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March 30, 2007

The South has risen

The news magazine The Economist did a feature on the American South and pointed out how much economic progress the region has made in the last 40 years. N.C. State University's Mike Walden notes several reasons for this positive record.

"One measure showed that economic output per person in the South is now almost at the national level. And I think there are many factors behind the rising economic value of the South: The South has been a very attractive region for businesses and households alike," says Dr. Walden, a North Carolina Cooperative Extension economist.

"I think they are moving here because of favorable weather and, of course, with the advent of air conditioning it's much more tolerable in the summer," he adds. "We have a lower cost of living, we have an improving educational record, the development of many professional occupations, and I think, quite frankly, we have improved racial relations.

"There's one continuing negative though, and this is perhaps news to some people: The prevalence of obesity is much greater in the South than in the rest of the nation, and employers are increasingly taking a look at that."

Posted by deeshore at 09:20 AM | Comments (0)

March 29, 2007

Good and bad budget news

It's budget time for the North Carolina General Assembly, and N.C. State University economist Mike Walden says the revenue side of the budget is shaping up nicely for this fiscal year but it may tighten up soon.

"For this fiscal year, which ends in June, it's actually pretty good," says Dr. Walden, a professor of agricultural and resource economics. "Actual state revenues are ahead of projections -- part of the reasons being that the forecasts that budget people made last year (were) very modest because they didn’t want to get in the situation of being behind.

"But the projections for the next two fiscal years are indicating a slowing in the rate of growth of revenues," he adds. "This is in line with a still growing but growing at a slower pace state economy.

"I think one of the big wildcards here is the real estate market. We really don't have a good handle on what the real estate marketing is going to do and how that is going to affect state revenues.

"So the budgeting decision at the state level right now ... is pretty good, but when the new fiscal year begins it's probably going to be, unfortunately, much tighter."

Posted by deeshore at 09:40 AM | Comments (0)

March 28, 2007

Is North Carolina ready for the new economy?

A new study ranked North Carolina 26th among all states in being part of the new information- and education-oriented economy. N.C. State University economist Mike Walden explains what's behind this ranking.

"This is a summary of many indicators, and North Carolina ranked well on some and not so well on others," Dr. Walden says. "For example, we ranked high on the number of information tech jobs, foreign investments, venture capital and industry investment as well as on the availability of high speed Internet.

"But we ranked low on high value manufacturing, patents and risk taking and the percentage of the population that regularly uses the Internet," he adds. "So you could say that North Carolina has one foot in the new economy and another foot, the other foot, in the old economy.

"But both of these feet, however, are in different regions. So I think this report indicates, given that are right in the middle there, 26th, that we are making progress, we can make more progress. And if you look behind the numbers, I think what you see is there are really two North Carolina's: one that's in the new economy, and one that's still in the old economy."

Posted by deeshore at 08:00 AM | Comments (0)

March 27, 2007

How we are changing

In today's Economic Perspective, N.C. State University economist Mike Walden considers major demographic trends and how they will influence our nation and state in coming decades.

"Well one thing's for sure," says Dr. Walden, a professor of agricultural and resource economics. "We are going to become an older nation. I think most people know that.

"The Baby Boom generation, which is a gigantic generation, is aging. And as it ages it is going to carry the average age of the U.S. and North Carolina higher.

"Another factor here is the Baby Boom generation is about 20 million people bigger than the generation that's to follow," he adds.

"The other thing that is going to happen demographically is we are going to become a much more diverse nation ethnically. If you look at African Americans, Hispanics, Asians today they account for about a quarter of the total population. In 50 years they will account for one half of the population.

"So we are going to be an older nation and a much more diverse nation. And to add some economics here, hopefully we will be a richer nation."

Posted by deeshore at 08:40 AM | Comments (0)

March 26, 2007

What makes North Carolina tick?

Some North Carolina counties are growing faster than others. N.C. State University economist Mike Walden says that education may play a major role.

"Well, I think I have a partial answer here because I've looked at this in terms of my own research, and many other folks in many institutions have looked at it," says Dr. Walden, a North Carolina Cooperative Extension specialist. "And I think we all come to one simple answer, and it may sound simple but it is very important. And that is education.

"What you find over the last 30 years if you look ... at North Carolina counties is that counties with more educated workers or counties that have had the biggest increases in their educated workforce have grown faster. And I might say that this is after you account for all the other things that could effect successful counties," Walden adds.

