November 30, 2006
The national housing market is in a slump, and economists say it's dragging down national economic growth, according to N.C. State University's Mike Walden.
"Well, it’s contributing to slower growth. Housing actually only directly contributes to 6 percent of our total economy, but there are a lot of linkages to new construction of housing –- linkages to the lumber industry, the furniture industry, appliances, even trucking," says Dr. Walden, a professor of agricultural and resource economics.
"So when housing slumps, it’s not only a slump in that sector, but it can be a slump in a lot of sectors," he says.
"Now economists estimate that the current slowdown in the national housing market is actually shaving a full percentage point off of national economic growth, which is significant when typically national economic growth averages around 3 percent," he adds. "So it really is having an adverse effect right now on the national economy."
November 29, 2006
Time spent commuting
As North Carolina has urbanized and become more heavily populated, people are spending more time on the road getting to work, says N.C. State University economist Mike Walden.
"I don’t think we have to tell most people that, but I can give some numbers to back it up," says Dr. Walden, a North Carolina Cooperative Extension Service specialist. "Ninety percent of workers still commute alone every day by private auto.
"Plus the number of cars per person has increased almost 50 percent in the last 30 years," he adds. "Furthermore, we’ve gone from a majority rural state to a majority urban state.
"As a result, it shouldn’t be surprising -– and I don’t think people will be surprised –- that the average time that folks spend commuting to work has doubled in North Carolina in the past three decades."
November 28, 2006
Too many people
The U.S. population recently passed the 300 million mark. Is this too many folks? N.C. State University economist Mike Walden says we have enough land and food to support this population, but there are other related issues that we may need to address.
"Well, we have enough land in the country -- that’s not an issue," says Dr. Walden, a professor of agricultural and resource economics. "Now we maybe don’t have enough land in the right places. People are primarily settling on the two coasts. So what we are likely to see in those areas especially are higher densities and longer commutes.
"And I think one byproduct of this will be more impetus to teleworking, telecommuting," he adds.
"Food’s not an issue. We are going to have plenty of food. One of the hallmarks of our modern economy has been the enormous increase in farm productivity," Walden says.
"But in terms of other resources, water and power, I think, are two that perhaps raise some issues. Water is a limited issue -– a limited resource in some areas. Power -- we are not building new power plants to keep up with the demand for power, electricity.
"So I would look for increased cost here and also product innovations that are more energy and water efficient," he concludes.
November 27, 2006
Motivation for immigration
Between 1990 and 2000, North Carolina led all states in the percentage growth of the Hispanic population. N.C. State University economist Mike Walden explains why.
"In economics … we always go to two things: demand and supply. On the demand side in North Carolina, we were creating jobs. We have been creating jobs at a faster rate than the national economy, so we need people to keep coming to take those jobs," explains Dr. Walden, a professor of agricultural and resource economics.
"But on the supply side we have not seen the growth in workers, especially young workers age 18 to 30, at a high enough rate to keep up with those jobs.
"In fact," Walden adds, "the number of workers age 18 to 30 as a percent of the population has been going down in North Carolina. So this has created a gap. We have jobs being created for young people, relatively young people, yet we don’t have enough of them being generated internally, domestically, hence the demand for workers from outside, and in particular Hispanic workers.
"So if you look at the demographics of Hispanic workers, they are primarily young," he concludes. "So they are exactly filling that job gap that has existed in North Carolina."
November 24, 2006
North Carolina girl power
The differences in pay between men and women have been an issue of major concern for many years. But N.C. State University economist Mike Walden says working women in North Carolina have made progress in closing this gap.
"Since 1980 the average wage rate for women … has gone up twice as fast as that for men," explains Walden, a faculty member in the College of Agriculture and Life Sciences.
"And in the current decade of the 2000s, women’s wages adjusted for inflation have gone up 5 percent. There’s been absolutely no increase for men," he adds.
"Now a big reason behind this is education. Women are acquiring education at a more rapid rate than men are. This is qualifying them for higher-paying jobs, better jobs," Walden says. "This is resulting resulted in a closing of the gender gap in pay."
November 23, 2006
State and local tax ties
The state's newly formed tax commission will examine the fiscal relationship between the state and local governments. N.C. State University's Mike Walden outlines two big questions that the commission will likely debate.
"One is on the tax side: The state really controls what local governments can tax and also the rates, except for one tax, the property tax rate," explains Dr. Walden, a professor of agricultural and resource economics. "So, for example, if a county wanted to raise the sales tax rate, they can’t do that. They have to go to the General Assembly and get permission.
"So many local governments want the state to give them options that they can choose -- give them a menu of taxes that they can choose from: sales, income, tax, gas, fees, et cetera. -- so counties don’t have to run off to the General Assembly every time they feel like they need to change their tax structure," he says.
