October 31, 2006
Less in the home piggybank?
As the housing market has cooled down, many sellers are having trouble moving their homes. But there are other downsides to the housing slowdown, as N.C. State University's Mike Walden explains.
"There are two other negatives: One is that in markets where there has been a significant slowdown, housing construction has virtually come to a stop,” says Dr. Walden, a professor of agricultural economics.
“And many people don’t realize that housing construction is a major employer in a lot of metropolitan areas, not only in terms of jobs there on the site but in terms of buying construction materials and things like appliances.
"So that will have a negative impact in those economies where there has been a big housing slowdown," he continues.
“The second adverse impact is that home equity buildup has been slower," says Walden. "... The wealth in the home that has been built up, and people have drawn on to buy things in the last few years -- that’s slowing down. So we actually see in the statistics people borrowing less out of their home equity.
"That’s going to adversely affect consumer spending,” he concludes.
October 30, 2006
Is there good news on the trade deficit ahead?
The U.S. trade deficit with foreign countries has ballooned in recent years, both in dollar amount and as a percentage of the economy. Yet now economists are predicting that number may turn around for the better. N.C. State University's Mike Walden explains why.
"I think one obvious reason is falling oil prices," explains Dr. Walden, a specialist with the North Carolina Cooperative Extension Service.
"A big part of our trade deficit is related to importing oil. Oil has become cheaper, as most people know, so that should help us on the trade deficit front," he says.
"Another reason is the falling value of the dollar compared to foreign currencies. That makes our imports more expensive but makes our exports less expensive to foreign buyers. So that should help our exports grow faster than imports," he adds.
"Then thirdly is the fact that many of the countries we trade with have seen a rebound in their economic growth; therefore, they should be buying more of our exports.
"As a result, many economists think that later this year, for the first time in many years, we may see the trade deficit actually fall and become less of a drag on the U.S. economy."
October 27, 2006
The generosity of North Carolinians
Americans donate billions of dollars each year to charitable organizations. And North Carolina's people are more charitable than most, says N.C. State University economist Mike Walden.
"We compare very, very well," Dr. Walden says. "There was a recent survey that looked at charitable giving over a six-year period in all 50 states.
"Now, in terms of wealth, North Carolina ranks 16th. We have the 16th most wealth in the country as a state," he explains. "Yet we rank 10th in terms of the percentage of that wealth given each year to charity.
"So we are higher in terms of giving compared to our wealth," he says. "Now by this index, what we find is that citizens in Utah are the most giving; those in Alaska give the least."
October 26, 2006
We’ve heard many different statistics about the benefits of education, but this information is usually from national sources. For North Carolina, N.C. State University economist Mike Walden says, we see the same benefits.
"If you compare wages, adjusted for inflation in North Carolina from 1980 to 2004, you see a definite pattern. Real wages –- what we call real wages adjusted for inflation -- actually went down for high school dropouts," he says.
"They gained but only 5 percent for high school grads. They gained 12 percent for workers who had some college. And they gained 19 percent for college graduates.
"So the pattern here is clear," he concludes. "Not only if you get more education do you earn more, but in the last roughly 25 years your wage gains have been greater."
October 25, 2006
North Carolina bounces back
North Carolina’s economy really took it on the chin during the recession and slower recovery in 2001 to 2003. But N.C. State University economist Mike Walden says the state economy has made a strong comeback.
"North Carolina’s economy generally is more volatile than the national economy, meaning we have bigger ups but also bigger downs," Dr. Walden says. "We really had a severe recession here in 2001 followed by a very, very slow anemic recovery, especially in the job market in 2002 and 2003.
"All of those years, we grew slower than the national economy," he explains. "But the good news is that in the last two years North Carolina’s economy has bounced back so strongly that we are now growing faster than the nation.
"We are growing faster in terms of our economic output -- the goods and services that we are producing -- and very important for households, we are growing faster in the job market. We are now leading the nation in terms of job growth.