"Now there is one caveat though to the findings -- my findings and the findings of others -- and that is the impact of education seems to be much greater in urbanized counties than in rural counties," he adds. "One reason may be that in urbanized counties there's more ability for education to work its magic because there are more people to interact with and communicate with and sort of feed off of each other. Another factor that we find in rural counties is that often the educated workers will pick up and leave. There is a brain drain from rural counties to urban counties.

"But bottom line here, education is the big moving force behind economic development in North Carolina."

Posted by deeshore at 08:36 AM | Comments (0)

March 23, 2007

Keeping teachers in tough schools

A statewide program to provide successful North Carolina school teachers a bonus for teaching in schools with more challenging students had good results overall, reports N.C. State University's Mike Walden.

"Indeed ... North Carolina did have a program. It was actually a statewide program ... and it was unique to the nation," says Dr. Walden a professor of agricultural and resource economics. It "paid teachers who stayed in schools with more challenging students a bonus.

"And, in fact, there has been a recent study of that program to see did it work? Did it keep those teachers in those schools? That is, Did it reduce the turnover rate of teachers in challenging schools?" he continues. "And the study found that overall it did.

"The bonus, which was about $1,800 a year, was associated with a reduction in teacher turnover by about 10 percent," he says. "But interestingly when they divided the study's results between type of school, they found that the program had no impact at all on high school ... teachers, whereas on middle school teachers it was very highly effective.

"So I guess you would say this is some evidence, but certainly not overwhelming evidence, that paying teachers more can keep them in schools," he concludes. "And, of course, one thing that could be done is to dramatically increase the bonus, and that might be more effective."

Posted by deeshore at 08:18 AM | Comments (0)

March 22, 2007

Cheap money

Although interest rates are higher than they were a couple of years ago, they remain low by historical standards. N.C. State University economist Mike Walden explains why.

"I think a lot of people don't appreciate this: Money really is cheap. I think that's one reason why people are borrowing a lot of it," he says. "I think there are two reasons behind that. One is, as most people know, our economic world has expanded dramatically in the last 20 years. Countries that used to be sort of outside of our world economy -- in Asia and in Eastern Europe -- are now part of that.

"They are part of the world financial market. And many of those countries, particularly China and India, are generating a lot of money in terms of savings, and that money is available for loans.

"But secondly in order to get that money to borrowers, we have to have institutions and innovations that allow money to flow freely across the world, and we now have those," Walden concludes. "So I think the point here now is that we have a much different world financial market."

It used to be 40 years ago if you borrowed money that money may have been coming from neighbor across the street. Now it can be coming from households half a world away. And that’s allowed … interest rates to be cheaper.

Posted by deeshore at 09:55 AM | Comments (0)

March 21, 2007

Behind the trade deficit numbers

The United States continues to run a large trade deficit with other countries. But N.C. State University economist Mike Walden says that there's some good news behind the overall statistics.

"If we take out imports of oil and if we also take out our trade deficit with China -- and, of course, those are two important components of our trade deficit –- but, anyway, you take those out, the data actually show that our trade deficit was cut in half last year," says Dr. Walden, a professor of agricultural and resource economics.

"So what this I think indicates is that we really don't have an overall trade deficit problem. We have a two-headed problem: We have a problem obviously with importing oil, the fact that our economy runs on oil. Oil prices go up. That's going to increase our trade deficit based on oil," Walden adds.

"And we do have an issue –- I won’t call it a problem, but an issue -- with China. China, of course, is emerging as a major manufacturing country, and we have found it to our benefit in many cases to buy manufactured products from China," he says. "We are selling a lot to China, but still we are buying more from them. And that has increased the trade deficit there.

"But when you look beyond that to our trade with other countries, we are actually looking pretty good."

Posted by deeshore at 08:24 AM | Comments (0)

March 20, 2007

Healthy workers

Health-care costs have been rising faster than the overall rate of inflation for several years. N.C. State University's Mike Walden explains how this affects the relationship between business owners and workers.

"It's having a really big impact," says Dr. Walden, a North Carolina Cooperative Extension economist. "For the average business that provides health insurance, that health insurance per worker can cost between $3,000 and $7,000 every year. And of course, businesses are looking always for ways to reduce that.

"One way is to encourage healthy living," he adds. "Some businesses use a carrot approach there. They give added incentives, perhaps even pay for workers to go to nutrition classes or exercise classes.

