July 31, 2007
Have we reached peak oil?
Our economy still runs on oil and will continue to do so for the foreseeable future. But it's not a renewable resource, so economists and others are keeping tabs of how much is left. N.C. State University's Mike Walden describes what they see.
"This is a subject that is very controversial," says Dr. Walden, a professor of agricultural and resource economics. "Quite frankly it's very difficult to impossible to peer down into the earth's inner surfaces and see how much oil there is, so these are all estimates.
"The good news is that most of the estimates suggest that we have more oil reserves today –- about 15 percent more -- than we had a decade ago," he adds. "But people who follow this are troubled by the fact that if they look at some of the large oil fields in the world -– and we are thinking about some oilfields in Mexico as well as in Saudi Arabia -- it appears that production from those fields has peaked and, in fact, has been going down.
"The other warning sign is that large replacement oil fields have not been found," Walden says. "So there is some thought, again among these experts, ... that maybe we have reached the point where we are getting as much oil out of the ground on an annual basis as we can and production will gradually decline in the future.
"Now one way to know this for sure is, of course, to follow oil prices. As the reserves of oil go down, the price will naturally rise."
July 30, 2007
Paying for risk
With the safety of imported foods increasingly in the headlines,
N.C. State University economist gives his opinion on two questions: Why would anyone take the risk of selling unsafe products? And how can consumers get such producers to sell only safe goods?
On the first question, he says, "I think it's really a matter of perspective. You have to realize that in many cases the new imports that the U.S. is using are coming from developing countries.
"There is a rule of thumb in economics that the higher your income, the more you are going to be concerned about safety and lowering risk. And when you are just starting out and you are focusing on just getting income, perhaps those characteristics aren't so important. So perhaps it's not surprising that we are having some issues here.
"Now on the second question, though, I think the biggest way for consumers to get those sellers who are making the unsafe products to change their habits is to motivate them with dollars -- that is, simply not to buy those products until they reach the safety levels that consumers want," Walden adds.
"In fact, it is this fear of consumer backlash that's really the motivator for producers anywhere -- not just from developing countries, but producers anywhere -- from producing products that consumers want.
"And I know, for example, in China right now, where a lot of these issues have arisen, there is a major, major focus of getting this issue off the table because they know that if it lingers it can seriously damage their economy."
July 27, 2007
Summer clearance sales
Summer clothes and other summer products are already being put on sale. Because retailers know that consumers are looking ahead, says N.C. State University economist Mike Walden.
"I think they are really following us. We as consumers look ahead. I think many of us many shoppers thought really of summer back in spring
Now that summer is here, we are looking ahead to the fall and back-to-school," says Dr. Walden.
"And so retailers realize this, and so what they want to do is move their summer products off the shelves because what they certainly don't want to do is be stuck with a lot of summer products. It's very difficult and expensive to store those until the next season, plus styles may change. Consumers are fickle," he adds. "So retailers really want to move those products that are seasonally based off their shelves. And they do that by putting them on sale.
"So this time of year -- and we will see this repeated when winter comes and so forth -- ... when the summer products are on sale really presents a great buying opportunity for consumers who, for whatever reason, have waited to stock up on summer items," Walden concludes. "And you can do that now very inexpensively maybe for next year."
July 26, 2007
One traditional industry that's doing well
North Carolina's economy is changing fast. Industries that had been mainstays years ago seem to have disappeared amid the rise of technology and a global economy. But there's one traditional industry that has continued to thrive, says N.C. State University economist Mike Walden.
"There is one industry ... that has thrived. It has really remade itself. I think this industry will surprise many when I say it is actually agriculture," says Dr. Walden, a North Carolina Cooperative Extension specialist.
"Agricultural output –- that is, the amount of agricultural products that our state produces -- is now four times larger than it was 30 years ago. Employment in agriculture is actually higher than it was 20 years ago," he explains. "Statistics show that the lower trade barriers that have hurt so many others of our traditional industries have actually helped this industry.
