The economy is not likely to slip into a double dip recession, said Michael Swanson, Wells Fargo economist speaking at the annual meeting of the Minnesota Bankers Association, which is taking place today in the Twin Cities. Swanson said a double dip could happen, but that statistics, as he reads them, suggest the economy will continue to grow.
Swanson said the economy is truly global now and that almost all businesses are affected by global events, “which means the economy is more uncertain and there is more volatility.”
Unemployment is high because of the lack of capital investment, he said. Until unemployment comes down, Swanson said he expects the Federal Reserve to hold interest rates low. He said that could be nine months to a year.
Food accounts for 14.9 percent of the consumer price index. Swanson noted that the price of beef, poultry, pork and dairy products is very high now, and those prices are not likely to drop anytime soon. Even if the price of meat rises beyond the reach of most Americans, overseas demand is likely to keep prices high. Unfortunately for producers, however, profits are not nearly so high as expensive corn makes it difficult for protein producers to make money.
Although corn prices are high now, Swanson said ethanol is at greater political risk now than at any time in the last 10 years. He said the EPA could reduce the amount of ethanol it requires fuel sellers to mix into their gasoline. This would shock the ethanol market, and many investors would choose to get out of the market, sending prices lower.
Swanson said he expects taxes to rise. He said that Americans are paying a lower percent of GDP in taxes now than they were several years ago. The lack of political will to cut spending makes tax increases inevitable, he intimated.
Overall, the brightest spot in the economy is agriculture, he said, noting that it is positioned better than any other economic sector to leverage the benefits of global markets.