« May 2009 | Main | July 2009 »

June 30, 2009

Professional jobs take a hit

Professional jobs have been the fastest growing part of the job market in recent years. Even during some earlier recessions, professional jobs continued to expand, but not so in the current recession. Professional job losses have been among the heaviest. What's different today? Listen

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think what's different is that this recession really had its origin in the professional sector, if you will, not in manufacturing, but in the professional sector. In terms of finance - areas like finance - and real estate, and all those industries are related . . . finance and real estate, architecture, engineering. I think that's why you're seeing the professional sector being really hard hit during this recession. Of course, the shock here is that we've seen the professional area grow in terms of percentage of total jobs over time. We've seen increases in number of kids going to college because they know there are going to be high-paying professional jobs for them out there. And that's come right now to a screeching halt, and, indeed, there's been a pull back. I don't think that this is going to continue. I think that once the economy does recover, we will see professional jobs resume their very fast-paced growth. But there's no question right now that the professional sector certainly took a big, big hit."

Posted by Dave at 08:00 AM

June 29, 2009

New industries in reserve

The North Carolina economy has gone through a tremendous transformation over the past 30 years. Industries like finance, technology and vehicle parts have replaced tobacco, textiles and furniture as the state's leading economic sectors. Does this mean North Carolina can rest, knowing this change has occurred?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"No, we really can't, and for a couple of reasons. Number one, the economic world is changing faster than ever before, so industries that are profitable now may not be profitable down the road. Secondly, even if you have as a region or state a profitable industry in your area, it may not stay there. Industries can pick up and move much more rapidly today than they ever did in the past. So I think what this means for a state like North Carolina as well as other states is you have to constantly be thinking about new economic sectors. You really can't rest on your laurels. You really can't say, well, we think technology will always be here. We think motor vehicle parts will always be here. You have to always worry about, well, what if those industries leave? Or what if they shrink? What will take their place? And that means that we have to focus on innovation, productivity, attractiveness to inventors and entrepreneurs and creativity. And these really are the engines of a successful future economy."

Posted by Dave at 08:32 AM

June 26, 2009

Economic predictions

Economists are frequently called upon to make forecasts about the path of the economy. Can you briefly tell us how such projections are made and whether there are any inherent problems in the forecasting methods?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, like those people in our sister profession - meteorologists - what we as economists do is, we build models. We simplify the economy. We try to calibrate those models using past data, past circumstances, and then we use those results to say what the future is going to look like. That is to say, if we saw something that is occurring now that happened in the past, then we can look at what subsequently occurred, and we can, perhaps, take that and say, this is what we think will happen down the road right now. Now, all that is based, of course, number one, on the model's being accurate and number two, having data in the past that does reflect what we're seeing now. And this is where we've had a big problem with this recession. The collapse of the housing market - the record drop in housing prices, the record drop in housing sales - we have never seen that. Economists never saw that in the past, even in the 1930s. So one reason why economists' predictions about this recession have been relatively bad is because we didn't see this kind of occurrence in the past. We didn't see the collapse of the housing market. So this is why it makes predicting the economy - particularly when we're seeing the kind of economy now that we've had recently - very, very difficult."

Posted by Dave at 08:00 AM

June 25, 2009

Crowding out

The federal government is borrowing record amounts of money to fund the stimulus plan for the economy. Is there any downside in the financial markets from this borrowing?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There actually is; it's a concern that we call 'crowding out.' Now, crowding out happens when the federal government goes into the credit markets and borrows money. By doing that, they're competing with private borrowers. Now, the federal government is going to pay whatever interest rate they need to to borrow that money, so if you have the federal government in there borrowing large amounts of money and the private sector trying to borrow money, what this is going to do is push up the interest rate. In essence, the federal government is going to crowd out that private borrowing. Right now, or at least in the recent past, this hasn't been viewed as a problem with the federal government borrowing lots of money simply because the private borrowing hasn't been there, because the private sector has been weak. But now as the economy is showing some signs of picking up - or is expected to pick up - we could see crowding out become an issue. In fact, we've already seen interest rates march upward in recent weeks. So this is a real concern right now about what this could do to the economic recovery."

