February 15, 2006

Baby boomers' inheritance

It's estimated that today's retirees are the wealthiest on record. Dr. Mike Walden examines whether that means that their children, the baby boomers, will get a large inheritance.

"In terms of the wealth of the retirees today -- it is a record level. And some have speculated that well what this means for their children is that their children can kind of float and ease into their workplace because they are going to inherit a lot of money from their parents." says Walden, an economist with the North Carolina Cooperative Extension Service at N.C. State University.

"Well, analysts who have looked at this more closely find that although there is a lot of wealth with today's older generation, an emerging older generation, you have to recognize the fact that retirees are living longer, so they are going to use up more of their wealth," he says.

"Also some of their expenses -- particularly health care -- are higher than in the past.

"So I think the general conclusion here is that boomers may not inherit as much as they have in the past -- so they still need to save toward their retirement.

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February 14, 2006

Why education matters

We frequently hear that regions with better-educated workforces do better economically. Dr. Mike Walden explains why education matters.

"We don't have a complete answer, but economists think a lot today has to do with technology," says Walden, a specialist with the North Carolina Cooperative Extension Service.

"Computers for example: Computers now can do things that are routine -- anything that follows a rule. And what this has done is it has freed up more people to focus on more complex tasks -- tasks that require reasoning, analysis and decision making. And quite frankly you need an education for that.

"Take one example -- take the auto mechanic business," he adds. "In the old days someone would learn to be an auto mechanic by maybe tinkering around on the farm or in their garage. Today auto mechanics have to be well trained: They go to school. They go to workshops. They have to read manuals. They have to read computer analyses.

"So all that requires education, knowledge," he concludes. "And ... that viewpoint is pervasive throughout our economy."

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February 13, 2006

Successful financial rules

It's the time of year when people are making resolutions and planning. N.C. State University economist Mike Walden suggests a few rules -- "common-sensical," he calls them -- for securing financial success.

"Number one would be to save money, and preferably start saving as early as you can in your life," says Walden, a specialist with the North Carolina Cooperative Extension Service. "What that does is it lets you take advantage of the power of compound interest.

"Number two, get a good education. If you are not in school and you don't have the kind of job that you want, try to go back to school and get that education. Education pays in today's economy.

"Number three, try to stay healthy. Research shows that healthier people are actually better off financially.

"And in line with that try to avoid family breakups if possible," he adds. "That puts a lot of stress on individuals, and it also strains finances. Again research shows that intact families do better economically than families that have split up.

"And lastly take prudent risk. Don't necessarily avoid all risks, especially in your investments. Take prudent risks, meaning that you don't put all your eggs in one basket -- you diversify."

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February 10, 2006

Ups and downs of gas prices

If you've begun to think that gas prices rise much faster than they fall, Dr. Mike Walden says you're right. And he explains why.

"Gas prices display what economists call an asymmetric relationship. They do tend to go up faster than they fall," says Walden, a specialist with the North Carolina Cooperative Extension Service at N.C. State University. "The question then becomes, 'Why?'

"Now many people think this is all contrived by the oil companies. But really a careful analysis, I think, reveals a much less sinister reason," he says. "Here's the explanation: After gas prices have been high and they begin to come down, drivers begin to increase their demand -- in part because they want to stock up on gas in case the prices go up again.

"Now those increased purchases again increase demand, and that causes the price decline to slow. So this tends to be the reason given by economists, but, of course, there are competing explanations."

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February 09, 2006

Is the Fed almost done?

The Federal Reserve has been increasing the interest rates it controls for 18 months now, and N.C. State University’s Mike Walden says many economists think the Fed is ready to stop.


“They think that maybe we’ll have one or two more rate increases that will total about a half percentage point,” says Walden, a specialist with the North Carolina Cooperative Extension Service and professor with the Department of Agricultural and Resource Economics.

“This would bring the Federal Reserve’s key interest rate that they track up to a level that’s in line with where they’ve wanted it to be historically. Also if you look at the forecasts for economic growth in 2006, they are around 3 percent – and a lot of economists think that’s exactly where the Fed wants economic growth to be.

“So I think that we should not be surprised if in a month or two it’s announced that the Fed is
done raising interest rates,” he concludes. “And actually that would be very good because it would still leave interest rates very affordable.”

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February 08, 2006

Global growth

N.C. State University economist Mike Walden looks at the prospects for global growth in 2006.

"Europe, Canada, Mexico, South Korea -- those are all big markets for U.S. products. They are actually expected to grow faster in 2006 than in 2005," says Walden, a specialist with the North Carolina Cooperative Extension Service and professor with the Department of Agricultural and Resource Economics.

"China and Japan are expected to grow but perhaps slightly slower than in the past," he adds. "But I think overall this is a favorable picture.

