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January 31, 2007

Cluster analysis

N.C. State University economist Mike Walden explains cluster analysis, a new and increasingly popular way of looking at economic development.

"Well, this is really the ‘in’ thing … in economic development," says Dr. Walden, a professor of agricultural and resource economics. "And what you do is you don’t just look at a single company or a group of companies that make a particular product. You look at an entire industry and all the companies that are interrelated in making that final product.

"For example, in the case of an auto factory you don’t just look at the assembly factory where the cars are put together. You also look at the supplier of parts, the makers of the machinery even the trucks that transport the finished vehicles," he adds. "Then what you do in economic development is you look at that particular industry and you see if there are parts of the cluster that may be missing in your local area, and that might be a good type of company to … recruit for."

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January 30, 2007

Keeping financial resolutions

When it comes to popular New Year's resolutions, second only to losing weight is getting one's financial house in order. But following through isn't always easy. N.C. State University economist Mike Walden offers tips.

"You hear this all the time, lose weight, save money, pay off debt. These resolutions are easy to make and perhaps hard to follow through," he says.

"I’d offer three suggestions: First of all, have a specific plan. Say you are going to save this amount of money or you are going to pay off this amount of debt. Make it reasonable, but give yourself a clearly identifiable, measurable goal.

"Secondly, make that goal or implementing that goal as automatic as possible," he adds. "For example, utilize automatic withholding from your paycheck so your money doesn’t go through your hands -- so it automatically gets deposited, for example, in a savings account.

"And then lastly have some consequence for you if you don’t meet that resolution. For example, if you save the amount of money that you say you are going to save, tell yourself, 'If you are going to do this, I am going to spend some amount of money,' say $150, 'on a gift for myself.' So give yourself some prize that you can work toward if you do follow through on your financial resolution."

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January 29, 2007

Have housing prices really changed?

Housing prices have made the headlines a lot in recent years, first by going up and then by softening and falling, at least in some markets. But N.C. State University economist Mike Walden says home prices aren’t as volatile as some people think.

“There are two factors here: One is when you are comparing the price of anything -- a house, a car, a CD -- over time, you have to strip out inflation, because inflation is going to push all prices up,” says Dr. Walden, a North Carolina Cooperative Extension specialist.

“Secondly with houses you have to worry about changing characteristics. The new homes that are built today are bigger, with more amenities, than new homes built 10 or 20 years ago.

“So when you do all this, when you adjust for those two factors, actually what you see is no increase at all in new home prices between 1980 and 2000,” Walden explains. “You do see some slight upward movement during economic growth periods, some softness during recession, but over the entire 20-year period, no change.

“Now in the last six years we have seen, on average, house prices go up,” he adds. “However, if you compare where they are today and adjust for those two factors I mentioned, compared to 1980 they are still only 10 percent higher.”

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January 26, 2007

The falling labor force

The percentage of people of working ages who either have jobs or are looking for jobs has been falling steadily for 40 years. N.C. State University economist Mike Walden explains what's happening.

"A couple things," says Dr. Walden, a professor in the College of Agriculture and Life Sciences. "One, the percentage of women who are of working ages has been going up, as I think is well-known, over this 40-year period. But the percentage of men who are of working age who are working has gone down. And many economists think that one is simply canceling the other -- that there has been some shift in household responsibilities. If a wife goes to work, the husband may cut back a little bit in order to take care of children, et cetera.

"So that's not really a big surprise," he says. "That's really, again, a shift between the genders. But I think where the real surprise is and where the real change has been is among teen-age workers -- big drop in labor force participation among teen-age workers.

"Several reasons here: Teenagers or young people are staying in school longer. More of them are going to college. Many of them are in a better financial position once they are in school, in college, so they have less need to work. And many of the types of jobs that teen-agers or college kids used to take are now being supplied by other workers, particularly immigrants.

"So for all of these reasons," Walden concludes, "I think the real story here is the decline of labor-force participation by teen-age workers."

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January 25, 2007

Why retailers discount remnants

After Christmas is typically a time when shoppers can find merchandise at what appears to be deep discounted prices. N.C. State University economist Mike Walden explains why.

"There are several reasons for this, why stores would want to sell these products after Christmas at much lower prices," says Dr. Walden, a professor of agricultural and resource economics. "One is they want to avoid storage costs. They want to avoid carrying those products in their warehouse, where they are subject to breakage and have to have security and obviously have to pay for the space.

