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May 31, 2007

Is our earnings ride bumpier?

There's a general perception that the workplace has gotten tougher, with workers' incomes going up and down at a more rapid clip than in the past. But N.C. State University economist Mike Walden says that perception isn't based on fact.

"Of course with a lot of things and a lot of perceptions and a lot of conventional wisdom, we do want to check and see if they are accurate. And in this case the common perception is actually not accurate," says Dr. Walden, a professor of agricultural and resource economics. "There is a new study that looked at this very precise question. The study looked at data for workers over the last 20 years. They separated workers into different age groups, because that determines how up and down your income profile is.

"And the conclusion the study reached is there has been very little change in what we will call income volatility -– the rate at which your income can go up and can go down," he explains.

"For example, middle age workers 20 years ago 14 percent of them suffered an income drop of 50 percent or more; today, only 12 percent," Walden adds. "Very young workers (those ... 20 and younger), 18 percent of them suffered a large income drop 20 years ago; only 16 percent of them do today.

"So although these big wage changes may capture the headlines, there's actually very little economic evidence that the economic ride has gotten bumpier."

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May 30, 2007

Saving versus paying off the mortgage

If you've accumulated some savings, would it be better to pay down your mortgage or invest the funds? N.C. State University economist Mike Walden says there's a simple answer.

"I have this question put to me a lot. I hear this question on financial shows. And there really is an easy answer, and the answer is simply put your money where the interest rate is highest," says Dr. Walden, a specialist with North Carolina Cooperative Extension.

"Now what does that mean in this example? Well, it means look at the interest rate on your mortgage, then look at the interest rate that you could earn in whatever investment you are considering, and put your money wherever the interest rate is higher.

"That is to say that if, for example, you have an 8 percent mortgage, an 8 percent interest rate, and let's say your best investment is to earn 6 percent, you'd actually be better off taking any spare cash and paying down or totally paying off that 8 percent mortgage," he explains. "It's like earning 8 percent.

"Conversely if the numbers are flipped -- you can earn more on your investments than you can on your mortgage -- then keep your mortgage and go ahead and invest," he adds.

"Now there are some technical things here in terms of tax deductions for mortgages as well as interest on investments. So if you want to get real precise you have to consult a financial expert to do that," Walden concludes. "But the general rule of thumb is simply look at where the interest rate is higher, and that's where you want to put your money."

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May 29, 2007

Why are gas prices rising?

Rising gas prices: Although drivers may have gotten used to it, they still don't like it. Pump prices are up almost 90 cents a gallon from their low earlier this year. Call it a rite of spring, says N.C. State University economist Mike Walden. As flowers grow, so do gas prices.

"Usually every year at this time as we move from winter to spring and then we approach summer, driving increases. People are out doing more things. Some folks are even on vacation. And we see a commensurate increase in gas prices," says Dr. Walden, a professor in the College of Agriculture and Life Sciences. "So part of it is just seasonal. This is just when gas prices go up.

"But there is one difference this year, and that is that we had a bigger drop in gas prices than was normal in the fall and winter. In other words, usually in the fall and winter, gas prices fall just like they rise in the spring and summer," he adds. "This past fall and winter we had a bigger than normal drop. Therefore gas prices this year started their upward climb from a lower base. And I think that's why people perhaps are a little more upset -- because they've seen a steeper rise.

"Again, looking at the future I would say get used to gas prices right now in the $3-$3.25 range," he concludes. "If we have some bad hurricanes particularly through the Gulf we'll certainly go higher."

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May 28, 2007

Why's the stock market rising?

Gas prices are headed up. The national unemployment rate rose last month. Mortgage bankruptcies have skyrocketed. And yet the stock market is setting new records. Is Wall Street disconnected from Main Street? Some analysts say so, but not N.C. State University economist Mike Walden.

"I think actually there's some rationality behind what's happening in the stock market," says Dr. Walden, a North Carolina Cooperative Extension economist. "The stock market ... considers two key factors: economic growth and interest rates.

"Now in terms of economic growth, what the stock market actually likes is not gangbuster economic growth," explains Dr. Walden. "They like moderation. They like economic growth, but going at a modest pace.

"In terms of interest rates, they like lower interest rates," he adds.