"On the other hand, some businesses are using the stick approach: That is, they say we are going to fire you if you don't follow a healthy lifestyle.

"But there's another impact here, and it is in terms of where businesses locate," Walden says. "Locating a business where workers are healthy is becoming a much more important factor for the business community."

Posted by deeshore at 08:41 AM | Comments (0)

March 19, 2007

Corporate profits

Corporate profits are up -- way up -- over the past couple of years. At the same time, the share of national income going to workers has fallen. But N.C. State University's Mike Walden says it's not a new trend.

"I know this gets a lot of news and headlines, but we see corporate profits really ebb and flow -– that is, rise and fall with the business cycle. We see them go down as a percent of the economy during recessions, then we see corporate profits go up during expansions," says Dr. Walden, a professor of agricultural and resource economics. "And we’ve seen that happen in this business cycle.

"We had a recession in the early part of this decade. Corporate profits were down. Now they are up as we move into the recovery," he says. "In fact, corporate profits were only 8 percent of national income five years ago during a recession. Now they are up to 12 percent.

"Between the period 1940 to 1970, corporate profits averaged 14 percent. So we are really below that right now," Walden concludes. "So you really need to look at corporate profits over the long term to get a gauge as to whether they are high or low."

Posted by deeshore at 08:17 AM | Comments (0)

March 16, 2007

Good debt

Many policy makers and consumers are concerned about the large amount of debt that Americans have taken on in recent years. But exactly what is this debt? An N.C. State University economist explains what it is that we are buying with all this credit.

"I think most people, when they hear about households taking on more debt, they think of households taking on debt that is irresponsible: They are buying and using this debt for unnecessary items," explains Dr. Mike Walden, a professor of agricultural and resource economics.

"But if you look at the data for the past 15 years, here's what we see: The percentage of household debt that is going for your home -- that is, to buy a home, a home mortgage -- accounts for about three-quarters of total debt. And in fact it's up from 71 percent of all debt to 79 percent of all debt over that 15 years.

"So we are using more of our debt to buy homes. The amount that we use for credit cards has actually been constant at about 5 percent. The amount for education is up slightly from 3 to 4 percent. The amount for everything else is down," he adds.

"So really the increase in debt that households have taken on over the last 15 years has primarily gone to buy homes and for their education," Walden concludes. "And many economists would say that's actually good."

Posted by deeshore at 02:56 PM | Comments (0)

March 15, 2007

Age and income

It's often said that anyone can prove anything with statistics, and statistics about who's getting ahead in our country can be confusing. When examining household income changes, says one N.C. State University economist, it's important to consider age.

"Young households and people who are very old and retired, they tend to have both lower incomes, and they tend to have their incomes growing up at a slower pace," says Dr. Mike Walden, a North Carolina Cooperative Extension specialist. "So if you really want to get a good idea of what's happening to household income, it's probably important to look at what we call prime-age households –- those people between the ages of 25 and 59. And here, the news is actually pretty good.

"For example, from 1979 to 2005 the percentage of households in those prime ages earning over $100,000 a year in inflation-adjusted dollars doubled, from 12 percent to 24 percent," he adds. "On the other hand, the percentage earning between $30,000 and $75,000 actually shrank.

"So by this study you can say that households in their prime income earning years have actually enjoyed gains to their standard of living over the past quarter century."

Posted by deeshore at 08:44 AM | Comments (0)

March 14, 2007

A tale of two housing markets

The National Association of Realtors just released a study of the performance of housing markets in 2006, and N.C. State University economist Mike Walden says the study findings are favorable for North Carolina's sellers.

"It really showed that there are two housing markets going on in the nation right now. In many markets, like Florida and California in particular, housing markets that were very hot in the past are now really in the doldrums. In fact, in those two markets housing prices in some areas are declining at double-digit rates," says Dr. Walden, a professor of agricultural and resource economics.

"But the good news for North Carolina is that in most of our state the housing market is still strong. In fact, the Raleigh market was the sixth-strongest market with price gains in 2006 of houses of 15 percent. And Charlotte was also on the list, with housing prices gaining 8 percent," he says. "So if you are a housing seller you are really smiling right here in North Carolina.”

Posted by deeshore at 08:27 AM | Comments (0)

March 13, 2007

Overhead

The word overhead is used in many business contexts. What counts as overhead? N.C. State University economist Mike Walden explains.

"These are costs ... that a business has that are going to be unrelated to how much of the product they sell. We call them also fixed costs, and they are going to be things like rent on a building or equipment, insurance, some part of the power bill," says Dr. Walden, a North Carolina Cooperative Extension economist.