"It’s important because the U.S. export market is an important market. It accounts for about 15 percent of the economy. And so if foreign countries are growing this should mean more exports and more U.S. jobs.

"So I think the lesson here is when we are looking ahead to the economy, we certainly want to think about what’s happening internally but we also want to think about what’s happening in other countries."

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February 07, 2006

How long unemployment lasts

For someone who wants to work and can’t find a job, any time spent unemployed is too long. But unemployment lasts longer for some people than for others. NC State University economist Mike Walden takes a look at how the numbers on the duration of unemployment break out.

"Certainly being unemployed any length of time is very important, but if you can get a job quickly that makes that length of time that you are out of work a little less oppressive," says Walden, a specialist with the North Carolina Cooperative Extension Service.

"That in mind, we see that about 37 percent of people who are unemployed are actually out of work ... for less than 5 weeks. And another 30 percent are unemployed for between 5 and 14 weeks," Walden says. "Now, economists call these folks the frictional unemployed. And the good news is much of their time out of work is going to be covered by unemployment insurance, and many of these folks are simply between jobs. And as the numbers indicate they get a new job rather quickly.

"Now 14 percent of the unemployed are out of work for 14 to 26 weeks. And another 18 percent for over 26 weeks," Walden adds. "We call these folks the structurally unemployed, and they are, I think, the biggest issue in the unemployment numbers because their loss of a job is probably tied to a changing job market -- for example losing a textile job and then you have to get retrained to find something else. So these are the folks that we focus on because, I think, they have the biggest issues."

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February 06, 2006

Who is unemployed

When most of people think of unemployment, they envision people who have lost their jobs. But N.C. State University economist Mike Walden explains that there are more people who constitute the unemployed.


Those who have been fired or let go from their jobs “account for about half the unemployed,” says Walden, a professor with the Department of Agricultural and Resource Economics and specialist with the North Carolina Cooperative Extension Service.

“Ten percent are new workers who are just starting looking for jobs. Another 10 percent are people who have voluntarily left their jobs,” he adds. “And then the rest -- about 30 percent -- are people who have had a job in the past, they dropped out of the labor force -- maybe a woman to have a child or for some other reason -- and now they have come back in the labor force and are looking for work again.

“So the types of people who are unemployed are really ... complex.”

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February 03, 2006

Roles of advertising

Advertising is something most of us see every day -- in magazines, in newspapers, on TV and on billboards. Is it something we should avoid -- or be happy about? Dr. Mike Walden weighs in.


“Certainly you have different views here: Some people see advertising as annoying, a waste -- it interferes with what we are watching on TV or reading in the newspaper!

"Other people see it as informative," explains Walden, a professor and extension economist with N.C. State University's Department of Agricultural and Resource Economics.

"Advertising tells us that some product or service is available, and it tells us where to get it. It may also give us some information about the product or service.

“One overlooked role of advertising, however, is that it does partially pay for many of the media outlets that we use. For example advertising spends a lot of money on TV, radio and in newspapers. If they didn’t, the direct charges to us for those media outlets would be considerably higher.”

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February 02, 2006

Sports and spending

Amid the excitement surrounding the upcoming Super Bowl, N.C. State University’s Mike Walden answers the question, “Do cities with professional sports franchises benefit economically by having more spending and higher wages?”

“Not if you believe a new study that took a very comprehensive look at this and actually found to the contrary,” says Walden, a professor of agricultural and resource economics and specialist with the North Carolina Cooperative Extension Service.

“They found a neutral or negative impact of pro sports teams. They did find that a presence of a pro sports team ... increase[d] earning and spending in areas of ... say ... the amusement variety and recreation sectors.

“But those increases seem to be offset by declines in earnings and spending in other sectors,” he adds. “And this makes sense in that if you have a pro sports team [and] people are spending money on it, they are not going to be spending money elsewhere.

“So in terms of the net effect on a region, it seems to be nil,” he concludes. “But clearly for sports fans, they enjoy having that team.”

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February 01, 2006

The economics of eminent domain

The concept of eminent domain has been in the news recently after a controversial Supreme Court ruling. N.C. State University's Mike Walden looks at the concept and the economic issues surrounding it.

"It’s a concept really defined by the U.S. Constitution," says Dr. Walden, a professor and extension specialist with the College of Agriculture and Life Sciences' Department of Agricultural and Resource Economics.

"It says that private property can be taken by the government as long as it’s for public use and as long as just compensation is provided.

"For example, property may be taken for things like roads, interstate highways," he adds. "Clearly the idea here is that the greater public use exceeds the private use.

"Now there are two issues here," he adds. "One is, What is a public use? On the one hand you may say roads are, but what about commercial development, which actually was the subject of the Supreme Court ruling? So that’s a question.

"The second question is, How do you define and calculate just compensation?"

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