"Now one of the reasons for the success of agriculture is, as I said, ... it has really reinvented itself. We went from a crop-based (primarily tobacco) agricultural economy to, today, an animal-based economy, based on things like hogs and chickens.
"The big question, I think, for the future for agriculture in North Carolina," he continues, "is whether it will have to reinvent itself again."
July 25, 2007
More manufacturing cuts
North Carolina's traditional economy suffered two recent blows, the first when Philip Morris USA announced it would close its giant cigarette factory in Cabarrus County and the second when Hanesbrands Inc. said it would close a large apparel factory in the state. The moves mean thousands of lost manufacturing jobs for North Carolina, and N.C. State University economist Mike Walden says they continue a longstanding trend.
"Unfortunately both for the companies and the workers, this is part of a trend. And it's really not a new trend," says Dr. Walden, a professor in the College of Agriculture and Life Sciences' Department of Agricultural and Resource Economics. "Textiles has really been downsizing for now, really, almost two decades, and they have done more so in the past decade.
"For tobacco this is the result of the reduced incidence of smoking in the U.S. It's also the result of the growth of foreign competitors," he adds. "For apparel, production can now be done more cheaply for many apparel items in foreign countries that have lower labor costs. And as trade barriers have been reduced more of that production is going to those countries.
"The good news for the North Carolina economy, ... if you look over the past 20 years or the last decade, is that our economy has been able to absorb those job loses" he concludes. "We are still one of the fastest-growing states in the nation. The bad news, though, is the workers who are let go from these factories will likely need to retain and -- or -- relocate in order to get comparable paying jobs."
July 24, 2007
The new big five
For decades North Carolina's economy was led by the Big Three of tobacco, textiles and furniture. While those industries are all downsizing, new industries have grown, says N.C. State University economist Mike Walden.
"I term them the Big Five –- the new Big Five: technology, pharmaceuticals, food processing, banking and vehicle parts," explains Dr. Walden, a North Carolina Cooperative Extension economist. "And to give you a comparison on how the economy has changed, if you looked at our economy in North Carolina in 1977 the Big Three then accounted for 22 percent of all income generated in the economy. The Big Five that I just mentioned accounted for 9 percent.
"Today that has almost exactly flipflopped," he adds. "The traditional Big Three accounts now for about 7 percent of our economy. The new Big Five accounts for 17 percent of our economy.
"So fortunately for North Carolina while our traditional economy has been downsizing, we have had these news industries that have been upsizing," he says.
"Clearly the biggest growth we have seen in North Carolina has been in the banking sector: We now have the second largest banking center in the country in Charlotte, second only to New York.
"But this change has not come easily. Workers in the Big Three cannot necessarily easily move over to the new jobs created in the Big Five," he concludes. "That's really the challenge for our state."
July 23, 2007
Good news on household wealth
Consumer spending drives three-fourths of the economy, so when the consumer sneezes the economy can catch a cold. But consumer income has had a hard time lately keeping up with price increases. While this is potentially bad news for the economy, N.C. State University economist Mike Walden says growing consumer wealth could bail out consumers and consequently our economy.
"There really are two fundamental economic factors that drive consumer spending," says Dr. Walden, a professor of agricultural and resource economics. "Most of us realize that one of them is income, which you mentioned. But the other is wealth –- that is, what the value of your savings and investments are. And fortunately while we have had sputtering on the consumer income factor we’ve actually seen consumer wealth increasing quite nicely.
"In fact," he adds, "total consumer wealth last year was up by $2 trillion.
"Now a lot of this was due to the stock market, and fortunately the stock market has continued to do well this year. And in fact gains in the stock market, I think, have come at just the right time to counteract a leveling off of wealth in the housing market," Walden concludes. "So, yes, we need to keep our eye on consumer income as a predictor of consumer spending, but we should not forget consumer wealth."