"The point here is that overhead costs a company has to pay whether they sell anything or not. And if they don't sell, this can be a big problem for them –- and in fact it can drive a company out of business," he adds. "And it's also I think very daunting to look at overhead costs especially for a new person starting as a small business because they will look at these costs and say, 'My gosh, I have to meet these overhead costs even before I think about producing and selling anything.'

"So certainly overhead is a key concept in business economics –- one that must be reckoned with."

Posted by deeshore at 01:04 PM | Comments (0)

March 12, 2007

Is savings up or down?

Recent reports indicate that the U.S. savings rate in 2006 was negative for the first time since the 1930s depression. N.C. State University economist Mike Walden considers whether this means we are throwing caution to the wind.

"Well by this measure of savings, the answer is yes. But there are a couple of issues here," explains Dr. Walden, a professor of agricultural and resource economics. "One is that the measure of savings ... which is a common one, doesn't include some ... very common types of savings -- for example, savings that people put into their retirement plans, investment gains or savings that you get by having your assets, like your house, appreciate.

"So an alternative measure which actually is put out by the Federal Reserve, looks at savings in terms of net worth of households: the value of household assets your investments minus your debts or liabilities," he adds. "By this measure, net worth for the average household is actually at an all time high.

"So this is a case, unfortunately, where you have a couple of different definitions of an economic concept -– savings -– and you are going to have to pick which one makes most sense to you."

Posted by deeshore at 08:08 AM | Comments (0)

March 09, 2007

Progress of North Carolina’s regions

Regions of North Carolina haven't progressed economically in the same way. While it's hard to talk about these differences in a state with 100 counties, N.C. State University economist Mike Walden suggests six useful categories.

"In my work ... I have found it useful to divide these 100 North Carolina counties, as you speak of, really into six groups based on two key characteristics: first size of the area, whether it's an urban area, a small town area or a rural area," he explains. "And then by the type of economy: whether they are a primarily a new economy, a growing economy or whether it's an economy in transition: moving from the traditional economy in North Carolina to something else.

"So if you use this format, you have six types of counties in North Carolina: You have counties that are growing with the new economy, whether they be urban counties like the Triangle, small town economies like Boone, or rural counties as in the far west.

"Then you have counties that are in transition: urban counties like Greensboro, small town counties like around Greenville and rural counties down east.

"And I think what's useful out of this is that you can see common strategies in terms of economic development based on where you will place your county into these six groups."

Posted by deeshore at 08:48 AM | Comments (0)

March 08, 2007

Are we working less and playing more?

It seems like everyone today is so busy with work, going to school, taking care of the kids and the household that free time is at a premium. True? N.C. State University economist Mike Walden says it depends on your definition of free time.

"Well traditional studies … of time spent at work (do) show a declining work week over time. And so if you took these studies, you would conclude that, yes, people have more leisure or free time. But a new study has just been published that takes a different approach," says Dr. Walden, a North Carolina Cooperative Extension specialist.

"This study defined free or leisure time as only that time after taking account of not only time working but also time going to school, time taking care of your children and the household, and time commuting," he explains. "And interestingly these authors found that after they defined leisure in that way, taking into account of all these other tasks, that the average person today has only about the same leisure time as the average person had back in 1900.

"So free time or leisure time, again defined in this way, has not gone up," he says. "And I think this really goes along with what most people think –- that their free time is very, very precious."

Posted by deeshore at 10:59 AM | Comments (0)

March 07, 2007

Green houses

When he talks about "green houses," N.C. State University economist Mike Walden doesn't mean the kind where plants are raised. Instead, he's referring to the houses that are energy efficient but not exactly in style, even amid concerns about energy and the environment.

"Well, there’s certainly more interest. ... But I don't think they are really coming into style yet, and the problem is cost," says Dr. Walden, a North Carolina Cooperative Extension specialist.

"To add these environmentally features -– things like solar power -- the problem is that you have a big upfront cost. For example, using wood in your home that has been harvested in an environmentally sensitive manner: One recent builder tried to do that. It adds about $3,500 up front to the cost of the house," Walden says. "For many people that's the cost of their down payment, so people pass that up.

"Or, for example, to add solar power, solar panels are going to cost you maybe upwards of $25,000. And that's the cost you have to make up front," he adds. "So I think that's really what's holding these kinds of improvements back. Now there is some optimism, I think. As more homes are built with environmentally sensitive materials and technology, there's a greater chance that these costs will come down.