"So that’s one issue, whether we go down that road. Another issue is what should the state do –- what functions should the state do and pay for; what functions in our state should locals do and pay for," Walden adds. "And this has really come to a fore with two issues: school construction (many at the local level say the state should actually help more with local school construction) and Medicaid (... we are the only state where the locals kick in some money).
"So these are the two big issues that this tax commission will be looking at," Walden concludes.
November 22, 2006
The new tax commission
The N.C. General Assembly has established a new commission to study the state’s tax structure. N.C. State University economist Mike Walden explains the commission's focus.
"This actually … grew out of the Emerging Issues Forum held at NC State earlier this year," says Dr. Walden, an economist with the North Carolina Cooperative Extension Service.
"And the idea is not to have a commission that says we need to increase taxes or decrease taxes. Instead, this is much more fundamental. This is, I think, a commission that really is going to take a hard look at the entire tax structure of the state," he says.
"What do we tax? At what rates do we tax? What about taxes that we reserve for the state versus we reserve for the local governments? Also intergovernmental relationships: Should there be some things that only the state does, the locals do and how does that affect the tax situation?
"The last time we really had a big overhaul of the state’s tax structure was in the 1930s," he concludes, "and I think the issue is whether we need a new structure for a new century."
November 21, 2006
Who’s hurt when homeowners default?
Defaults or delinquencies on home mortgages are up. Who’s hurt? While you might think it's the banks, N.C. State University economist Mike Walden says not so.
"We might think, oh, well if we can’t pay, that bank or savings and loan or credit institution is going to be hurt," Dr. Walden says. "Actually that’s not the case because what happens is 70 percent of those mortgages initiated by those local lending institutions, (and) those institutions are actually going to what’s called package those mortgages together as an investment and sell them into what’s called the secondary mortgage market.
"Now in the secondary mortgage market, investors who buy those mortgages actually have some backing by federally backed agencies," Walden says. " So ultimately if there is a massive amount of homeownership and mortgage defaults, the biggest loser actually could be these federally backed agencies."
November 20, 2006
Is consumer confidence a good predictor?
Frequently economic headlines highlight the latest consumer confidence reading. But N.C. State University economist Mike Walden says it's not the best predictor of our economic future.
"You would get that expectation, but economists have long been aware of problems in the consumer confidence ratings," explains Dr. Walden. "Number one, consumer confidence tends to be a reaction to old news. It doesn’t necessarily reflect what’s going on right now in the economy.
"Also, the consumer confidence ratings are swayed by how people feel about the economy -– not necessarily by what they are actually doing in the economy," he adds. "So, for example, if many people feel ... the overall economy is bad, they will give a bad rating on a consumer confidence measure even though what they are doing personally is spending, investing and doing good things.
"What economists have found is actually that past patterns in consumer spending (are) a much better predictor of future actions by consumers ... than ... consumer confidence."
November 17, 2006
Homeownership is an American dream, and, as N.C. State University economist Mike Walden notes, more people are reaching that goal.
"This is probably one of the untold stories -- success stories -- in the American economy. Right now the homeownership rate among American households is close to 70 percent. Seventy percent of American households almost own their own home," says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service. "Sixty years ago, back in the 1940s, it was 40 percent. So we have seen dramatic progress in the homeownership rate.
"The biggest gains," he adds, "have been made for African American households (and) Hispanic American households. And, of course, one of the questions is why. Why are we seeing these big homeownership gains?
"Well, I think several reasons: one, lower interest rates, particularly over the past 20 years," he adds. "There’s also developed a secondary market for purchasing mortgages, so that’s making it more attractive for lenders to push home mortgages. Expansion of tax benefits for homeowners. And then various kinds of homeownership programs.
"So clearly homeownership is ruling in the U.S."
November 16, 2006
Some experts think that in the not-too-distant future we will out run the capacity of power companies to produce and supply electricity. What will save us? Economist Mike Walden outlines some potential solutions.
"I think, number one, companies are going to put smarter sensors on major appliances –- sensors that can allow consumers to better monitor electricity use and know how much they are spending for electricity," says Dr. Walden, an agricultural and resource economics at N.C. State University.
"Number two, I think electric utilities are going to move to something called variable pricing, where you are going to pay more for your electricity during peak demand, less during low demand, so that will spread the demand out and allow us to get more use out of our existing capacity," he adds.
"Better building codes, I think, are probably around the corner that will reduce energy use," Walden says. "And then finally we should not forget technology. There is a big motivation out there for companies to find ways to produce appliances, other kinds of equipment, that are more energy efficient, and I think we should look for that down the road."