"Now if you look at the economic landscape now we see really we've got both of those factors. We do have economic growth, but it is actually slower than it was last year. But it is not slow enough to be in a recession. So it's kind of in that Goldilocks standard that the stock market likes.

"Plus the interest rate situation is actually pretty good," Walden says. "Interest rates are certainly higher than they were two years ago, but they are a lot lower than they were over this decade.

So I think right now investors are looking at the economy and saying 'Hey, it's not too hot. It's not too cold. It's just about right," he concludes. "And I think this is the main reason why we've seen these new records set."

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May 25, 2007

World poverty

When we watch TV or read the newspaper we often see images of people in foreign countries living in horrible poverty. It's easy to get the impression that little progress has been made in reducing world poverty. But when you look at the statistics, says N.C. State University economist Mike Walden, progress is being made.

"Fortunately … there has been progress in reducing world poverty," says Dr. Walden, an economist with North Carolina Cooperative Extension. "The World Bank has developed a standard; they call it the dollar-a-day standard, and they estimate the number of people worldwide who are living on less than a dollar a day.

"Now when these numbers are calculated and especially when the dollar-a-day standard is used, the economists who do these calculations are very careful to consider differences in purchasing power between countries and also changes in purchasing power over time," he adds. "The good news is that the number of people living on less than a dollar a day in the world has dropped from 1.25 billion folks in 1990 to under 1 billion today. Still a large number, but at least going in the right direction.

"Stated another way, if we look at the percentage of the world's population living on less than a dollar a day, it's fallen from 29 percent in 1990 to 18 percent today," Walden says.

"So I think you'd have to say certainly progress has been made, but certainly more work needs to be done."

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May 24, 2007

Impacts of welfare reform

Ten years ago North Carolina implemented the new welfare program called Work First to motivate welfare recipients to get more education and training so they would be more self-sufficient. N.C. State University economist Mike Walden reviews the program's success.

"This kind of program was actually instituted in a lot of states. It was part of the national reform of welfare that happened in the mid-1990s," explains Dr. Walden, a professor of agricultural and resource economics. "And as you might expect there have been a lot of studies that have gone back and looked at whether programs like Work First actually accomplished what they set out to do.

"And the good news is that, in general, the program does seem to have achieved its desired results. For example, we see that welfare use is down among so-called welfare recipients. They have been able to upgrade their skills, and more of them are in the work force earning more cash.

"Now some of this, of course, is a result of the relatively strong job market that we’ve had in the last decade, but still if you control for that -- and some studies do -- they do find these positive results," Walden adds. "Now it is important to realize that a program like Work First only applies to cash welfare, so there are limits, for example, on receiving cash welfare. There are not limits on receiving other kinds of entitlement programs, such as food stamps and Medicaid."

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May 23, 2007

Transfer spending

Government spends money in two categories: It can provide services like roads and schools, public safety and garbage collection. And it can provide financial resources to people. The latter category is called transfer spending. N.C. State University economist Mike Walden explains what this includes and how it's changed in the last 30 years.

"It's the largest single category now of government spending, and it's grown immensely," says Dr. Walden, a professor of agricultural and resource economics. "Its share of total government spending here in North Carolina, for example, has doubled in the 30 last years.

"Now in terms of what we include in transfer spending -- many categories. But the big parts would be Social Security, assistance with medical programs (payments like Medicare, Medicaid), cash welfare and food stamps. Indeed in some counties in North Carolina transfers now account for over 20 percent of the local income," he adds.

"The fastest growing part of transfer spending, I think -- and people won't be surprised by this –- is medical assistance," he concludes. "And it really represents a big challenge for government at all levels because it is taking more of total resources we provide to government."

Posted by deeshore at 10:27 AM | Comments (0)

May 22, 2007

Less red ink

Federal budget deficits have become so common that the best question to ask each year is "how much?" N.C. State University economist Mike Walden looks at the deficit statistics for 2006.

"We did run a federal budget deficit last year in 2006. That's the bad news I guess," says Dr. Walden, of the College of Agriculture and Life Sciences. "Hut the good news is that it actually got smaller.

"Now the way that economists look at this is not so much in terms of the dollar amount -- although in this case the dollar amount did get smaller," he continues. "But we look at the budget deficit as a slice, if you will, of our total economic pie -- our total economic output

"And looked at in that way, in 2005 the deficit took 2.5 percent of the total U.S. economic pie. Last year 2006, the slice was down to 1.2 percent –- so almost cut in half.

