June 30, 2006
The middle market
One of the tasks of every business is to decide what level of market to sell in, from the high end or most expensive to the bargain level. Dr. Mike Walden, an economist at N.C. State University, says this decision is becoming more difficult.
"What we are seeing is the middle market actually shrinking," says Walden, a professor in the Department of Agricultural and Resource Economics.
"And what’s happening is that many folks -- and really this is irregardless of income -- have decided that for some products they want to buy the most expensive –- they want to buy the high end. It may be jewelry, it may be autos, it may be tech equipment.
"And in order to do that what they do is for other things that are not as important to them they really scrimp and they buy the low end," he adds. "So what you find is many consumers having a combination of some high-end products, some very low-end products but not much in the middle.
"And this is driving a lot of sellers wild. Because it used to be that the middle market was the largest, they could count on that for the majority of purchases, and now we are seeing a consumer who is changing that whole combination."
June 29, 2006
Immigration is a much-debated issue today. In today's "Economic Perspective," N.C. State University's Mike Walden focuses on whether economists have reached any conclusions about the economic impact of immigrants.
"They have. One conclusion is that immigrants have been very important to the U.S. economy in terms of the sciences," says Dr. Walden, an economics specialist with the North Carolina Cooperative Extension Service. "Engineering, for example. 40 percent of all the scientists and engineers now were actually born in another country. So that’s an enormous economic contribution.
"Of course we have many low-skilled, low-wage immigrant workers and the analysis there suggests they do contribute net benefits to the private sector and they’ve helped enormously in keeping some product prices lower," he adds. "They’ve also perhaps lowered wages however in those occupations.
"I think the biggest question mark about the economics of immigration is in the public sector especially at the local level," he says. "There is some evidence that at the local level ... that the public sector costs related to immigrants may exceed the tax revenues that those folks generate."
June 28, 2006
What happens when the boomers cash out?
Many investment analysts are worried about what will happen to the stock market when the baby boomers retire and begin withdrawing their funds. N.C. State University's Mike Walden says that they are worried we will see a big crash in the market, but others aren't so sure.
"There is a very well-respected investment analyst named Jeremy Seigel. He has a new book coming out talking about this very issue. He’s worried," says Dr. Walden, "about the fact that increasingly every day more baby boomers retire.
"They are still the biggest generation in the country. And when they retire they will likely cash out some, maybe all, of their stock holdings. And could that send the stock market plunging? Seigel actually thinks it can, it will. So he’s written a book to tell people how to plan for that.
But, adds the agricultural and resource economics professor, "there are folks who are on the other side of that fence who say, 'No we are not going to see a crash in the stock market. Number one, there will always be buyers for stocks.' And they see a growing number of buyers from other countries where the birth rate is larger and where they are producing more adults.
"And those analysts think that those buyers will come in and simply snap up U.S. stocks and support the price," Walden explains.
"They also say that we shouldn’t forget that the U.S. has seen a rising standard of living, and even though we may have fewer buyers in the future if those buyers have more income that can also put a prop under the stock market."
June 27, 2006
The pay divide
It’s well known that the average working woman is paid less than the average working man. But that pay divide has been cut in half in the last 25 years. Dr. Mike Walden explains what he thinks has happened.
"Several things [are] at work," says Walden, an economist with the North Carolina Cooperative Extension Service at N.C. State University. "Number one, women are acquiring more education and more skills. So their pay in the market has risen commensurately with their better training.
"Women are also working more, and they are gaining more work experience," he adds. "Work experience is still very important in terms of how much you get paid.
"On the other hand men are actually working less, so the differences in experience have … been shrinking, and that has helped to shrink the pay gap.
"One final factor: Maternity leave and child care on site in companies have helped women keep and improve their experience … levels and, therefore, they don’t have to leave the workforce when they have children as frequently as in the past."
June 26, 2006
When N.C. State University's Mike Walden mentions "dumping," he's not talking about taking your trash to the garbage dump. He's referring to the dumping, or selling of internationally traded goods, at prices below costs.
"That’s what it means to dump your products in other countries; it means you sell for less than your costs. That is, you are actually selling at a loss," explains Dr. Walden, a professor in the Department of Agricultural and Resource Economics.
"Now why would a country do that? Well, they might do that, it’s alleged, to drive out domestic producers and therefore increase their market share and then later they can increase their price," he explains.