Posted by Dave at 08:00 AM

June 24, 2009

Loss leaders

As consumers, sometimes we encounter prices that seem too good to be true. We may ask ourselves, How can a store make any money selling at that price? Is the store simply making a mistake?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, certainly mistakes can occur, but sometimes stores purposely price a product to lose money. You might say, well, why would they do that? Well, what they're doing is they're using that product as what we call a loss leader. A loss leader is a product that the store actually loses money on, but it's designed to attract people to come to the store, and therefore, be in the store and spend money on other things where the store's going to make a profit. You see this frequently in supermarkets, where milk or eggs or bread - some of those staples - are put on deep discount sales designed to get folks in there, and then, of course, they'll buy other products. But this happens in many industries. For example, cruises. Many cruise lines actually don't make money on selling tickets to people. What they make money on is just getting the people on the boat, and then having them buy other things, like alcohol, merchandise and meals. So loss leaders are a very important tactic used by businesses designed to attract customers."

Posted by Dave at 08:00 AM

June 23, 2009

Making economic comparisons

Economic indicators are in the news almost every day, and comparisons using these indicators are made to try to predict where the economy is headed. But what factors must be considered to make sure these comparisons are accurate?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Many, many factors; I think one of the most important is the seasonal adjustment. Oftentimes, what we want to do is compare data from month to month - for example, employment or unemployment rates. But oftentimes those indicators fluctuate based on seasonal factors. For example, when we hit May and June, we have a lot of college and high school graduates coming into the labor market, and that's going to affect the number of jobs available. Also, it's going to affect the unemployment rates. So we need to account for that. Another factor that we need to account for obviously is inflation, so we must make sure that when we're comparing indicators over time if they denominated in dollars, we have to take inflation out. And then for retail stores specifically, when you're comparing sales from one year to another, you have to adjust for the fact that some stores may not have existed a year ago. So what you typically want to do is compare what are called same-store sales. So what this does is make it much more complicated to compare data from one month to another simply by looking at those raw numbers. You do need to take these various adjustments into account."

Posted by Dave at 08:00 AM

June 22, 2009

The shadow banking system

Banks have been at the center of this recession, and the federal government has allotted billions of dollars to help rescue the banking system. But we keep hearing the term "the shadow banking system" in reference to the problems in our financial system. What exactly is this other banking system?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"This was a group of firms that really developed over the last 20 years. They were financial firms that acted like banks, that is, they borrowed money, they loaned money, they charged interest rates, they made investments. And yet they weren't classified as banks, and so they fell outside of the normal banking regulations, and these were companies like so-called investment banks, hedge funds, etc. And these were the firms that did a lot of what we would have called then innovative financial systems. Now, of course, we look askew at them, and these would be these kinds of very exotic mortgages where people didn't have to put down any down payment, no principal payment loans, etc. And of course in retrospect, we know now that a lot of home buyers got in trouble. But a lot of these innovations started with these so-called shadow banking firms. Now, the financial crisis in the last 18 months, of course, has brought the spotlight on these firms, and I can say that many of them have either been shut down or they have been moved to become conventional banks so that they are now under the regulation of the federal government and the Federal Reserve. But this was an innovative system, I think, that developed because there was cash to be had, particularly in foreign markets. It was also the origin of some of our current financial problems."

Posted by Dave at 08:00 AM

June 19, 2009

Losing the AAA bond rating

A bond rating service recently sounded an alarm about government bonds from the United Kingdom and implied they may eventually do the same about U.S. government bonds. Why is this important, especially to you and me?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the AAA bond rating, of course, is the highest for bonds. It's somewhat shocking to hear a service say that they may reevaluate this for governments like the U.S. and the U.K. I think what this is related to is the fact that because of the global recession - the very deep recession - people know that the United States and many other governments - also the United Kingdom - have been spending billions of dollars, almost trillions of dollars, designed to thwart that recession. What this means is those governments have had to go into the bond market and borrow these amounts of money. And I think what this rating service is concerned about, quite frankly, is the ability of those governments in the long run to pay those off. And there's a lot of resistance, obviously, to higher taxes. Government budgets are always tight. So I think this is a wake-up call. Now if, indeed, we did have here in the U.S. that AAA bond rating reduced what this would mean for you and me is that when the government borrows money, they would have to pay a higher interest rate. And so that would mean obviously something would have to give on our part, either we would have to pay higher taxes or there would be less government spending in other areas."