November 15, 2006
High school dropouts
Education is more vital than ever for people who want good-paying jobs, but dropping out of high school is still an issue, says N.C. State University economist Mike Walden.
"It still is an issue," Dr. Walden says, "but fortunately it’s less of an issue than in the past. In 1990, 20 percent of North Carolina adults were high school dropouts. Today that rate is down to 13 percent.
"So we’ve cut the percentage of people who were already out of school who are high school dropouts down considerably," he says, "however, the latest data for 2002 show that almost 6 percent of high schoolers in that year dropped out of school.
"So although that’s a relatively small number, it’s still significant. And, of course, if you multiply it by four years in high school, it can get to be very large," he adds. "So although being a high school dropout has become less of an issue, it certainly still is an issue."
November 14, 2006
Car rental rates rise
Recent numbers show that car rental rates have jumped. N.C. State University economist Mike Walden gives three reasons why.
For starters, auto makers are producing fewer lower-priced cars," Dr. Walden says. "And those are the kinds of autos that often went into rental fleets.
Second, he adds, "Total auto production domestically is shrinking, so there are fewer domestically made cars available for renting.
"And then lastly fees and taxes, generally local applied on rental cars, are rising," he says. "Local governments have often used fees and taxes on rental cars as a quick way -- and perhaps a way that local voters don’t get upset about -- to raise local revenue. Those fees and taxes are going up.
"Experts, unfortunately for folks who rent cars, see no end in sight for those trends," Walden concludes, "so I think folks need to get ready for even higher rental prices on autos."
November 13, 2006
More jobs, but more unemployment
North Carolina's most recent jobs report showed businesses adding almost 19,000 jobs, putting the state among the nation’s leaders. but the state unemployment rate also rose and is now above the national average. But economist Mike Walden says that, all in all, the figures add up to good news.
"I actually think it is all good news," says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service at N.C. State University. "Certainly it is good news that we added jobs. We’ve had major job growth. In fact, North Carolina may be on (track) this year to set a record pace in job growth.
"But the fact that unemployment is up and the unemployment rate is up is not necessarily bad news in this context," he adds. "It would be bad news if we were losing jobs, but I think the reason the unemployment rate and the number of unemployed is up is because the state is attracting people, number one, from the outside -- other states -- who are moving here.
Until they get jobs, they may be counted as unemployed," he adds. "It’s also causing people who had dropped out of the labor force to come back in. Again until they get a new job, they are going to be counted as unemployed.
"So you certainly can have both employment and unemployment go up at the same time, and they both can be for good reasons," he concludes.
November 10, 2006
Can oil prices be too high?
You might think that oil producers want to continue to raise oil prices so they can make more money. But N.C. State University economist Mike Walden points out that producers have a couple of reasons for not wanting the prices to get too high.
"They can certainly make more money now … but I think what they have to worry about is whether they will make more money in the future," says Dr. Walden, a professor of agricultural and resource economics. "And high prices cause producers to worry about two things:
"First of all," he says, "they worry if the high prices will cause those countries buying oil and gasoline to go into a recession. And if that’s the case, that tends to make oil sales fall. Recessions are not good for the energy market.
"Secondly," he adds, "I think oil producers have to worry if the high prices will motivate consuming countries to spend more on oil alternatives, which again will hurt oil sales down the road.
"So although you might think that, for example, ... the OPEC countries still want oil prices to be higher, higher, higher, they actually realize that there is probably an optimal level of oil prices for them that takes these two negatives into account."
November 09, 2006
The Dow 12,000
Recently the Dow Jones Industrial Average of the stock market closed above 12,000. N.C. State University economist Mike Walden outlines several factors that have moved the stock market to this historic high.
Dr. Walden says, "Clearly low gas prices have helped. I think low gas prices is blunting any problems that's going to be caused in the economy by the slow housing market.
"Those prices being lower also coming at a good time right before the very important Christmas buying season -- ... I think that's helping the market.
"Inflation appears to be losing some of its threat, and of course gas prices are helping there -- and the stock market generally likes low inflation," he adds.
"Interest rates: another positive here. The Fed has stopped increasing interest rates. This makes stocks more valuable, so that's pushed the stock market up.
"And perhaps a lesser known factor: capital spending," he concludes. "Businesses are spending a lot of money on new equipment and technology. This is good for productivity. Again, the stock market likes good productivity."
November 08, 2006
Today's Economic Perspective looks again at education again because it is the most important characteristic of the modern economy. With so many people going to college today, says Dr. Mike Walden, it appears to take even more education to get ahead.
"We have some new statistics coming out on wage gains for people with different levels of education, and I think they are very amazing," says Walden, a professor of agricultural and resource economics at N.C. State University.