"I think this is all the more impressive," Walden concludes, "given the massive changes that are going on internally in the North Carolina economy."
October 24, 2006
A competitive auto industry
Ford’s announcement of potential large layoffs has again focused attention on the relative competitiveness of the U.S. auto industry versus foreign automakers. One issue often brought up is that U.S. companies must pay health care, whereas many foreign companies don’t because they are in countries with a central government-financed system. However, N.C. State University economist Mike Walden says that even if the United States went to a complete government-financed health care system it wouldn't necessarily help our auto industry.
"It depends on how this government-financed health system was to be financed," Walden says. "For example, remember all government revenues ultimately come from taxpayers -– households or companies.
"So if this system was financed by increasing business taxes, then what would simply happen is, yes, businesses would not have to pay directly for health care. They’d simply have to pay however for it through increased taxes," he explains. "And so the net would be no different for them.
"Or if the system were to be financed with more taxes on workers, presumably those workers would demand higher wages, and the companies would compensate," he adds. "Again, companies would be no better off.
"So when you look at some proposal like this you really have to look at the entire picture."
October 23, 2006
Mutual funds have become the prominent type of investment for many households. N.C. State University economist Mike Walden takes a look at their place in the investment spectrum.
"Many people make the mistake of thinking that mutual funds are a kind of investment; instead they are a way of investing," explains Walden, a professor in the College of Agriculture and Life Sciences.
"What happens with a mutual fund is many people pool their money together. Essentially they are hiring a professional manager who then goes out and picks the particular type of investments.
"The benefit is, presumably, you get the benefit of a professional manager," he says. "Also because a lot of money is being pulled together, you can diversify your investments more.
"But the main thing that you want to look for first of all in a mutual fund is where, ultimately, does your money go?" Walden adds. "Because it’s going to have to go somewhere like stocks, bonds, cash or inflation hedges. It’s going to have to go to one of those four major categories.
"And you want to look at the prospectus of the mutual fund; it will tell you ultimately where your money goes."
October 20, 2006
Getting a jump on mortgage rates
Mortgage interest rates affect both prospective homebuyers as well as home sellers. N.C. State University economist Mike Walden outlines an easy way for them to predict where mortgage rates are headed in the near future.
"Mortgage rates are really tied to something called the bond market and interest rates on bonds," says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service. "Now in the bond market there are both private-sector bonds and government bonds.
"But what you need to do if you want to get a jump on where mortgage rates are going is simply to follow the bond market. Specifically you want to follow the interest rates on a particular kind of bond called a 10-year treasury bond," he says.
"And the rule of thumb here is that movement in the 10-year treasury bond will precede movements in mortgage interest rates by up to a couple of days.
"So, for example, if you see the interest rate on a 10-year treasury bond go up on Monday," he explains, "you could probably expect mortgage interest rates to go up on Wednesday or Thursday. So this is a way to get advance warning on what is going to happen to mortgage interest rates."
October 19, 2006
Will Christmas spending be strong
While it may seem hard to believe, the Christmas buying season is not that far off. Retailers are already gearing up. Just a month ago, the forecasts for Christmas spending were rather gloomy. But they've been reversed, and some economists are talking about a very strong Christmas buying season. N.C. State University's Mike Walden explains what caused the change.
"Well the price of gas has changed," says Dr. Walden, a professor in the Department of Agricultural and Resource Economics. "With gas prices high in the summer, that led to a lot of gloomy forecasts.
"Now of course we have seen gas prices falling, already down 40 cents per gallon. Many experts expect those prices to fall even more just in time for Christmas," he adds. "And that’s causing those economic forecasters who try to project Christmas sales to revise those projections upward.
"The reason is very simple: money. Every penny drop in gas prices frees up $1 billion in income for consumers that they can spend. So we already had a 40-cent drop; that’s $40 billion in potential extra consumer spending," Walden concludes. "So this is why those cash registers that we expected to be perhaps rather quiet this Christmas may be singing a loud tune."