"The main reason was not necessarily a slowdown in the growth of federal expenditures. It was a big increase in federal revenues as a result of the fact that the economy is doing very well.

"So Uncle Sam still has to borrow, but at least last year relative to the economy he had to borrow much less."

Posted by deeshore at 08:46 AM | Comments (0)

May 21, 2007

Are we winning the international race?

There's a general perception that in the world of international business and competition the United States is losing, but N.C. State University economist Mike Walden says there's at least one statistic that suggests this just isn't the case.

"It's our exports ... and indeed we are running in our country a trade deficit -- no question about that," says Dr. Walden. "But in the last two years what's interesting is that our exports have actually been growing faster than our imports.

"Now they have not grown enough to overtake imports, but they have grown faster than our imports. In fact, last year our exports rose 9 percent, and this was actually a third faster than the increase of imports to our country," he explains. "And so what this actually means we are still competitive in the world economy. Our products are still sought after in the economy, and the fact that our exports are growing faster than our imports is actually making our trade deficit shrink somewhat.

"And it's also very reflective very clearly of the fact that the dollar's value has gone down."

Posted by deeshore at 08:15 AM | Comments (0)

May 18, 2007

The earnings profile

Economists have noted that there's a typical pattern to the income that people earn over the course of their careers. It's called the earnings profile, or earnings pattern, and N.C. State University's Mike Walden explains what it looks like.

"What happens –- now this is for a typical person; it doesn't happen for everyone, but on average -- ... is the person gets their first job (and) their salary is very low. If they do well and gain experience, what you see typically happen is their salary rises very rapidly for the first 10 years," says Dr. Walden, a professor of agricultural and resource economics.

"The next 15 years, their salary also rises, but less rapidly as they gain experience but perhaps at a slower rate," he adds. "And their salary in terms of inflation adjusted dollars peaks at about year 25. So year 25 would be when you are earning the highest (again in terms of constant purchasing power dollars).

"Then as you move toward retirement -– and let's say you are going to retire at 30 years –- your salary, again in inflation adjusted terms, actually goes down," he says. "The reason being that, hey, as you see retirement in your near future, your motivation slips, your productivity wanes -- and that's reflected in lower salary.

"So what this means," Walden concludes, "is that most people should see their best earnings on the job somewhere in their mid-50s."

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May 17, 2007

Total and core inflation

Economic news reports sometimes quote two inflation rates -- a core rate and a total rate. N.C. State University economist Mike Walden explains the difference.

"The total rate contains everything. So at the retail level we are looking at what's happening to prices of everything that consumers buy, all products and services," explains Dr. Walden, a North Carolina Cooperative Extension specialist.

"Now the core rate, though, takes everything but subtracts two important prices: those prices for energy products and those prices for food products," he adds.

"Now why? Well, because economists in looking at food and energy prices over the long haul find they are very volatile. They move up one month, move down another month. And if we are trying to look at the inflation rate as some predictor of where prices are going sort of on trend, we may want to take those out," Walden explains. "So that's what the core rate does.

"Now there can be differences: Recently the total inflation rate has been going up at 4 percent, but the core rate's only been going up at about 2.5 percent," he says. "It's thought that the Federal Reserve, which has a lot of influence on our economic lives, actually pays more attention to the core rate than to the total rate."

Posted by deeshore at 08:31 AM | Comments (0)

May 16, 2007

Are consumers controlling their borrowing?

Getting into debt and staying there is a big issue for many households. Economist Mike Walden takes a look at whether consumers are collectively doing a better job managing their debt.

"Part of the answer says yes; the other part says no. And here's the scoop: The good part is that consumers actually have been adding to their debt at a slower rate. For example, in 2005, consumers increased their total debt by 13 percent," explains Dr. Walden, a professor of agricultural and resource economics at N.C. State University. "In 2006, they increased it by only 12 percent. Now that might seem like a trivial difference, but it amounts to hundreds of millions of dollars.

"But the bad news is that debt payments -- what we have to pay to service our debt as a percentage of our disposable income -- has actually gone up from 14 percent in 2005 to 14.5 percent in 2006," he adds.