Posted by Dave at 08:00 AM

June 18, 2009

Pulling back the money

The Federal Reserve has pumped a tremendous amount of money into the economy in an effort to curtail the recession; however, is there a plan to pull this money back once the recession is over? And if so, how does it happen?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, there is a plan, and in fact, it's important there be such a plan because the fear is if that money is not pulled back when the economy is doing better, all that additional money will simply be absorbed by higher prices. That is, we will have more inflation. Now the Federal Reserve has signaled, already, in public statements that they know this is a threat, and they will work to pull that money back once they feel that the economy is on track and they can implement that. Now, how is that done? Well, actually the Federal Reserve would engage in something called open market operations. Actually, it's very simple. What the federal government would do would be to sell investments which it has in its portfolio - just like you and I might have some investments, some stocks or bonds - the federal government would sell investments in its portfolio to the public, and they would take back cash. So, the trade there is cash goes back to the Federal Reserve. Those investments go out to the investing community. Now you might say, What if people don't want to buy the Federal Reserve's investments? Well, the Federal Reserve will simply make the deal as sweet as they need to in order to implement that trade. So there is a plan to do this. It has been done in the past. The question is whether it can be done at the right time in order not to derail the economy but at the same time, to prevent higher inflation. That's a very, very tall order."

Posted by Dave at 08:00 AM

June 17, 2009

Is there inherent financial instability?

There are many questions being raised about the causes and implications of the current recession. One focus is on our financial system, and whether there are natural forces within that system that will lead to periodic problems in our economy. Please explain this.

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, the essential idea is that stability ultimately leads to instability. Now actually this is from an economist who is now deceased, whose name was Minsky. Minsky's idea, in a nutshell, was this: When things are going right, people become increasingly optimistic about the future. That leads to more risk taking. That leads to lenders like banks willing to loan money to more people on more risky loans. But as the greater risks are taken, eventually some of those risks won't pan out. Some of those investments will fail. That leads, eventually, to a turnaround in investment psychology. People go from being very optimistic now to being pessimistic, and that can lead to a panic selling of investments, which leads to a financial crash. So obviously, Minksy's ideas have been applied to today's situation, and many are calling this the 'Minsky moment.' But it does lead to a very important policy question, and that is should the government put some kind of limits on investor behavior to prevent this extreme optimism and risk taking potentially leading to a downturn? That's a very, very controversial topic. It would be very hard to implement, yet it's one that's being asked right now."

Posted by Dave at 08:37 AM

June 16, 2009

The meaning of tax rates

There are proposals to change some of the tax rates in the federal income tax. When we hear, for example, that a particular tax rate might be changed from 25 to 33 percent, does this mean the person paying the higher rate would see their taxes paid rise from 25 percent of their income to 33 percent of their income?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Likely not. When we hear these kind of numbers - 25 percent tax rate, 33 percent tax rate - what is usually being referred to is what's called marginal tax rate, which is the tax rate that a person pays on their highest category of income. Now by category of income what I mean is that the federal government for the federal income tax specifically actually breaks your taxable income into different pieces or categories. Each piece is actually taxed at a different rate, and the highest rate or the highest category would have applied to it the highest tax rate. Now this still means that your tax bill is going up if that highest tax rate applied to your highest category of income is going up. But it doesn't mean that that highest tax rate applies to all of your income. It still, however, is important because often times people will make decisions based on the extra money that they will earn. So if that extra money is taxed at a higher rate that may have a profound influence on whether they try to earn those extra bucks or not."