July 20, 2007
Are older workers are hitting it big?
We are an aging society in a popular culture that emphasizes youth. But that doesn't mean that older workers have a tough time in the job market, says N.C. State University economist Mike Walden.
"In fact, more older workers, first of all, are staying in the workforce. Thirty percent of people age 65 to 70 are now either working or looking for work. This is up from 25 percent five years ago," says Dr. Walden, an economist with North Carolina Cooperative Extension.
"Plus -- this is a very interesting statistic -- ... older workers are actually getting the biggest pay raises. In the last five years, workers ages 55 to 65 got a 4 percent real pay raise –- that is, a raise above inflation. Those age 65 and up got a 3 percent real pay raise. And actually younger workers in all younger age groups got paid less," he reports.
"Now a big part of this, I think, is that many companies are now putting a premium on the experience that older workers have," he concludes. "So at least for now it's actually paying to be old."
July 19, 2007
Could the ethanol boom backfire?
Ethanol is seen in the United States as a way to reduce our dependence on foreign oil. But it's already caused some food prices to rise. And here in North Carolina, farmers could also see adverse side effects, says Dr. Mike Walden, an N.C. State University economists.
"Ethanol in the U.S. is made from corn," says Dr. Walden, of the College of Agriculture and Life Sciences. "That's important to realize. North Carolina is actually a net importer of corn. Yes, we do grow some corn, but we don't grow nearly enough corn for what we use.
"Now how do we use it? We are not talking about corn going into direct consumer consumption. But corn in North Carolina is used as a feed for our very large and dominant livestock industry, particularly the hog industry and chicken operations," he adds.
"So if we have significantly higher corn prices as a result of the ethanol move, then we could see this adversely affecting our livestock industry in our state because they are going to have to pay more for the corn they are using for feed. And in fact, studies show that if these higher corn prices are sustained we could actually see livestock production in North Carolina going down," Walden explains.
"The big beneficiaries from corn-based ethanol production will always be the big corn states in the Midwest."
July 18, 2007
Marriage and money
When it comes to earning money, being married confers statistical advantages. N.C. State University economist Mike Walden explains.
"Married couples, first of all, earn more than single people, even married couples where only one spouse works," explains Dr. Walden, a professor of agricultural and resource economics. "Now this may have something to do with specialization, where if you have a married couple one spouse could maybe specialize and really focus on making money while the other handles the household chores and duties.
"Or it may have to do with motivation. But clearly there is a money premium to being married," he adds.
"By extension statistics show that divorce often has an adverse impact on money. That is, divorced households have less financial resources available than married households," Walden says. "And on this point, economists noticed there is a major difference in the divorce rate based on income. That is, lower-income households tend to have a much higher rate of divorce than higher-income households.
"This fact," Walden concludes, "is contributing to income inequality in the nation."
Posted by deeshore at 07:35 AM
July 17, 2007
Some North Carolina rankings
N.C. State University economist Mike Walden reveals how North Carolina and it's economy ranks on five lists. Listen
"Well these are some recent rankings that I found," says Dr. Walden, a professor of agricultural and resource economics. "Some are good, some are bad.
"Let's look at the good ones first. Two North Carolina cities -- Raleigh and Charlotte -- recently made the Top 50 list of best cities for business vitality. That's certainly good," he says. "Another good measure is North Carolina is now ranked 10th among the states in venture capital investment.
"North Carolina is ranked 5th -– this surprised me -– 5th in the country in feature films produced. And North Carolina is now ranked 15th in patents issued.
"So I think those are all very good pieces of news," he says. "One bad piece of news is that North Carolina now ranks 13th among all states in the poverty rate. And then this is a ranking that can go either way depending on how you view it: North Carolina right now ranks 25th in the percentage of income paid in taxes."
July 16, 2007
Can sports spur economic development?