"Now how can you reconcile these two things? Our debt did grow slower, but the problem is that interest rates have gone up over the past couple of years.

"So although we are adding to our debt at a slower rate, the higher interest rates are increasing what we have to pay each month to carry that debt."

Posted by deeshore at 07:05 PM | Comments (0)

May 15, 2007

What makes the economy grow?

The American economy creates $12 trillion of products and services each year. N.C. State University economist Mike Walden looks behind this giant number and outlines the four components that make it up.

"The biggest part by far is the spending and the income created by you and me -- and all the other consumers in the country. In fact, consumer spending accounts for three-quarters of that $12 trillion," says Dr. Walden, a North Carolina Cooperative Extension specialist.

"Secondly we have the spending done by businesses -- particularly in terms of their investments in new structures, equipment and technology
So that's an important component," he adds.

"Then we can't forget government. Government does play a role here simply because it's so large. And we have a lot of government spending as mundane as picking up the garbage to building roads and bridges and funding the military at the national level," he says.

"And then the fourth component is international trade. And the way this works here is that exports from our country sold in other countries -- that's a plus -– that adds to our national income.

"But imports –- things we are buying from other countries -- that's a negative, and so that brings down that $12 trillion."

Posted by deeshore at 08:51 AM | Comments (0)

May 14, 2007

Food price inflation

Americans are used to affordable food. But there are signs, says N.C. State University economist Mike Walden, that food price inflation is coming back.

"We have been used to very modest increases in food prices. In fact over the last couple years food prices have gone up somewhere between (2 and) 2.5 percent a year," says Dr. Walden, a professor of agricultural and resource economics. "That's very modest. Food costs as a percent of our total income are way down in fact the lowest in history.

"But recently ... we have seen food price inflation move higher. In fact, currently it's running at about 3.5 percent a year. Some economists think it could go up to as high as 4 percent -- and perhaps stay there for several years," he adds.

"And what's behind this is at least right now is the big move toward ethanol. And again what's happening is that we make ethanol from corn in this country. So more corn is being used for ethanol," Walden says. "That means there's less corn importantly to be used as feed particularly for beef and chickens, and that's pushing up food prices.

"And so we are probably going to see these somewhat elevated food prices for a while," he concludes, "until enough additional corn is planted to satisfy both the food market as well as the ethanol market."

Posted by deeshore at 08:39 AM | Comments (0)

May 11, 2007

Where the jobs are

As students prepare for entering the job market after tomorrow's (May 12's) graduation at N.C. State University, economist Mike Walden looks at North Carolina job prospects.

"It's always important, particularly for young people, to know there are jobs out there, but it really depends on where you look," explains Dr. Walden, a professor of agricultural and resource education.

"If you are looking in the professional area or business jobs, you should have a smile on your face because those jobs have been increasing at about a 7 percent clip on an annual basis. That's good.

"If you are going into the construction industry -– and not necessarily to actually do the work but managing or buying and selling of construction materials, jobs there have been increasing at about a 6 percent clip," he adds. "And then jobs in the health and education sectors -– and, of course, we know we are very big on health care here in North Carolina -- they have been going up at about a 5 percent clip.

"The one sector where you want to perhaps think twice about whether you want to go into that sector is manufacturing," he adds. "Manufacturing lost 3 percent of its jobs last year, and of course it's way down over the last 10 to 15 years. However, one glimmer of hope there is that most of these cuts are in jobs on the assembly line. Manufacturing companies are still looking for talented people in management and finance."

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May 10, 2007

North Carolina gains and losses in the economy

With North Carolina's economic data for 2006 just in, economist Mike Walden takes a look at how we did compared to the rest of the nation.

"Well, we did good ... on some measures; so-so or average on others, and not so well still on others," reports Dr. Walden, an extension economist at North Carolina State University.

"The measure we did very well on was jobs: We gained jobs in North Carolina at a 3 percent rate compared to less than 2 percent for the nation," he says. "We did about the same on total income growth: Total income growth in both North Carolina and the U.S. last was around 6 percent.

"Where we came up short, however, was income gains per person, so-called per capita income gains. The U.S. saw that number go up 5 percent; we saw that number here in North Carolina go up only 4 percent," he adds.