Posted by Dave at 08:00 AM

June 15, 2009

Deficits and debt

In discussions about the borrowing done by the federal government, we often hear the terms "deficit" and "debt." Is there a distinction between the two, and if so, what is it?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There definitely is a difference, although unfortunately often those terms are used interchangeably. The deficit is the annual shortfall between what the federal government spends and the revenue they bring in, and therefore, it's what the federal government has to borrow on a yearly basis. The debt is the cumulative amount of borrowing that the federal government has outstanding right now. Perhaps a better way to explain this is to think of your credit card. The deficit is what you add to your credit card balance each year but you don't pay off. So if you go out and borrow in a given year $1,000, put that on your credit card, and you don't pay that off, that would be like the federal government's annual deficit. The debt would be your current outstanding balance on the credit card, which includes not only what you put on this year but what you put on in previous years and you haven't paid off. So, for example, if you had an outstanding balance on your credit card of $10,000 that would be similar to the federal debt, which right now is not $10,000 but is $10 trillion."

Posted by Dave at 08:00 AM

June 12, 2009

Social Security's future

Each year the Social Security trustees report on the future of this program, and that affects virtually every person in the country, either through paying Social Security taxes or receiving benefits. The 2009 report was just released. What did it say?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, it wasn't good. It said Social Security is headed for problems sooner than previously thought. First of all, the report said the system will begin paying out more money than it's taking in starting in the year 2016. Now the system does have reserves it can call on; however, the report said those reserves will be exhausted, and therefore, the system won't be able to make further payments by the year 2037. So those are two very important dates, and they are sooner; they are coming earlier than recent reports suggest. Now there are two caveats to these reports. First of all, it's based on the assumption there are going to be no changes to the program, and Congress may very well decide, well, there are big problems with Social Security, we're going to have to make some changes, like raising the retirement age. Also, a lot of economic assumptions have to be made in order to make these kinds of projections, assumptions about the birth rate, about inflation, about worker productivity and wage growth. The years I cited are based on what are called average assumptions about the economy. There are actually two other projections based on more pessimistic assumptions, which say that the bad years will come sooner for Social Security. And there's another projection based on optimistic assumptions, which actually says that Social Security won't have a problem at all this century. So you have to take these numbers with a grain of salt, yet there are certainly important benchmarks to compare and think about as we do look at potentially revising Social Security."

Posted by Dave at 08:00 AM

June 11, 2009

The worst budget gap

Legislators in North Carolina are grappling with the state budget now. Of course, their biggest problem is that revenues are coming in way below projections, creating a budget gap that must be closed. How bad is the gap?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"We're talking about the budget gap for what's called the general fund, which is the biggest fund that the state controls. What's happened, of course, is that the state planned on expenditures for this year. A couple of years ago, they also planned or projected what revenues were going to be to match those expenditures. The revenues have not come in at the rates expected because of the recession, and that has created this budget gap, which must be closed. But I think it's very important to put this budget gap that our legislators are dealing with now in some perspective. If you go back to recent recessions - for example, 1981 to 1982 - we had a 9 percent budget gap; 1990-91 recession, 8 percent budget gap; the recession in 2001, an 11 percent budget gap. The estimate for the budget gap this fiscal year is 15 percent. So I think that indicates how very difficult the problem our legislators are dealing with is when you have a 15 percent budget gap, much bigger than the gaps in recent decades."

Posted by Dave at 08:00 AM

June 10, 2009

Why didn't we save?

It's well known that until recently American households were among the least thrifty in the whole world, in some years saving absolutely nothing out of their paychecks. Now, recently the saving rate has moved into positive territory at 4 percent. Just what's caused the change?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, we typically as Americans save about 10 percent of our take-home pay. That started to change in 1985, when we started to see the savings rate go down, and it actually bottomed out at about zero a couple of years ago. Now it's back up to around 4 or 4 ½ percent. I think the same factors that caused the savings rate to go down are now causing it to go up. That is, for example, asset values. Research has found that when the stock market goes up and the value of homes goes up, people save less out of their paychecks. That should make sense, because, really, the stock market and the housing market are doing the saving for people. There's also some research that suggests that the rising returns to education - the higher pay that you get when you go to college - has actually put downward pressure on the savings rate because people are, in essence, investing in their future, investing in what we call human capital, and therefore, they don't have to invest as much financially. So if we look at what's happened recently, clearly asset prices have gone down, both the stock market and the housing market. So that's causing people to save more. And actually, the returns to education, although not going down, have not been going up like they used to, and we think that has also caused people to think a little differently about their future and say, 'Well, I need to put more in the bank rather than relying on my brain to do me well in the future.' So it's going to be very interesting to see if this trend toward a higher saving rate continues down the road. I think it will because I think there have been some fundamental changes to our economy."