"Now we often have every year claims that country A or country B is dumping their products in another country. And there is actually a mechanism -- international mechanisms -– for countries who are charging another country of dumping to fill a suit, file a grievance," he adds.
"Dumping, however, is very, very hard to prove because production costs vary so much between … countries. Dumping has been a sore spot here in the U.S. for furniture manufacturers, for example, who have charged that some low-priced foreign competitors are dumping here," Walden says. "But what we have seen, however, is dumping complaints decline recently as the economy has improved."
June 23, 2006
As North Carolina’s roads become more crowded, especially in metropolitan areas, transportation planners are looking for new ways to address ever-longer commutes. N.C. State University economist Mike Walden looks at one new concept called congestion pricing.
"It’s a way to encourage drivers to either carpool or use less congested roads, but instead of simply suggesting that -– doing public service announcements saying ‘please carpool’ -- in this way we use price. We use that stick of price as a motivator," says Dr. Walden, of the College of Agriculture and Life Sciences.
"Let me give you two examples: In some cities there will be special lanes dedicated only to cars that have multiple passengers. So in that case, your time price is lower because you are going to have that special lane. You are going to zip along while the other people who have perhaps only have one rider -- they’re caught in the heavier traffic," he says.
Another example, he adds, "is areas that have toll roads often times higher tolls will be charged to cars with fewer riders.
"So these are new methods. We’ve seen a lot of them in other states. I think eventually we will see them in North Carolina."
June 22, 2006
North Carolina continues to be attractive to out-of-state retirees, and N.C. State University economist Mike Walden says they can boost local economies.
"A lot of local communities … love to get retirees to move to their area," says Dr. Walden, a professor of agricultural and resource economics. :Number one, they bring usually with them a pension, social security maybe. So they bring income. If they settle in the community permanently then they are going to spend most of that money locally.
"They also often bring their own health insurance, so they are not going to be a burden on the local health care system in terms of public assistance," he adds.
"And very importantly retirees usually don’t bring children to educate. And, of course, at the local level education -– public education -- is the most expensive local function.
"So attracting retirees has actually become a major economic development tool for many counties -- just as important as perhaps attracting a new factory.
"Now typically retirees have gone to resort areas and metropolitan areas, but what we are seeing now is many rural North Carolina counties that haven’t been in those two categories -- they are attracting retirees. This is exactly what they need."
June 21, 2006
With so much focus on China as an economic power in Asia, it seems as if we have forgotten about Japan. But is Japan making a comeback? N.C. State University economist Mike Walden thinks so.
"One reason we forgot about Japan … is that Japan was in a really bad economic slump for almost 15 years," says Dr. Walden, an economist with the North Carolina Cooperative Extnesion Service. "I mean, it’s kind of like being in a recession for that long.
"Many reasons: some of them policy related, their bureaucracy, kind of the cozy relationship their government’s had with some of the big industries.
"But it seems like Japan has figured it out, and for the first time in almost two decades they are now putting together several back-to-back years of economic growth.
"So I do think Japan is back," he says.
"Now … Japan has been eclipsed by China in terms of economic growth recently. And China is actually twice as big economically now as Japan.
"But Japan is still a very important trading partner with the U.S., especially in automobiles."
June 20, 2006
If you think gas is high here!
We have seen the $3 signs at our local gas stations, but what are drivers in foreign countries paying? Economist Mike Walden takes a look at gas prices in other nations.
"Well, they are seeing a lot higher in some countries," says Dr. Walden, a professor in N.C. State University's College of Agriculture and Life Sciences.
"And let me just give you a rundown here, and maybe it will make you feel better when you fill up your tank next:
* If you lived in Turkey, you’d be spending $7 a gallon for gasoline. …
* And the United Kingdom, $6 a gallon.
* Japan, $4.50.
"Now most of the reason for those higher gas prices is much higher gas taxes.
"On the other hand, there are many countries in the world where gas is a lot cheaper," Walden adds. "If you go to places like Venezuela, Saudi Arabia, Russia and China, gas there is all under $2 a gallon.
"Now for the first three -– Venezuela, Saudi Arabia and Russia –- the reason is they are major oil producers. They have a lot of oil.
"China doesn’t have a lot of oil, but they have regulated prices. They are keeping their prices low, but guess what? They have also seen shortages."
