The agricultural industry is very exposed to the outcomes resulting from higher unemployment. USDA statistics indicate that over 70% of American producers are reporting non-farm income on their tax returns. Those mid-sized farms and ranches and smaller lifestyle producers whose livelihood can be severely curtailed by loss of off-farm employment are particularly exposed. Another risk factor in job cutbacks is the loss of fringe benefits, particularly medical coverage. All of these issues present a compelling thesis for the importance of non-farm income.
Unemployment is frequently called an economic lag factor, actually increasing after an economic recovery has begun. Unemployment has nearly doubled since the robust times of 2006. Since February 2008, in a little over 12 months, the unemployment rate has increased by 4%. Projected estimates have the rate reaching double digits sometime this summer or early fall. If one allows for discouraged workers and people no longer qualifying for unemployment, the current rate is 16.4%, while the reported rate is 9.4%.
Compared to historical standards, the unemployment rate has been near or above 10% in two instances other than the Great Depression. Early in the 1920s, it reached 12% after the post-war depression of 1918 and again in the early 1980s. In the Great Depression, rates reached 24.9% and were above 10% for a decade from 1930 to well into World War II. This recession will go into the record books concerning unemployment, and could have a significant influence on business cash flow, economic household security and debt carrying ability. Buckle up for a rough ride!
P.S.: With many car dealerships closing in rural areas, this could have a significant influence on rural America.
Editor’s note: Dave Kohl, Corn & Soybean Digest trends editor, is an ag economist specializing in business management and ag finance. He recently retired from Virginia Tech, but continues to conduct applied research and travel extensively in the U.S. and Canada, teaching ag and banking seminars and speaking to producer and agribusiness groups. He can be reached at [email protected].