"And I think what this indicates is, and I think as everyone knows, the North Carolina economy is still in transition, moving away from the economy of the 20th century to the newer economy of the 21st century. And that transition is taking its toll on some of these big economic numbers."

Posted by deeshore at 11:28 AM | Comments (0)

May 09, 2007

Downsizing in the tech sector

Recently the computer firm Lenovo announced that it was cutting jobs worldwide, including several hundred here in North Carolina. Why is this happening in what has been a hot sector for the state's economy? N.C. State University economist Mike Walden explains.


"I think most people know that North Carolina has been a leader in the tech sector. But there is something called the product cycle that is really working against us, at least in the manufacturing part of the technology sector," says Dr. Walden, a professor of agricultural and resource economics.

"The product cycle simply says that initially when you have a relatively new product, say like personal computers, the manufacturing is going to be done in the country where the product is being developed -- where you have the designers, where you have the brains sort of behind the new product. But then later when the manufacturing process gets set –- when it goes assembly line, where it’s very simple and you don't need the input of those designers and innovators -- then the manufacturing can go offshore," he continues. "And it can go, for example, to low-cost countries like as Taiwan, China and so forth.

"And I think that is what we are seeing happening in the tech sector in the U.S. as well as in North Carolina," he concludes. "We are going to have less, relatively speaking, manufacturing of technology products. And where we are going to however still be strong is in, number one, the servicing of those products and, number, two still in the innovation and design aspects."

Posted by deeshore at 08:22 AM | Comments (0)

May 08, 2007

The old and the new in North Carolina

The economist’s term creative destructionism is something like the phrase “out with the old and in with the new.” North Carolina has many examples of this process at work, says N.C. State University economist Mike Walden, because the state is experiencing major economic change.

“I think one of the best examples we have is occurring outside Charlotte. I think people remember a few years ago the giant textile complex called Pillowtex closed, and when it did thousands of workers lost their jobs," says Dr. Walden, a professor of agricultural and resource economics. "And of course the textile industry had been a dominant industry in North Carolina throughout the 20th century, and now it has been downsizing in the last 30 years.

"Yet exactly on that same site –- the same site where Pillowtex once stood -– there is rising as we speak a new research complex devoted to biotechnology. The investment is going to be over a billion dollars, and this will ultimately, directly or indirectly employ thousands of workers.

"So I think this is a very good example of a new industry -- here, biotechnology -- in North Carolina replacing a very important historic industry, textiles, which has been downsizing. And I think it is an excellent example of what … economists term creative destructionism."

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May 07, 2007

Dividing markets

Why can't people get flights to New York that costs the same regardless of when they fly? And why can't two people -- one age 60 and the other age 20 -- each get a hotel room for the same price? Why do the same products often cost different amounts to different buyers? N.C. State University economist Mike Walden says it's because sellers often know that some groups are willing to pay more for the same products and services than others are.

“You see this everywhere, and it is perplexing for people. They think that everything ought to cost the same regardless of your particular characteristics, but this is a very common technique used by sellers," says Dr. Walden, a North Carolina Cooperative Extension specialist.

“What sellers try to do is they try to separate buyers into different groups -- if they know that those different groups have different demands or desires for the products. In other words, if you have one group -- we’ll call it group A, who really likes a product and another group B, who is kind of lukewarm -- well the business if they can separate those groups, A and B, can probably charge group a more for the same product than they can charge group B," he explains.

“And so you see this everywhere. You see it for example … in the airline ticket area. Typically what happens there is airlines try to divide ... travelers into business travelers and leisure travelers. They know that business travelers who have to be at a certain place at a certain time likely will be willing to pay more than … leisure travelers," he adds. "Or you may see it at a store where people who are buying items in bulk will get a lower per-unit price because they are much more sensitive to the price.

“The trick for sellers, though, is they have to use characteristics of buyers that are legal to use," he concludes, "and which don’t offend those buyers when they do divide them into different groups.”

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May 04, 2007

Shifting tax shares

The North Carolina economy has seen major changes over the last three decades, and so has the type of revenues that state and local governments depend on. N.C. State University economist Mike Walden summarizes these major changes.

"There have been some big changes … and these occur somewhat slowly. But when you look over, say, three decades they actually can look rather big," he says. "In the last three decades what we have seen is that the state has relied much more on the income tax as a source of revenue. Also relying more on fees and charges.