June 19, 2006
Some good news on the trade deficit
After years of bad news about America’s trade deficit, N.C. State University economist Mike Walden says there's now something to smile about. Listen
"In the latest reading that we have for the trade deficit, we see that it actually leveled off," says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service.
"It did not go up. Now it didn’t go down either. But it stayed the same. And in fact what we’ve seen recently … is our exports -- that is, products and services that U.S. companies sell overseas -- have been rising actually faster than imports. So this is good news.
"Now, some of this is probably the result of the dollar falling. The dollar is now down 10 percent in its value against major currencies of the world in the last 5 years.
"So what this does is ... [make] imports coming into our country more expensive; therefore, U.S. consumers perhaps will reduce their purchases of imports. But it also makes our exports cheaper. And we should see our exports go up. And all this has really happened.
"Now one downside, however, of a lowered valued dollar is it can lead to higher domestic inflation, and we have actually seen that, too."
June 16, 2006
Who’s using oil?
The increase in the world’s use of oil in recent years is a big reason for the jump in oil and gas prices. But who’s buying all this extra oil? Dr. Mike Walden has the answer.
"It’s not all the U.S.’s fault," says Dr. Walden, an economist at N.C. State University. "In fact, if we look at the change in oil usage by country for the last four years we see that 17 percent -- only 17 percent -- of the new oil consumption over the last five years has been from the U.S.
"Only 5 percent has been from Europe. And Japan -- one of the other major countries in the world that uses oil – Japan has actually reduced its use of oil.
"So who is using all this extra oil that has been produced and consumed?
"Well, China," Walden says. "China accounts for over than a third of the rise in oil usage from 2001 to 2005. And other countries in Asia -– like India –- as well as in Africa account for the rest.
"What’s happened here is it’s the emerging countries –- China, India, those in Asia and Africa -- that have really increased the world’s use of oil."
June 15, 2006
The world’s largest economies
Economic Perspective host Sonya Williams asks N.C. State University’s Mike Walden to comment on the largest national economies in the world today.
“I remember when I was in school the world’s largest economies were the U.S. followed by countries like Japan, Germany and Great Britain,” says Harris. “I imagine the rankings have changed today.”
Dr. Walden, an economist with the North Carolina Cooperative Extension Service, responds: “They have, Sonya. And what we are doing here is looking at the rankings of economies in countries in terms of the value of their production -- what they produce in terms of goods and services -- in a year.
“The U.S. is still by far the world’s largest economy. Last year we produced $12.5 trillion of products and services.
“However, there have been some changes since when you were in school and certainly since I have been in school: China is now the second largest economy in the world. Their gross domestic product, which is the technical term here, is $9.6 trillion; followed then by the countries who use the euro – roughly Western Europe -- $9.2 trillion, then Japan -- Japan has really slipped -- $4 trillion.
“India – India is a new country on the rankings -- $3.7 trillion of annual output. Then … the United Kingdom, Russia and Brazil are all around $1.6 [trillion] to $2 trillion of annual output.
“So you are right,” Walden concludes. “The rankings have changed. What has changed dramatically is two countries, China and India, have certainly moved up.”
June 14, 2006
Education and unemployment
Education is keenly important in today’s economy, and it has an effect on unemployment rates. N.C. State University's Mike Walden explains.
"Let’s look at the most recent unemployment rate data that we have and look at how that rate changes by the level of education of the worker," says Dr. Walden, an economist with the North Carolina Cooperative Extension Service.
"Right now if you are a person who has no high school diploma, the class of folks that you are in has an unemployment rate of over 6 percent -– in fact, 6.6 percent.
"Now, if you are in a group of folks who has only a high school diploma –- you did graduate from high school but you’ve stopped there -- your unemployment rate right now is 4.4 percent – better, but clearly not where you want it.
"However, folks who have gone on and gotten some college education or they have an associate’s degree, the unemployment rate for those folks drops to 3.7 percent. And then if you are a person who has a bachelor’s degree from college or more, folks like you have an unemployment rate of 2.1 percent," Walden goes on.
"So you go from 6.6 for folks without a high school degree down to 2.1 for folks with college," he concludes. "That is a dramatic change."
The most recent inflation measures showed all of them up significantly. N.C. State University economist Mike Walden considers the ramifications beyond the impact on consumers.