Posted by Dave at 08:00 AM

June 09, 2009

The main reason for the recession

You've been giving many talks around the state about the recession and economic outlook. You have been asked many times to give the single factor causing the recession. What's your answer?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think it's actually very straight forward. It's the drop in housing prices. We haven't seen the kind of drop in housing prices nationwide in this country since the nineteen teens, not even during the 1930s . . . but actually the nineteen teens. And not only has this hurt homeowners who are trying to sell their homes, but it's actually also hurt people who, perhaps, had no intention of selling but who had been accessing the equity in their homes - that is, the value of their home that they actually own over and above the mortgage - and using that to fuel spending. In fact, during some earlier years of this decade, homeowners were tapping their homes to the tune of $600 billion a year to help finance spending. Well, that's stopped now because home values are going down. Of course, the other big problem with falling home values is that it has hurt the banks. Banks that hold the mortgage to most homes now find that the collateral - that's actually the home - is worth less in many cases than the value of that mortgage note. And that's really the essential reason we've had problems with the banking system. So this recession really is ultimately tied to the housing market, ultimately tied to the drop in housing prices. That needs to stop before this economy gets better."

Posted by Dave at 08:00 AM

June 08, 2009

Why are oil prices rising?

We're in the middle of a very bad recession. People have cut back on their driving, and domestic inventories of oil are at their highest level in years. Yet the price of oil has been creeping up, and you know what that means, higher gas prices are coming. Why?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, you're absolutely right, oil prices have been rising. They actually fell below $40 a barrel. They're now over $60 a barrel. And you're also right, we're beginning to see this impact in prices at the pump. Gas prices in recent weeks in some areas have gone up over 20 cents a gallon. Now, we should put this in perspective. Of course, oil prices are still well below their peak a year ago of $145 a barrel. And of course, we're nowhere near $4 a gallon gasoline, but you wouldn't expect oil and gas prices to be rising given that we have a lot of inventory. And we certainly still have a very weak economy. So, what's the answer? Well, I think the answer is that we're in an international oil market, and there are places in the world where the buying of oil is actually on the rise. And in particular, we can point to that country that we've mentioned a lot in recent years, China. China has been dramatically increasing its oil imports, actually to near record levels, and when that happens, that means the worldwide demand for oil - and this is a world market - is going up. And that carries with it the price of oil and certainly the price of gas. Now actually what's happening with oil prices is in line with other kinds of what we call commodity prices, basic prices like the price of lumber and copper and steel and iron ore. Those have all been rising on trend, and some economists actually see a silver lining here. That is to say that these prices typically rise before the economy recovers."

Posted by Dave at 08:00 AM

June 05, 2009

Are there any jobs available?

Unemployment always increases during a recession, and during this recession, the jobless rate has soared to 30-year highs. But is there any good news about jobs amidst all this bad news?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"There is some good news, and it is that there are actually jobs available. A recent study found that there were over 3 million job vacancies nationwide. Sectors where there's the biggest need are health care and education. So I think that raises the question, Why aren't people without jobs snapping up these 3 million job vacancies? And the reason is simply a skills mismatch. That is to say that people who are unemployed don't have the necessary skills to fill those jobs that are open. Now we're not just talking about the factory worker, who might not have a college education. We're also talking about college-educated professional workers who have lost their jobs during this recession, people like engineers, architects and computer specialists. They don't have the skills; in fact, they may be overqualified for many of these jobs. And indeed, these professional jobs have been some of the hardest hit during the recession. So the bottom line here is that if you do have an opportunity to go back to school for training, certainly consider training in areas like health care and education because there are still job openings in those fields."