Sports facilities like stadiums or arenas are often touted as being able to cause widespread investment and prosperity in surrounding neighborhoods, yet the record of this is really spotty. N.C. State University's Mike Walden outlines two major conclusions economists have reached when it comes to the ability of sports buildings to spark other investments.
"Economists ... have reached, I think, two major conclusions: One is that the neighborhood where you want the development to occur has to be a neighborhood that is prime for development anyway. That is, you can't expect to put a stadium or arena in a neighborhood that just doesn't have anything going for it and expect that area to be developed," the economist says. "So it has to have fundamentals essential for development, like good location, safety, perhaps adjacent to a natural amenity like a lake or a river.
"Secondly, and this is perhaps a little more economic ... results have shown that if you put one group not only in charge of building the stadium or arena but also in charge of developing the surrounding area so it's all one package, that appears to be more successful with that area being developed," he adds.
"And I think the reason is that single developer now can reap the benefits not only of the sports complex but also of the surrounding investments and surrounding development -- that the developer knows that if everything can work together, he or she will make more money.
"So those are the two main conclusions," he says, "but I think again the point here is that you can't necessarily expect just building a stadium or arena is going to be that silver bullet that will cause everything around it to prosper."
July 13, 2007
Is the housing market firm?
Economists agree that the softness in the national housing market was a big reason the economy was slow in the first part of the year. Although it's too soon to say for sure, a number of encouraging signals indicate that the housing market may finally pick up. N.C. State University economist Mike Walden explains.
"Mortgage applications, which were falling, have stopped falling. They are now on their way up," says Dr. Walden, a professor of agricultural and resource economics. "The subprime market problem -– the subprime housing market is the market that had borrowing going to very low-income, high-risk folks with some defaults there, a lot of defaults -- ... doesn't seem to have bled over into the larger market. And lenders have not significantly tightened standards as a result. So that's a good sign.
"But perhaps most important of all," Walden adds, "unsold inventories of homes are dropping. Now this is very important because you need to have those inventories reduced in order to encourage builders to come back and build more homes.
"So we can say that the fundamentals of the housing market appear to be going right now in the right direction," he concludes. "And if that continues, those fundamentals continue to move in the right direction, that should put the housing market back on the growth track."
July 12, 2007
What are clawbacks? And how do they relate to controversial business incentives designed to boost North Carolina's economy? N.C. State University economist Mike Walden answers.
"We are not talking about food -- unfortunately we are talking about economics," says Dr. Walden, a North Carolina Cooperative Extension specialist. "And clawbacks actually ... is a term that is related to business incentives.
"People know about business incentives: This is where the government reduces or perhaps forgives taxes to a particular business in order to get that business to locate, in our case, in North Carolina," he adds.
"They are very controversial: Some people think they are needed; other people think they are not needed.
"But anyway, clawbacks may actually be a middle ground here that can get both opponents and proponents of incentives together, because with clawbacks incentives are based on performance.
"What happens is the firm [that] is locating, in our case, in North Carolina, gets a promise of, for example, a tax break as long however as they met certain performance standards," he explains. "That is, as long as after a certain number of months or years, they have made the investments and created the jobs that they have said.
"If those standards are not met," Walden continues, "then some of those incentives are reduced, or clawed back, to the state. And in fact clawbacks are now being used by most states, including North Carolina, and I think they are a way of softening some of the opposition to business incentives."
July 11, 2007
Next year's economy
With 2007 half over, N.C. State University economist Mike Walden looks ahead to the economy in 2008.
"A lot can happen, so people should take these forecasts very, very tentatively," says Dr. Walden, a professor of agricultural and resource economics. "But as things stand now most economists -- and, of course, all economists do not agree -- but most economists see a fairly good economy in 2008.
"We see continued economic growth, actually a little better than what we have been seeing recently. We see a slightly lower trade deficit, complements of the lower-valued dollar," he adds. "We see inflation not too different than what it is today –- maybe the overall inflation rate around 2.5 percent.