October 18, 2006
Is inflation cooling off?
Higher inflation has been one of the biggest concerns in the U.S. economy, and the faster upward trend in prices has prompted the Federal Reserve to raise interest rates for much of the last two years. But N.C. State University economist Mike Walden says a new inflation report gives us hope that the jump in high prices is moderating.
"Now this is one month. We don’t know if it’s the start of a trend, but the overall inflation rate did moderate in the month of August," says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service.
"The rate is about two and a half percent on an annualized basis. This is true both for the overall rate as well as what’s called the core rate," he adds. "This is much better, much more modest than in previous months.
"It actually goes along with the view that if economic growth is moderating, it should cool off the inflationary pressures. And, of course, this is just what the Federal Reserve wants to happen. As a result, the last time the Fed met, they did not raise interest rates for the second straight time period.
"So we’ll obviously have to keep watch of this," Walden concludes. "But if this is the start of a trend toward moderating inflation, that means probably the Fed can ease up on their interest rate policy. And we may even see lower interest rate policies in the next three to six months."
October 17, 2006
Offshoring comes to the law
Offshoring of many manufacturing jobs and some service jobs like technical assistance for computer and cell phone products has made headlines in recent years. Now it appears that offshoring may be coming for the legal profession. N.C. State University economist Mike Walden explains.
"Both the legal and the corporate world … are very much watching Dupont," says Dr. Walden, a professor of agricultural and resource economics. "Dupont is a big chemical company, and they are using a Filipino legal service for some of their liability and insurance work.
"And so they argue that this can save them a lot of money. They are estimating that they can save as much as 70 percent on their legal costs in these areas," he adds. "Foreign lawyers are also cutting costs not only in terms of their salaries, they are cutting paper costs by using scanners and digital images of legal documents for ease of transition.
"So if Dupont finds this is a success, we may very well see other firms follow suit," Walden concludes, "and this could mean big changes for the $225 billion U.S. legal services industry."
October 16, 2006
The recent discovery of a major new oil reserve in the Gulf of Mexico has been the talk of the energy industry. And it adds fuel to the debate over whether oil supplies will continue to dwindle, says N.C. State University economist Mike Walden.
"It makes this debate, I think, a debate. Because up to now, I think, there has been a strong overwhelming majority view that oil supplies have peaked and indeed we are simply going to find each year we have less and less oil," says Dr. Walden, a professor in the Department of Agricultural and Resource Economics. "But this new discovery, I think, has stirred up those folks who give an alternative view which says, ‘Actually new technology for finding and extracting oil could substantially increase oil supplies down the road.’
"Indeed, one very respected think tank that works on energy says oil supplies could increase by as much as 25 percent in the next 10 years," Walden adds. "If this is accurate, obviously this is going to have big implications for oil prices as well as the economic vulnerability of oil alternatives."
October 13, 2006
North Carolina’s job market
North Carolina's latest employment report was released recently, and N.C. State University economist says it brought good news.
"This economic judge would actually give it a 10 –- 10 out of 10," says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service. "We’ve created almost 15,000 net new jobs in the last month. That is a very robust level. We’ve created in North Carolina over 100,000 net new jobs in the past year.
"And even though manufacturing jobs were up in the past month, however, they were down for the entire year," he adds.
"The unemployment rate over the past year has dropped over one-half percentage point. So we certainly can hope to do better in the future -- get the unemployment rate down even more, creating more jobs.
"But this is a very positive picture for the North Carolina job market," he concludes."
October 12, 2006
Where unemployment is really low
The national jobless rate is a little over 4.5 percent. Yet there's one labor market where the unemployment rate is approaching 1 percent, says N.C. State University economist Mike Walden.