"Many economists … were waiting for this to happen, and it’s not all due to energy prices and gasoline prices," explains Dr. Walden, a professor in the Department of Agricultural and Resource Economics.
"The prices of many raw materials have been rising very rapidly. And what really got the attention of many economists and analysts is that what’s called the core inflation rate, which is really the inflation rate outside of energy and also food prices, is now rising above the kind of magic 2 percent annual rate. Two percent is thought to be the upper limit desired by the Federal Reserve.
"So this is certainly bad news on inflation, and it increases the pressure on the new Federal Reserve chairman to show that he is an inflation hawk -- meaning that he will try to reduce the rate of inflation, but the downside of that is it usually means he’s going to have to push the economy into a lower gear."
June 12, 2006
The business cost squeeze
Although many signs point to a growing economy, some business owners have a worried look on their faces. N.C. State University's Mike Walden explains why.
"Many of them … are right now caught in a squeeze between what they are getting back from their workers in terms of productivity and what they are paying to workers," explains Dr. Walden, a professor of agricultural and resource economics. "Now productivity is still going up, worker productivity, but it is going up at a slower rate.
"On the other hand, worker costs have been accelerating. And so when you get these two sort of getting together -- banging together -- that puts pressure on businesses, particularly on business profits.
"Now, one option … for many businesses is to simply say, ‘Well we will raise our prices to kind of tough it out.' But many businesses have learned a lesson that with our very, very competitive economy, many of them don’t have the kind of pricing power that they had in the past.
"So this is why you may see a lot of business owners with rather glum faces recently."
June 09, 2006
You've likely heard the terms "inflation" and "deflation." But what about "stagflation"? N.C. State University economics professor Mike Walden explains the term -- and why it's popping up in economy discussions these days.
"Stagflation was actually in vogue … in the 1970s and 80s," says Dr. Walden, of the College of Agriculture and Life Sciences. "It’s really the worst of all economic worlds because it combines slow or no growth in the economy -- that’s translated into stagnation -- which means incomes are not going up and jobs are harder to find. But … added to that is rapid increases in prices, or inflation.
"So you put the two together –- stagnation of the economy and inflation of prices -- and you get stagflation, and we had this unfortunately in the 1970s and the early part of the 1980s.
"People might recall hearing about something called the misery index, which was developed really to measure stagflation. And this has come back again.
"Some economists are talking about this because there is a concern that we may see a cooling off in the economy but at the same time we are obviously having increases in prices -- a lot of that energy related.
"And so some are concerned about whether we could have at least a mini version of stagflation"
June 08, 2006
Is it too hot or too cold?
Is the economy too hot or too cold? This is a question facing the Federal Reserve as it decides what to do about interest rates. N.C. State University’s Mike Walden considers the current economy’s temperature.
“Unfortunately for the Fed, it seems to be a mixture,” says Dr. Walden, an economist with the North Carolina Cooperative Extension Service. “We have hot elements like economic growth – very strong in the first quarter; factory production, up; profits, up. Prices are also rising.
“But on the other hand we have some cold elements: The housing market is clearly slowing nationally
Wealth growth is slowing. And retail sales outside of gas are also going down
“So this leaves the Fed in sort of a quandary, because they don’t have clear signals about the economy,” Walden adds. “If they try to cool down the economy and it is already cooling off, there is the danger it will go in the deep freeze of a recession.
“On the other hand, if the economy is too hot and the Fed doesn’t act, then we could get even higher inflation rates.
“So these are tough decisions for policy makers on the Federal Reserve.”
June 07, 2006
The long run budget gap
The federal government has been running a budget deficit for several years, and the national debt keeps climbing. But N.C. State University's Mike Walden says there is a much more challenging fiscal problem facing the federal government.
"If you ask economists about the budget deficit and the national debt, they will say, 'Well, yeah, those are important. But they are not the big issue. The real big issue is what economists call the unfunded liabilities of the big social programs we have, and the two biggest programs are Social Security and Medicare.
"Now an unfunded liability simply means you project out what you are going to spend from those programs, you project out the revenues that are available to fund that spending, and you see a big gap.
"And, in fact, that gap has been estimated for the rest of this century for those two programs at over $40 trillion.