"However, interest rates we do see higher -- maybe another quarter-percent higher than where they are today.
"And perhaps what matters most," Walden concludes, "the average person will see their after-tax and after-inflation income rise in 2008 by around 3 percent."
July 10, 2007
Most people know that how much a person pays in taxes depends on that person's income. And N.C. State University economist Mike Walden says that the tax load also varies by age.
"Based on a new study ... from the Tax Foundation, we clearly do see a pattern of taxes and benefits received from government with age. For example, older Americans -- and most people wouldn't be surprised by this -- get back a lot more from the government than they pay in taxes," explains Dr. Walden, a professor of agricultural and resource economics. "It's because most of these folks are retired. They get back about $5 in government -- from things like Social Security and Medicare -- for every dollar they pay in taxes.
"Middle-aged taxpayers get back less," he adds. "They get back about 70 cents of government benefits for every dollar they pay in taxes.
What may be surprising, Walden continues is that younger folks -– those 25 years old or less -- actually get back more from the government than they pay in taxes. "They get back about $2 in government benefits –- primarily public assistance and educational aid -- for every dollar they pay in taxes," he reports.
"So clearly we do see a pattern of tax payments and receipts from government with age," he concludes. "When you are young and very old you tend to get more back from the government than you pay in; when you are middle age, you tend to pay in more than you get back."
July 09, 2007
North Carolina's economic comeback
While a severe recession and downsizing in North Carolina's traditional industries have challenged the state's economy this decade, numbers just in for 2006 indicate that the state is staging an economic comeback, says N.C. State University economist Mike Walden.
"This measure ... is something called gross domestic product, and we have a value for every state as well as for the country. Gross domestic product measures the value of everything produced –- products as well as services -- in a state in a given year," says Dr. Walden, a North Carolina Cooperative Extension specialist.
"And the good news is, for 2006, North Carolina's increase in gross domestic product came in at 4.2 percent, much better than the national increase of 3.4 percent," he says. "Also, that rate of 4.2 percent for North Carolina was the 14th fastest rate of improvement in the country, and we were tied with Florida for the highest rate here in the Southeast.
"So this is a very good number," he concludes. "It's an impressive number. It's probably the number that economists look at most in order to gauge a state economy. And it is hopefully a signal that the North Carolina economy is coming around."
July 06, 2007
U.S. energy efficiency
With gas prices high again this year and with the focus on saving energy for personal as well as environmental reasons, the United States is often criticized for using too much energy and not being energy conscious. But the criticism isn't valid, says N.C. State University economist Mike Walden, when you look at our improvements in energy efficiency.
"We actually have become more energy conscious by becoming more energy efficient," says Dr. Walden, a professor of agricultural and resource economics. "Now we are certainly using more energy in our country.
But our country is bigger. We have more appliances. We have more technological equipment.
"But if you look at how much energy it's taking to produce every dollar of value in our economy, actually we are using -– you can hold on to your hat, because I think this is an amazing number –- we are using 50 percent less energy today per dollar of income than we were 40 years ago," he adds. "And our improvement in energy efficiency has been much more than in the rest of the world.
"And it's actually predicted for us to get even more energy efficient and for our lead in the world to lengthen in two or three years.
So I really think that our improvements in energy efficiency are one of the best kept secrets," he concludes, "and it's really one of the major ways we are coping with and addressing energy issues."
July 05, 2007
Economics abhors excesses
It's said that nature abhors a vacuum -- meaning that natural forces will be set in motion to fill any physical vacuum. And in economics, says Dr. Mike Walden, there's a comparable force.
"What it is is that economics abhors excesses," says Dr. Walden, a professor of agricultural and resource economics at N.C. State University. "Now if there is some monetary excess that occurs in some economic market, what will happen, well, then economic forces will be set in motion to eliminate it.