"Since 2000, the only educational category to have increases in the wage rate above inflation is for those workers with advanced college degrees -- degrees like a Ph.D. or a professional degree like a law degree, a medical degree, et cetera.
"High school dropouts lost 5 percent of their real wages, high school grads lost 3 percent, and even, even people with master's degrees lost in real wages," he says. "Between 2000 and 2005, they lost 2 percent. So the education bar may be moving up, meaning that it is like never before ... important to get a college education."
November 07, 2006
A shrinking budget deficit
The federal budget deficit has been undergoing an under-the-radar trend, says N.C. State University economist Mike Walden.
"It’s actually been shrinking," says Dr. Walden, a specialist with the North Carolina Cooperative Extension Service. "It’s been shrinking in total dollar amount, but, perhaps more importantly, it’s been shrinking as a percentage of the economy, which is ... what economists traditionally focus on.
"It’s shrinking, however, not because federal spending has been falling. (In fact federal spending has been rising at a fairly rapid rate, 10 percent a year.)
"But federal tax revenues have been increasing even faster due to the good economy," Walden explains. "So therefore we have been getting a shrinking budget deficit.
"However there is a caution here: This relationship may not persist, so the budget deficit is certainly not gone as a long-run issue."
November 06, 2006
Competition is a key principle of our economy system. Economist Mike Walden describes cases in which when there aren't enough companies to compete.
"If you have only one company -- and we call that a monopoly, of course -- you do have an issue. Most monopolies in the U.S. are going to be regulated by the government," Dr. Walden explains.
"Now another area, though, is where you have a few number of firms, maybe a handful. We call that an oligopoly, he adds. "Here you have to worry about those companies cooperating rather than competing -- that is, in being engaged in things like price-fixing.
"If that happens we call them collusive oligopolies, and they are actually illegal here in the U.S. They are not necessarily illegal everywhere in the world: OPEC is an example of a collusive oligopoly.
"There are two exceptions in the U.S. where collusive oligopolies are legal," he adds, "agricultural cooperatives and -- this will be very interesting to most people -- professional sports leagues."
November 03, 2006
Occupation vs industry
Economists often refer to a worker's industry, such as manufacturing, government, transportation or education, but in today's workplace, their occupation bears a stronger relationship to what the worker earns. N.C. State University economist Mike Walden explains.
“For example, in manufacturing, we think of most manufacturing workers as people who are on the factory floor assembling things," Dr. Walden says. "Actually, one in five manufacturing jobs are in the management or professional occupations like engineering and computer science.
“Also three out of 10 jobs in agriculture are managerial or professional.
"And the point here is that those kids of occupations bear more of a relationship to what you earn than to the industry in which you work."
November 02, 2006
The senior sandwich
It used to be that parents had children, saved money for their kids’ education, and then once the kids were through with college the parents could begin saving for their own retirement. But the formula has changed for today's parents, says an N.C. State University economist, because of what's come to be called the senior sandwich.
"What is it is that many parents are finding a squeeze from two sides of the age spectrum," says Dr. Mike Walden, a professor in the Department of Agricultural and Resource Economics.
"On the one hand, what they are finding is their parents are living longer, and they are actually having to take money they are earning to help maintain their parents -- perhaps in some assisted care facility or maybe even taking their parents into their home," he adds.
"On the other side, many parents are finding that their kids, who they perhaps thought would be gone at maybe age 24, are hanging around more," Walden says. "They are living at home. They are not finding a job -- or finding a good job -- so they are still living at home. Therefore, the parents are having to allocate money also to their children.
"So the senior sandwich reflects the fact that parents are being squeezed from both the older side, their parents, and the younger side, their children," he concludes. "And that’s having an impact on a rising percentage of families today."
November 01, 2006
A downside of lower oil prices
Oil prices have been plummeting and have taken gas prices down with them. Clearly, this has made drivers happy. But, as economist Mike Walden points out, there is a negative side to this positive news?
"It always takes an economist to find some negative news out of what appears to be positive," says Dr. Walden, of North Carolina State University. "Yes, there could be a negative side, a negative result. And it could be on higher interest rates.
"Now how would this occur? Well, a significant amount of the cash that oil-producing companies have acquired by selling us oil at higher prices over the past few years, they have taken that cash, those countries, and invested in the U.S. bond market," Walden explains. "What does that mean? Well, that means they are actually supplying savings to the U.S. economy. And that’s helped keep interest rates in the U.S. low. And that’s benefited people who are buying cars and houses and so forth.
"Therefore, if oil prices have gone down, those oil-producing countries … have less cash to buy our bonds," he explains. "That could mean that interest rates in the U.S. could be pushed higher than they would have been.
"You know, this is, I think, sometimes why people call economics the dismal science," he concludes, "because we often find that there is a downside of just about anything that appears to be up."