"Secondly, the product -- if they did hold it until say next winter could be out of style, out of season, and people wouldn’t want it," he adds. "And thirdly, consumers probably don’t want to buy a product that is a year old, from the previous Christmas.

"So for all these reasons retailers do want to move their unsold items from Christmas, and the buyer who was able to wait and perhaps willing to risk not having the selection that they wanted can get great deals."

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January 24, 2007

Do online sales hurt in-store business?

The retail battleground increasingly appears to be between online buying and in-store buying. But N.C. State University economist Mike Walden says the two are not necessarily competitors.

"It used to be that was the case, but I think so-called bricks-and-mortar stores -- your traditional store where you have a location you can go to -- they are increasingly using online sales. So they are not necessarily competing with online sales, they are embracing them," says Dr. Walden, a professor of agricultural and resource economics. "In fact, online sales from traditional stores have increased 140 percent since 2003, double the rate of Web-only stores.

"Traditional stores are also using Web sites and sales to get people to come to the store, for example, by saying, 'If you buy online, we’ll offer you immediate pickups, so come into the store and pick up that item,' or offering gift cards if people come in the store.

"So I think increasingly we are going to see a blend of online purchasing with in-store purchasing by the traditional retailers," he concludes.

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January 23, 2007

Where services beat manufacturing

It's long been known that our economy has changed in a way that has increased services-sector jobs while decreased manufacturing jobs. Today, some are concerned with this change because they think services jobs pay less than manufacturing jobs. But N.C. State University economist Mike Walden says this isn't always the case.

"Ten years ago it was," says Dr. Walden, a Norht Carolina Cooperative Extension specialist. "But now ... we see that service jobs are actually paying more on average than manufacturing jobs in non-durable manufacturing.

"Heavy manufacturing jobs, or durable jobs, still pay more than services. But non-durable manufacturing –- in North Carolina, this would typically be, for example, textiles and apparel, food manufacturing, et cetera -- they are actually now paying less (in fact about $1 an hour less) than services jobs.

"And I think there are two reasons for this," he adds. "One is competition for those non-durable manufacturing jobs from overseas producers. We all know the story here in North Carolina of our losses in textiles and apparel and furniture to overseas producers.

"Secondly, though, is the growth of the professional and technical component of services jobs –- the jobs in professions: engineering, law, education, health care -- where those jobs are actually very high-paying," he concludes. "So the bottom line here is it's not necessarily bad in terms of pay that we are seeing a movement out of non-durable manufacturing into the services jobs."

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January 22, 2007

Mortgage points

With mortgage interest rates higher than they were a couple of years ago, mortgage points are back. What are mortgage points, and are they a good thing to use? N.C. State University economist Mike Walden answers.

"Each mortgage point … is 1 percent of the loan amount, and so what happens is you can pay money -- up front, cash -- in the form of mortgage points," says Dr. Walden, a professor of agricultural and resource economics. "What you get back is you get back a lower interest rate on the loan.

"So in essence you are prepaying some of the loan, or you are paying to get a lower interest rate," he adds. "Now, is that good or bad? Well, it depends. And it depends on a lot of things.

"For example, one thing it depends on is whether you have the money to pay the points. If you don’t have the money, then it is a moot point (no pun intended). But if you do have the money that you could pay the points, what it fundamentally depends upon is how long you are going to carry that loan," Walden explains. "Generally speaking the longer you are going to carry that loan, the longer you are going to be in the house, the more advantageous it is for you to pay the points to get the lower interest rate.

"If you are only going to be in the house for a couple years, for example, likely you are not going to recover enough in terms of lower mortgage payments to equal the points that you paid," he concludes. "So you need to look at this in terms of the timing, how long you are going to carry the loan."

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January 19, 2007

Paying off loans

When someone comes into money, they may wonder whether they'd be better off investing the funds or using them to pay off loans. N.C. State University economist Mike Walden outlines a good way to determine the most lucrative answer.

"Oftentimes, people will immediately say, 'Well, I need to pay off loans.' And that’s good. … I understand that. Economists understand this. A loan is a debt, and many people like to get that debt down as far as they can," says Dr. Walden, a North Carolina Cooperative Extension specialist.