"So this is the real gap -- financial gap -- that economists worry about. And it is likely going to mean that at some point, some point, we are going to have to make major adjustments in both of those programs."
June 06, 2006
Impacts of cashing out
What would if foreigners cash out the billions of dollars of U.S. government bonds they own? That's the question N.C. State University's Mike Walden explores in today's Economic Perspective.
"Well, first of all, I think it is unlikely to happen," says Dr. Walden, an economist with the College of Agriculture and Life Sciences.
"I mean, take a country like China: They clearly are buying a lot of U.S. bonds, as people know. But they are buying them out of their own self-interest. They are not just doing it to help out the U.S., because China wants to keep U.S. interest rates low so they can sell more of their products here in our country. And one of the ways to do that is to try to help out the U.S. in terms of our debt.
"So it would be unlikely, I think, that we would see China one day say, 'You know what? We don’t want to own this debt, and we’re just going to sell it.'
"So I don’t think we are going to see any big sudden move. And I think any movement away from U.S. investments would likely be gradual.
"That said, though, what would be the impact of any major dumping, if you will, by foreign countries of U.S. bonds?
"Well, the Federal Reserve actually estimated that, and they say the major impact would be on U.S. interest rates. If the foreigners who now own U.S. bonds had not bought them, U.S. interests rates would likely be higher -- maybe by as much as one and a half percentage points."
June 05, 2006
In today's Economic Perspective, N.C. State University economist Mike Walden discusses issues surrounding estate taxes.
"Of course there is a federal tax on estates that is being phased out. However, that phase out is only temporary unless new legislation is passed. So this is still a timely issue," explains Dr. Walden, an economics professor in the College of Agriculture and Life Sciences.
"One issue is whether estate taxation affects wealth accumulation. That is, if someone knows their estate is going to be taxed, are they going to be more motivated to spend that money than to save it?
"And there is some economic evidence that this is the case, although the impact appears to be relatively small.
"Another issue is whether we need an estate tax to prevent wealth accumulation among high-income people," he adds. "Now several studies ... show that there has been no change in wealth distribution over time. So that issue is perhaps questionable.
"And then last, although a hot button issue, at its peak the estate tax really never affected more than one half of one percent of all estates. So it does impact a relatively small number of individuals."
June 02, 2006
Consumer spending trends
Each year the government collects information on what consumers are buying. Economist Mike Walden of N.C. State University highlights interesting findings from the latest survey.
"Spending on men’s suits and women’s dresses: that spending is way down," notes Dr. Walden, a professor in the Department of Agricultural and Resource Economics. "This is, I think, ... indicative of the fact that we’ve been a little more casual ... in the workplace.
"Beer drinking -- spending on beer drinking, or beer -- is down, but spending on wine is way up. That’s probably a function of the baby boomers.
"We are spending a lot more, as you might expect, of our entertainment dollar at home on things like satellite TVs, big TVs and recorders.
"And we are reducing significantly our spending on movies at movie theaters. That’s a big problem for those movie theaters.
"Again, as you might expect, spending on cell phones has really gone up. That has more than doubled in just three years.
"And then in the most recent survey, we actually spent more on trucks and SUVs than we did on other types of vehicles. That was a first, but I think this is likely to change with higher gas prices."
June 01, 2006
Flush with cash
Who's flush with cash? The answer appears to be the State of North Carolina. Reports indicate the state budget now has a surplus of over $1 billion, and this may climb to as high as $2 billion. N.C. State University's Mike Walden explains why this happened and what people are suggesting should be done with the money.
"The 'why' part is easy. ... The economy has been growing. It’s been doing much better than it has in recent years. This generates more household income, higher investment returns, more consumer spending, higher corporate profits. All these things are items that the state taxes," explains Dr. Walden, an economist with the North Carolina Cooperative Extension Service.
"So we typically see this happen after a recession. Once we are a couple of years past a recession, revenues to the state government [go] up quite a bit.
"So that’s the easy part. The harder part is what to do with the money. And, of course, there are just as many opinions perhaps as there may be billions of dollars," he adds.
"Some people want to spend it on more programs, expansion of programs, higher salaries for state workers and teachers. Others want to use some of that money at least to perhaps reduce taxes. And some want to say we need to be farsighted here and actually save some of this money for the next time that we have a recession.
"So all of this really is now the $2 billion question."