"It’s good news for those people in college, because the market is the college graduate market. The unemployment rate for college graduates … is now at 1.8 percent. That’s the lowest in over five years," says Dr. Walden, a North Carolina Cooperative Extension specialist. "In fact, half of the new jobs filled this year by people over age 25 were filled by people with a college degree, even though folks with a college degree make up only one third of the workforce.
"Obviously this is the result of a changing workforce, the emphasis on skilled jobs," he adds. "And of course people with college degrees fit that bill.
"So the strong demand for college-educated workers is creating both a low unemployment rate as well as good salaries for those workers."
October 11, 2006
Why gas prices are falling now
Something we haven’t seen in a while is now happening: Gas prices are coming down. N.C. State economist Mike Walden explains why.
Several good things are happening in the gas market as far as consumers are concerned. First of all, we are at the end of the hurricane season, and we didn’t have any major hurricanes that went through the Gulf of Mexico," says Dr. Walden, an economist with the North Carolina Cooperative Extension Service.
"And prior to the season starting that was a big concern, and so prices actually had been bid up somewhat in expectation of there being some production outages in the Gulf. That didn’t happen, so that’s caused prices to come down a little bit," he adds.
"Another factor is the Lebanon ceasefire seems to be holding. That’s good news out of the Middle East. Iraq is actually pumping more oil than it’s done in two years. And OPEC has said it is going to maintain its production levels even in the face of declining prices.
"So that’s sort of all on the supply side, meaning supplies are plentiful," Walden says. "Now on the driving or consumption side: Prices always fall in the fall as we move out of that peak driving time during the summer.
"Something else is happening, and that is that drivers have actually been using less gasoline on any given month compared to last year because of the previously high prices. That’s actually helping to keep consumption lower and contributing to lower prices.
"Now how long will these lower prices last? Most economists think that they will last at least until the winter heating season kicks in," Walden concludes, "and then it is all going to depend on how severe a winter we have."
October 10, 2006
We've heard about the national debt and the problems it may present to future generations. N.C. State University economist Mike Walden compares that debt to the debt of American households and businesses.
"If you take all of the government debt -- including the national, as well state and local, debt -- it’s about $10 trillion right now, but a good part of that is simply government debt owed to another part of the government," explains Dr. Walden, a professor of agricultural and resource economics.
"So it’s like a sister borrowing from a brother. So if you take that out and only look at the government debt owed to the private sector, it’s about $6.5 trillion.
Now, in contrast, household debt right now stands at about $10 trillion, and corporate debt is around $5 trillion," Walden adds.
"Now, in terms of risk -– this is where people perhaps may be surprised –- in terms of risk, government debt is actually viewed as less risky than either household or corporate debt," he says. "It’s very rare -- in fact it’s never happened with the federal government -- where the federal government has defaulted on its debt.
"Yet households do declare bankruptcy periodically –- some do. And corporations do also. So government debt is actually considered much safer."
October 09, 2006
Mortgages coming home to roost
With interest rates rising, the housing market has slowed down. That's because higher interest costs make it more expensive for people to borrow money through a mortgage. But, as N.C. State University's Mike Walden explains, rising interest rates are also causing problems for folks who already have mortgages.
"One group, of course, would be those who have adjustable mortgages, where the interest rate can adjust and, as those interest rates have gone up in the past year, year and a half, the payments would go up," says Dr. Walden, a professor of agricultural and resource economics.
"But there is another group of folks who have had special mortgages; these are called interest-only loans," he adds. "It means that you are borrowing money to buy the house, but you are not really paying back anything on the amount borrowed. All you are doing is paying the interest.
"The problem that can result is, if you are in a housing market where housing prices actually have fallen since the time you bought the house, you could end up in a situation where you perhaps want to sell your house and you actually find that you have borrowed more and you owe more than the house is worth," Walden says.
"Those folks are really facing a tough time. It has really become a nightmare for them."
October 06, 2006
Visible versus invisible hands
N.C. State University's Mike Walden isn't not talking magic here, but economics. In today's Economic Perspective, Walden describes the two ways that societies can decide how resources are allocated.