"But what you have to remember here is that there are at least two things you can do two things with any large sum of money," he says. "You can in fact pay down loans, if you have loans, like a mortgage. Or you can invest that money.

"And what economists would recommend is that you deploy your money to wherever you can get the highest rate of return," Walden adds. "Now what do I mean by this? Well, simply look at the interest rate you are being charged on your loan, and compare that to the interest rate you could earn by investing that money, and put your money wherever the interest rate is largest.

"So for example, if you had a mortgage that you are paying 5 percent on, but you can invest the money and earn 7 percent, you’d actually be better off taking your money and not paying down your mortgage but instead putting it toward that investment," Walden concludes. "So the rule of thumb is follow the money. Or more specifically, follow the interest rate. Go where the interest rate is highest."

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January 18, 2007

Why we borrow

The U.S. has run a national trade deficit with other countries for all but a few of the last 30 years -- and that deficit seems to be getting bigger. But some economists say that such deficits actually make sense when you consider national demographics. N.C. State University economist Mike Walden explains.

"One of the fundamental factors determining whether you borrow or save is your age. If you look at people, households -- younger people, younger households who have a lot of needs (buying a house, buying a car, furniture and so forth) compared to their income, [they] will typically borrow money," he says. "Then when you are older your income is in better shape, your borrowing needs aren’t as great, so you begin to pay that money back.

"So the idea here is if you take that household concept and transfer it to nations, then what we should see is that nations that are younger, that have a higher of higher percentage of younger households, will be net borrowing nations," Walden explains. "Nations that are older will be net savers.

"And, indeed, if you apply this further to the U.S., what you find is the U.S. is a relatively young nation. Our demographic structure is younger than, for example, the nations of Europe, ... Japan and soon to be China. So again taking this a step farther, these economists say it actually makes sense for the U.S. to be a borrowing nation right now, and for other nations to be saving and lending to us, because of this difference in age structure."

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January 17, 2007

Long waves

There's a well-accepted concept in economics called the business cycle, which says the national economy goes through ups and downs, or booms and busts, about every 10 years. But there's also the theory that the economy goes through longer cycles. N.C. State University economist Mike Walden explains.

"We do have the short business cycles, which are well-established. In fact, the government tracks them and dates them. The business community knows about them," says Dr. Walden, a professor of agricultural and resource economics. "But there is another theory which suggests that instead of going through these shorter 10-year cycles -- or we do go through the shorter 10-year cycles, but they are parts of a bigger cycle –- maybe a cycle lasting 50 to 60 years.

"This generally is called the long wave theory, and it is based on the notion that what is ultimately pushing economies are big factors like changes in demographics, in world trade, even political and social events," Walden adds.

"So if you believe this long-wave theory, you can go look it up and see where we are on the current cycle. And it's actually not very good news. The current believers of the long wave theory say that we are actually on the downward part of the latest 50- or 60-year cycle, and it's going to be several more decades before we bottom out and head up again."

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January 16, 2007

Some big salaries for playing a game

While summer is the time when baseball is played, winter is when the salaries are set. And recently some baseball players have been signed to very big salaries, even by sports standards. N.C. State University economist Mike Walden explains what's going on.

"The average salary now for … a professional baseball player is $2.7 million. And there are a lot of contracts that have been let out in the $100 million-$150 million range," says Dr. Walden, a professor of agricultural and resource economics. "I think what’s going on here is simply that there’s more money now available in baseball.

"Believe it or not, baseball revenues are way up. … Attendance is up, there are big media contracts, merchandise is very healthy and a lot of teams have new stadiums that are generating revenue," he explains. "So with free agency –- and free agency means that within limits baseball players are able to move around between teams -- ... players are in play and teams can go after them. And if they have a lot of money that’ll end up in terms of bigger salaries.

"Now a team always has to judge whether paying a player a certain amount of money -- say $100 million for five years or so -- will they get that back in terms of performance for the team [and] in terms of where the team is going to go in the standings. So teams will not just throw money at players," he concludes. "They will want to try to evaluate whether they will get that back in terms of the revenue base."

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January 15, 2007

Pay and turnover

While some people may think that businesses try to pay their employees the least possible, economist Mike Walden says there's a downside.

"One big downside is turnover. You look at one of the big box stores that will go unnamed, but which has very low wages -- they also have a lot of turnover. And lower turnover means you have to spend time and money attracting new folks … as workers and training them," says Dr. Walden, a professor in N.C. State University's Department of Agricultural and Resource Economics.

