1. Agricultural Economics Macroeconomic Situation and Outlook Fall 2003 Craig Infanger Larry Jones

2. Agricultural Economics UK Center for Business and Economics Research “The U.S. economy appears to have come out of the 2001 recession in solid but not great shape … the economy will continue to grow in 2003 … but the current pace of recovery is fragile.” Kentucky Annual Economic Report 2003

3. Agricultural Economics

4. U.S. Economic Growth Annual Change in Gross Domestic Product forecast Percent

5. Agricultural Economics U.S. Economic Growth Quarterly Change in Gross Domestic Product Percent

6. Agricultural Economics Contributions to Economic Growth, 2002 Source: Federal Reserve Bank of Chicago Percent, annual

7. Agricultural Economics Consumer Price Index All Items and Energy Source: BLS

8. Agricultural Economics Interest Rate Trends, 2000-2003 Source: Federal Reserve Bank Percent

9. Agricultural Economics Unemployment Rates U.S. and Kentucky Monthly Rates Source: U.S. Dept. of Labor % Civilian Labor Force

10. Agricultural Economics Jobs are a big issue in the coming election.

11. Agricultural Economics Number of Jobs in U.S. Manufacturing and Service Sectors, 1991-2003 Source: Bureau of Labor Statistics; 2003 = July estimate millions Lowest level since before WWII

12. Agricultural Economics Monthly Net Change is U.S. Employment, 2000-2003 (thousands of nonfarm jobs) Recession ends Source: Dept of Labor

13. Agricultural Economics Monthly Net Change is U.S. Employment, 2000-2003 (thousands of nonfarm jobs) Source: Dept of Labor 115-125,000 jobs per month

14. Agricultural Economics U.S. International Trade Balance Source: Dept of Commerce Billion$

15. Agricultural Economics U.S. Agricultural Trade Balance Billion$, FY *projected Source: USDA, ERS

16. Agricultural Economics Trade Weighted Dollar Index Trade Weighted Exchange Index v. 26 Trading Partners Source: Federal Reserve Bank 10% decline since early 2002 1997 = 100

17. Agricultural Economics Macroeconomic Consequences for the Kentucky Economy UK CBER forecast for “steady recovery” for KY economy with 3.2% growth in ‘03 and 3.9% in ‘04 Unemployment maxing out at 6.1% in 2003 with decline to 5.5% in 2004 Recession + tax cuts = state revenues on a permanently lower growth path (structural deficit) State budget deficit of $275 million + Medicaid deficit of $175 = $475 million (5% of state budget)

18. Agricultural Economics Actual and Projected Federal Budget Surplus and Deficits, 1995-2006 Source: OMB and CBO, 2003 Billions $

19. Agricultural Economics Kentucky Net Farm Income

20. Agricultural Economics USDA Farm Program Payments

21. Agricultural Economics Kentucky Farm Balance Sheet

22. Agricultural Economics Macroeconomic Outlook Summary Modest economic growth for U.S. and KY Historically low interest rates and inflation Jobless recovery with relatively high unemployment for a growing economy Trade deficit = serious drag on economic growth Enormous Federal budget deficit and serious State structural budget deficit Higher net farm income + USDA payments + Rising land values = Strong farm balance sheet Growth in ag exports but disappearing trade surplus