"You could have a central authority that decides what gets produced and who gets what, and we would call that visible-hand control because you can clearly see who’s calling the shots," explains Dr. Walden, a professor of agricultural and resource economics. "A good example of those kinds of economies would be the current-day Cuba and the former Soviet Union.
"The alternative is what economists call a market economy.," he adds. "We would argue that’s an invisible hand economy because we don’t have any central authority directing things.
"Really it looks chaotic if you look at it from the outside. Resources are priced by the interaction of supply and demand. And individuals make decisions about what to purchase based on those prices. Businesses make a decision about what to produce based on whether they can make a profit.
"But it all seems to work out. And furthermore, economists who study these things say that actually standards of living in countries that use the invisible hand, compared to the visible hand, are much higher."
October 05, 2006
Workplace accidents and injuries such as the coal mining accident in West Virginia early this year make for unfortunate headlines. But workplaces are generally becoming safer, says N.C. State University economist Mike Walden.
"Workplace fatality rates are down about 20 percent in the last decade. And they’ve come down a lot more over the past century," says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service.
"Certainly laws have helped –- federal and state laws about workplace safety," he adds. "But also we need to remember that businesses have an interest in maintaining a safe workplace. Accidents are costly to a business. They tend to shut down production. Insurance costs go up and oftentimes you have to pay workers more if they are going to work in unsafe environments.
"So as the workplace becomes more important," Walden concludes, "I think it will become more safe."
October 04, 2006
How cities grow
North Carolina is a growing state, and this is especially true of the state’s big cities like Charlotte, Raleigh and Greensboro. Dr. Mike Walden, an economist at North Carolina State University, addresses the question, "Do cities grow out or up?"
"Well, initially they grow out," he says. "People are attracted to the suburbs because land is cheaper. But then as the city expands, driving costs increase -- both in terms of time and congestion. This makes more central locations more valuable. And then you start to see a movement back into the center of the city, and you start to see development there.
"And we can clearly see this in cities like Charlotte and Raleigh," he adds. "They are enjoying right now a building boom inside, in those central city cores, and again I think it’s because the level of development they’ve reached -- they’ve reached that maturation point where being in the middle of things is very valuable."
October 03, 2006
Tragedy of the commons
The economic concept called the tragedy of the commons may sound eerie, but it is important, says Dr. Mike Walden, professor of agricultural and resource economics at N.C. State University.
"It is based on the old notion many, many decades ago where cities would set aside pasture land in the middle of the city -- called the commons -- where farmers could bring their cattle in and graze for free," Walden says. "And what cities quickly found is that those commons became overgrazed, because each farmer had an incentive for his cattle to use up the grass before someone else got it. So no farmer had an incentive to maintain that commons -- those pasture lands.
"And you can apply this to other areas where ownership is not specified. One of the big problems, for example, in the fishing industry today is overfishing. Catches are going down, and it is because fishermen know that they want to catch the fish before someone else does. No one cares about maintaining the long run capability or viability of those oceans.
"So this is a problem faced in some situations where you have to carefully define ownership in order to maintain that resource," Walden concludes.
October 02, 2006
Hardware versus software outlook
There are two components to the tech sector: the production of the actual tech equipment, called hardware, and the writing of programs to run the equipment, termed software. The employment outlook for these sectors differ, according to N.C. State University economist Mike Walden.
"Most economists think the hardware outlook is less secure. And the reason has to do with foreign competitors," says Dr. Walden. "We are at the stage in hardware production where things have been standardized, and factories that are overseas using low cost labor can easily produce those components.
"On the other hand, software seems to be a little more secure, especially in terms of higher level or cutting edge software.
"And you can see the differences in terms of the employment trends in North Carolina," he adds. "Hardware employment is really stuck right now -- in fact it is off where it was about 5 years ago -- whereas employment in computer software has been going up."