"So some companies may actually purposely pay more than perhaps they have to in order to keep workers longer," he says. "This is very important for companies where, of course, a worker gains a lot of on-the-job training and that training is very valuable to have with that experienced worker.

"So the deal here is with less turnover, the company can actually save on the cost of finding new employees and may actually take those savings -- use those savings -- to pay those folks more in order to keep them."

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January 12, 2007

Headquarters on the move

Attracting a national headquarters of a major company is a big prize, one traditionally won only by big cities. That's changing, says N.C. State University economist Mike Walden.

"First of all, still having a headquarters right there in your city is very valuable: It brings jobs. It brings prestige. It brings a lot of civic activism," says Dr. Walden, a North Carolina Cooperative Extension specialist.

"But headquarters today of companies seem to be in play more. Yes, traditionally, they have gone to big cities but big cities have costs -- congestion costs, higher prices," he explains.

"Also air travel today makes being in a medium or smaller city less disadvantageous. So for this reason, big cities no longer have a monopoly on headquarters, and smaller and medium size cities are able to compete for that big prize."

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January 11, 2007

Student debt

There’s a perception that college students are graduating with more debt than ever before. While there's not a lot of good data to confirm this perception, N.C. State University economist Mike Walden says that if it's true, there are at least two good reasons why.

"Let’s assume that college students are in debt more. First of all, there’s probably a good reason for this. One is that the benefits of going to college and, if you have to, going into debt to go to college, have actually been much greater than in the past. In other words, if you looked at the benefits in terms of your pay down the road to a person getting a college degree, compare those to the cost of going into debt, it still works out where the benefits are much greater than the costs," says Dr. Walden, an economist with the College of Agriculture and Life Sciences.

"Secondly there is some evidence suggesting that if some college students go into debt significantly, they are actually doing it at the end of their college career, when they either know or have a good idea of what kind of job and what kind of pay that job will carry," he adds. "So it’s sort of like they are prebuying a lot of things -- knowing that, yes, they can afford that once they get a job."

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January 10, 2007

Where women are beating men

There have been age-old economic disparities between women and men, but N.C. State University economist Mike Walden says there’s one place where the tables have been turned and women are now ahead of men: college campuses.

"There are now more women … going to college than men. And the graduation rate for women is actually now higher than it is for men," says Dr. Walden, a North Carolina Cooperative Extension specialist.

"This is the opposite of where it was 20 years ago," he adds.

Walden cites three reasons:

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January 09, 2007

Bernanke speaks

When the head of the Federal Reserve speaks, everyone interested in the economy listens. N.C. State University economist Mike Walden outlines some of the main points Fed Chairman Ben Bernanke has been making recently.

"First of all," says Dr. Walden, "he is upbeat about the economy. So rather than seeing the economic glass half empty, I think he sees it half full. He is looking ahead to the economy in 2007, and he has stated that he sees the economy growing modestly in 2007 and in fact in the years beyond.

"He also doesn’t think the housing slump will push the economy into a recession. In fact he has said he thinks the housing slump will likely end in 2007," Walden adds. "Now, he does remain concerned about inflation, but he has stated he does see signs that inflation is moderating.

"So all this is very important," Walden concludes, "because this may give us some indication of where Mr. Bernanke may take us regarding interest rates, although he’s always careful not to tip his hand on interest rate policy."

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January 08, 2007

Organic food

Many people today are concerned with the quality of their food and with the way their food is produced. These concerns have given rise to the organic food industry that's growing quickly, says N.C. State University economist Mike Walden.

"Its sales have gone up 600 percent in just the last eight years," says Dr. Walden, a professor of agricultural and resource economics. "But it still accounts for a relatively small amount of total food sales. Organic food accounts for about 2.5 percent of all total food sales.

"Now," he adds,"the demand for organically grown food has increased so fast in this country that we are actually importing some organically grown food.

"... Farmers thinking of going into this kind of food production need to carefully consider all the requirements and processes," Walden cautions. "Growing food organically is much different than growing food in the traditional way."

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January 05, 2007

Are businesses overextended too?

We worry about households being overextended with debt. N.C. State University economist Mike Walden considers whether the same worry applies to businesses.