"Contributions of the property tax and the sales tax to overall revenue have remained relatively stable. And two taxes, however, have seen their shares decline quite substantially: the corporate income tax, where its share has gone down about three-quarters; and the gas tax -- its share has gone down about 50 percent.

"And some of this is due to … underlying trends in our economy; for example, many more businesses are smaller businesses today, so they are reporting their income on the individual income tax form rather than the corporate income tax form.

"But I think the bigger question is for our elected officials -- whether these are the kind of trends they want to have happen," he concludes. "Are these trends good for both the North Carolina economy as well as for citizens in this state? And if not, what kind of changes might those elected officials try to enact?"

Posted by deeshore at 10:07 AM | Comments (0)

May 03, 2007

Controlling inflation

It used to be said in elementary economic sources that inflation results from too much money chasing too few goods, but it today's global economy, it's accurate with a footnote or an asterisk, says N.C. State University economist Mike Walden.

"The old cliché was, I think, very accurate when we had essentially a closed economy," says Dr. Walden, an economist with North Carolina Cooperative Extension. When, for example, "most people in the U.S. bought things that were produced by U.S. manufacturers and producers and so we did didn’t have any outside influences.

"But now, of course, increasingly we are buying things from overseas," he explains. "So now the government has to not just watch the money supply vis a vis internal economic growth, they also have to watch it vis a vis external growth -- that is, in terms of the imports that we are getting from other countries.

"And the bottom line here is it’s made the government’s job, particularly the Federal Reserve’s job, much more difficult," Walden concludes. "So, for example, the Fed now not only has to watch U.S. factories and how much U.S. factories are producing but, they also have to watch factories in China and Europe and Japan. And that’s much more difficult and makes their job much more complex in setting the right amount of money growth in our economy."

Posted by deeshore at 09:51 AM | Comments (0)

May 02, 2007

Taxes versus fees

When we think of government revenues, we tend to immediately think of taxes. But government also levies many fees and direct charges. N.C. State University economist Mike Walden describes the difference between taxes and fees.


“Taxes are paid for government services that are supposed to really help everyone. So the idea is … we pay taxes and they go into a pot where they are funding things like K-12 education (and) roads," says Dr. Walden, a professor of agricultural and resource economics. "Those would be two good examples of where all of us directly or indirectly benefit."

"Fees, on the other hand, are paid for government services that directly help that specific person. So, for example, a college student pays tuition, that’s a fee, and the college student obviously is getting the direct benefit of the education," he adds. "Or a driver who parks at a municipal garage pays a few because they are using that parking space. Or a household pays a fee to the city for city water.

"So the difference here is whether the person who is paying the charge directly benefits: In that case, it’s a fee. Or if they benefit as well as everyone else benefits, that’s a tax.

"Now the interesting point here in North Carolina is North Carolina is making a wider use of fees," Walden adds. "In the last 30 years, fees as a percentage of all state and local government revenue in North Carolina have risen from 25 percent of all revenue to 35 percent."

Posted by deeshore at 09:30 AM | Comments (0)

May 01, 2007

Net tax burdens

It’s a fact of economic life that government both taxes and gives: Government takes through taxes, but government gives through its spending on programs and other activities. A new economic study sorts out who comes out ahead and who doesn’t. N.C. State University’s Mike Walden explains.

“This is a real interesting question … and it is one that … economists have been asking for a long time. And we actually have a new study from the nonpartisan, nonprofit Tax Foundation that tries to sort this out,” says Dr. Walden, an extension economist.

“They went through a lot of data -- and I won’t go into the details of what they did -- to try to sort this out, looking at what people at different income levels pay in taxes versus what those same people in different
Income levels get back from government programs, programs like social security, Medicare and Medicaid and other assistance programs,” he explains. “And I think what they found conforms to our common sense but at least we got some numbers here.

“What they found is that the lowest income households get a lot more back than they pay. In fact they get about $8 back in terms in services for every dollar in taxes they pay. Middle income -- households almost a wash. They get back a little more -- about $1.30 to $2 for every dollar they pay in taxes,” he adds.

“Upper income households, however, are net payers to the government. They get back 40 cents for every dollar they pay in taxes.

“And this should make sense,” Walden concludes because a big part of what government does is redistribute income.”

Posted by deeshore at 09:12 AM