Posted by Dave at 08:00 AM

June 04, 2009

The kind of rebound

With there finally being some positive news about the economy recently, economists are now beginning to look ahead to the kind of economic rebound we might experience. What are the options?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"We describe these possible rebounds all by letters. The best possible scenario is to have a 'V'-shaped rebound. That means that you have a very quick, sharp and strong rebound from the recession, going up the right hand side of the V. Second best would be a 'U'-shaped rebound. You do come out of the recession and you do eventually come out of it stronger, but it takes a while to really build up momentum. So you're going up that right side a little slower . . . up the right side of the U. The worst of all cases would be an 'L'-shaped rebound. That means that you do stop declining, but your growth is very anemic. You're going right on that lower part of the L, if you will. It's almost like you're moving sideways. This is the kind of rebound that Japan had during the 1990s from the early 1990s recession. Economists right now are debating what kind of rebound we'll have. Probably the most money is placed on a U-shaped form of economic rebound."

Posted by Dave at 08:00 AM

June 03, 2009

How are we paying for retirement?

As our retiree population continues to expand, knowing how we will pay for our golden years becomes increasingly important. What is the current breakdown on sources for retiree incomes?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Well, if we look at people over age 65 - we define that as the retirement cohort - we find that Social Security still is the biggest source of income for those individuals. It funds 40 percent of the income of people over age 65. Second, perhaps surprisingly, are earnings from work. A lot of retired people still work. They work part-time, and those earnings account for 24 percent of their income. And then comes retirement plans, funding 18 percent, and then income from investments, funding 15 percent. So what this, I think, shows is why retirees are so very sensitive to Social Security. And, of course, we still have big questions with Social Security. The trustees of the Social Security account forecast that that program will go bankrupt, if you will, sometime this century. So that's a very sensitive program. It's a program that we need to look at and address, not only for the overall fiscal health of our country but clearly for the fiscal health of retirees."

Posted by Dave at 08:00 AM

June 02, 2009

Trade in services

When we think of international trade, most of us think of goods or products, like cars, computers and clothing - that is, things we can see and touch. But a fast-growing part of international trade is now trade in services. Can you give us some examples?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"Many examples . . . if a U.S. legal firm or architectural firm or engineering firm engages with a client in Japan or a client in Europe, that would be an export, if you will, of U.S. services to those other countries. But also when foreign students come to the U.S., come to U.S. universities, that's an export, if you will, of U.S. educational services, as is when foreign tourists come to our Outer Banks or mountains or Pinehurst. That's an export of tourist services. And then a final example, the U.S. is the world leader in entertainment - movies and TV shows. When those movies and TV shows are broadcast in foreign countries, we can consider that an export of entertainment services. So I think it is a mistake to forget that we have obviously a thriving service economy, and many of those services we indirectly or directly export to other countries. And, indeed, if you look at the U.S. trade balances on services - that is, imports of services and exports of services - the U.S. runs a surplus, unlike in the goods market."

Posted by Dave at 08:15 AM

June 01, 2009

Limiting 'off-shoring'

Losing domestic jobs to foreign countries is one of the major concerns of workers. Will this trend simply continue and more jobs be lost to overseas competitors?

Dr. Mike Walden, North Carolina Cooperative Extension economist in the College of Agriculture and Life Sciences at N.C. State University, responds:

"I think it will. Right now, the estimate is that there are 11 million jobs that have been moved by U.S. companies to foreign countries. So we define those as off-shore jobs. But, number one, you have to put that in perspective. We have 130 million domestic jobs. Now in terms of the future, yes, that 11 million will likely increase. One estimate is it will go up each year by maybe 200,000 to 300,000. However, there are limits. Many jobs can't be 'off-shored.' In fact, the same study that predicts off-shore jobs going up by 200,000 to 300,000 per year claims that only 11 percent of service jobs can be off-shored. Furthermore, as foreign countries develop, what we'll likely see is their wages will increase. And domestic demand for their workers will also increase. That means that they'll be spending more of their time making products for their domestic consumption. Also, the higher wages of their workers won't make those workers as lucrative for holding what used to be U.S. jobs. So I think that the bottom line here is it's always difficult and sometimes dangerous to extrapolate in the future from what's happened in the past, and there are several forces at work that will not end off-shoring, but will not make it as lucrative as it has been."

Posted by Dave at 08:00 AM