"Also there are proposals for more tax subsidies, which could certainly help up front."

But right now these homes have to be marketed I think to emphasize their features rather than their cost.

Posted by deeshore at 09:05 AM | Comments (0)

March 06, 2007

From agriculture to manufacturing to services

Our economy has been undergoing a vast transformation in recent decades, with a tremendous growth in the services sector. But this isn't the only time our economy has gone through such a major change, says N.C. State University economist Mike Walden.

"I think all of us, of course, get caught up in the current period, and we think that change is going on now or perhaps (it's) the only time that changes have happened," says Dr. Walden, a North Carolina Cooperative Extension specialist. "But actually that's usually not true.

"And it's certainly not true in this case. If you look, for example, over the last 200 years we've had two big transformations in the job market," he adds. "Go back to 1800, 90 percent of workers worked on the farm. 90 percent! By 1900 that had fallen to 50 percent, and the other 50 percent was split equally between the manufacturing sector and the service sector.

"Now today what's happened is not only have we seen the number of people on the farm fall further, to about 3 percent, manufacturing is also down to about 20 percent and, of course, services makes up the bulk, at about 75 percent," he concludes. "The point is that this change has been going on for centuries, and it's a gradual change, certainly not all at once."

Posted by deeshore at 08:56 AM | Comments (0)

March 05, 2007

CEO pay

Many chief executive officers make millions of dollars annually in salary. N.C. State University economist Mike Walden explains how companies justify such big paychecks.

"This certainly is a controversial point. Whenever we hear about large CEO salaries, people get their ire up because they think, 'Gee, how could someone be earning so much more than I am?,'" says Dr. Walden, a professor of agricultural and resource economics. "Well, as a rule of thumb, when you look at the labor market, a worker's pay is going to be related to the value of their job, and the fact of the matter is for CEOs, they make many, many decisions every day that could be worth millions if not in some cases billions of dollars.

"So when ... every decision that you make could make money or potentially could lose money for the company of that order, obviously companies want to get good people, and the way to get good people in many cases is to pay them a lot of money," he adds. "So, for example, if you have a CEO who maybe is paid $100 million a year yet (he or she makes) decisions over the course of the year that could potentially make a billion dollars for the company, the company could say that CEO is actually a bargain."

Posted by deeshore at 01:23 PM | Comments (0)

March 02, 2007

Making money with incentives

Controversy swirls around the use of government tax incentives to attract businesses. This time, the debate involves Google, which reportedly will receive more than $200 million in incentives after agreeing to locate an operation in Caldwell County, N.C. Economist Mike Walden considers whether these incentives can ever pay for themselves.

"Most of the incentives that we hear talked about are actually ... not a situation where the government -- in this case, the state or local government -- is going to write a check in this case to Google," says Dr. Walden, of N.C. State University. "Instead, they are forgiveness of future taxes. So they represent taxes that won't be paid.

"Now some argue that ... if the company didn't come, there wouldn't have been any taxes to pay anyway, so we are forgiving something that we wouldn't have had anyway.

"But, be at as it may, you can look at this in a cost-benefit framework. Even if the state is forgiving taxes for Google, they may make money out of this if, for example, you account for the fact that other suppliers to Google, as well as the workers who are going to get increased taxes -- all of those folks are going to pay taxes," he concludes. "The state does try to calculate this in a benefit-cost framework. Of course it requires forecasting into the future, but you actually can come up with situations where the state and the state economy does make money with incentives."

Posted by deeshore at 01:06 PM | Comments (0)

March 01, 2007

How big is the national debt?

The federal government continues to borrow money, and the national debt is now in the trillions of dollars. Yet all this borrowing hasn't seemed to wreck the economy. N.C. State University economist Mike Walden explains why.

"Well I think just like a person ... who has more income can borrow more money, the same idea applies to the nation," says Dr. Walden, a professor of agricultural and resource economics.

"And the fact is although the federal government is borrowing more money, when you put it in context of the size of our economy, this borrowing is actually up only slightly in the past few years -- and is actually down significantly from the 1990s," he says.

"And further when you view it in this way –- that is how much borrowing is taken out of our economy –- the U.S. government borrowing is actually less than government borrowing in countries like Germany, Japan and France," Walden concludes.

Posted by deeshore at 08:30 AM | Comments (0)