"Well, you might think so … because like households, businesses today have a record amount of debt if you just look at it in dollar terms. And so you could conclude that, yes, like households businesses are also overextended," says Dr. Walden, an economist with the College of Agriculture and Life Sciences.

"But you have to remember that businesses also have a lot of value. We call that equity in financial lingo. So what most economists would recommend you do is you don’t just look at the dollar amount of debt, you look at the debt a business has compared to its equity or value," he adds. "You look at those ratios, and when we do this we actually see that debt relative to equity for the average business is relatively low. It’s about 50 percent.

"It’s actually half of what it was throughout most of the 1990s. So the conclusion here is that in aggregate businesses are not overextended with respect to their debt."

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January 04, 2007

A trip down memory lane

While the beginning of the year is a time to look ahead, sometimes it’s good to take a look back. N.C. State University economist Mike Walden looks way back -- to how people lived 100 years ago.

"And I do think this is useful … because it puts our current life in perspective," says Dr. Walden, a professor in the Department of Agricultural and Resource Economics. "But if we look 100 years ago, first of all people only lived half as long as they do today –- about 40 years.

"There were only 8000 cars in the entire country, and the maximum speed limit was 10 miles per hour," he adds. "Workers on average earned about 22 cents per hour, and that amounted to about $200 to $400 per year. Of course, many people earn that now per hour.

"Only six percent of all people in the country had graduated high school, and one of the fastest growing cities in the U.S. today, Las Vegas, had only 30 people."

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January 03, 2007

Economic Outlook for 2007

It’s that time again when we ask economists to blow the dust off their crystal ball and tell the rest of us what the economy will be like in 2007. N.C. State University's Mike Walden says most predict continued economic growth in the coming year.

"This is hard for economists to do. We are much better at predicting the past, I always tell my audiences, but seriously most economists … see the economy continuing to grow in 2007 -- perhaps modestly but enough growth to create jobs and to grow income," says Dr. Walden, a North Carolina Cooperative Extension specialist.

"Inflation we expect will be moderate, and we don’t expect any surprises in energy prices, although of course the weather can definitely change that," he adds.

"I think the biggest change -- perhaps the biggest surprise in 2007 -- for people will be interest rates. We do look -- most economists do look -- for interest rates to fall in 2007, not much but we definitely expect them to trend downward.

"Also, I think, in terms of timing the economy may start out very slow in 2007 but should pick up steam as the year proceeds," he concludes.

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January 02, 2007

Is it good to be car salespersons today?

Car salespersons have frequently taken a ribbing over the years. But N.C. State University’s Mike Walden says that many of them today aren’t smiling -- and it's not about the jokes.

“... It appears to have actually gotten much harder for vehicle salespeople," Dr. Walden says. "And I think there are several factors behind this: One is, of course, we have had a fairly soft car market over the last couple of years. To move cars, dealers have had to give big discounts and, of course, that eats into the prices, eats into the commissions the salespersons get.

“Also there’s more competition out there," adds Dr. Walden, a professor of agricultural and resource economics. "We have many more dealerships today than we had even a decade ago. So more competition generally means lower prices.

“But I think the biggest factor is the knowledge that … car buyers now can acquire primarily by using a computer. You can go online for many sources. You can get the costs. You can get the prices of competitors. You can also find the base prices of the car.

"So this is literally putting the buyer in the drivers’ seat," he concludes, "and, therefore, it’s harder for those salespeople."

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January 01, 2007

The ripple effects of a higher minimum wage

With the change in the upcoming Congress, the chances of a higher minimum wage being enacted appear to have gone up. N.C. State University economist Mike Walden considers how many workers would be affected by an increase.

"Directly … only about 5 percent of workers do get paid the minimum wage. And that comes to about 6.6 million workers, so it would not directly affect many," says Dr. Walden, an economist in the College of Agriculture and Life Sciences.

"But past experience shows that when the minimum wage goes up not only do those folks who receive minimum wage get a higher wage, but people just above them in the ranks in the ranks just above them may also get a higher … wage, because there is this ripple effect to the minimum wage," he adds. "And studies suggest, therefore, that perhaps another 6 percent of the workforce, or 8.3 million workers, might actually see a rise in their wage rates even though they are not getting the minimum wage because they are at that upper tier just above minimum wage workers.

"So altogether we might expect that about 11 percent, or around 15 million workers, would get the benefits of a higher minimum wage, either directly or indirectly," he concludes.

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