"A really good example comes from the investment markets. If speculation, for example, pushes up stock prices, and those higher stock prices are not supported by the underlying economic fundamentals eventually what you will have is stock values will fall in order to bring the market back in balance," Walden explains. "We saw this in the early part of this decade.
"We are seeing it again with the housing markets. Housing values in many areas have been pushed higher than supported by the economic fundamentals. So housing prices in some areas are coming down," he adds.
"And we are also seeing it right now in international trade markets. Everyone knows the U.S. has been running a large trade deficit, and that is creating an excess," Walden concludes. "And what's happening is the value of the U.S. dollar is therefore falling, and that will help reduce that excess."
July 04, 2007
Why have interest rates jumped?
It seems like the economy was moving so smoothly along and then -- bam -- interest rates took a big jump! Many investors as well as borrowers were caught off guard. What happened? N.C. State University economist Mike Walden offers two reasons why the interest rates headed north so fast.
"There are a number of potential reasons. One is inflation," says Dr. Walden, a North Carolina Cooperative Extension specialist. "Usually we see when inflation rises, interest rates will rise. But actually the inflation numbers have been very tame -- very good -- recently. So I think we can eliminate that as a reason.
"Other people would say, 'Gas prices. Well, they've got to be pushing up everything, including interest rates,' but, again, gas prices recently have taken a tumble.
"Instead I think the rise in interest rates reflects two new assessments on really the world economy," he adds.
"First that the worldwide economy is growing fairly well, and this is meaning that a lot of people are borrowing money. They are building things. Construction worldwide is at an all-time high, and this puts upward pressure on interest rates.
"Secondly I think it reflects optimism actually about the U.S. economy," Walden says. "The U.S. economy in the first half of this year has been rather slow. There are a lot of signals that this is going to pick up in the second half of the year. That is going to imply more spending -- more borrowing. And again that puts more upward pressure on interest rates.
"So in some sense," he concludes, "you can say the higher interest rates really mean a good thing."
July 03, 2007
How standards change
A gentleman who lived in a 1,300-square-foot house for several decades told host Mary Walden that when he eventually sold the house it would likely be torn down and a larger home built on the site. That's about the same size of the first home that she and her husband, N.C. State University economist Mike Walden, bought. She asks Mike, "Just what's happening here? Are we now super-sizing everything?"
"Well I don't know if I'd go that far," replies Dr. Walden, a North Carolina Cooperative Extension specialist. "But I think this is a good example of how standards do change.
"Thirty years ago ... a 1,300-square foot house was average. Now it's not," he adds. "Times change, and what people find acceptable in their consumption also changes.
"Now houses have gotten bigger in part because we are richer -- not everyone, but on average. And square footage of a house is something people generally want more of.
"And so as people earn ... more money, they buy bigger homes. And so we have dramatically seen increases in the average size of a home over time," he concluded. "A house today is not the same as a house 30 years ago. So I think people are just exercising their desire to have more, and again as our societies become wealthier, we can afford more."
July 02, 2007
The cost of a lower dollar
The cost of European wines and cheeses -- and vacations -- has jumped considerably in the past year. The lower-valued U.S. dollar is to blame, explains N.C. State University economist Mike Walden.
"When the dollar goes down in value against foreign currency, it makes anything that's a product of the foreign country -- from wine to cheese to ... going on a foreign vacation -- it can make all those more expensive," says Dr. Walden a professor of agricultural and resource economics.
"And we have already seen it in the data where imports from foreign countries as well as going on vacation in Europe or other places has gotten much more expensive because of the lower-valued dollar," he adds.
"Now there's a silver lining here, and the silver lining is if you are a U.S. company and you are manufacturing products you sell in foreign countries, because the dollar's value is lower that actually makes your product cheaper in those foreign countries," Walden says.
"And so we would expect to see our exports go up. And in fact the lower-valued dollar is a direct result of the big trade deficit that we've had in the last few years. And the lower-valued dollar is going to make that trade deficit get somewhat smaller."