export decline expected
Exports are likely to decline during a Trump Administration, according to ag economist.

Economic outlook hinges on actions of new government

Economic outlook is mixed bag with new administration and an increase in the deficit is likely. Exports also are likely to decline.

The general economic outlook for 2017 will be a tug and pull between the new president, the Federal Reserve, Congress, and key trading partners. Inflation, growing trade deficits, declining farm income, and instability may result. 

Just to set the stage, a review of the economy that the Obama administration left behind in 2016 shows:

  • Consumer spending and Gross Domestic Product are at record levels, while Federal government spending is down.
  • Wage and salary growth have recovered from the 2008 meltdown.
  • The federal deficit has declined.
  • The inflation rate remains relatively low.
  • The value of the dollar has strengthened.
  • Unemployment is down and more jobs are being created.
  • Commodity prices are down.

EXPANDING FISCAL POLICY

The Trump administration has signaled expanding fiscal policy, with increases in spending for categories such as defense and domestic infrastructure, and major tax cuts. 

The Fed is embarked on restricting the money supply by increasing interest rates, albeit slowly. This mix of macroeconomic policy is somewhat akin to the second half of both the Reagan and Bush II administrations.  

The basics of how an economy works are always in flux: Consumer spending accounts for over two-thirds of U.S. output (Gross Domestic Product), while the remainder is split between business investment and government spending. 

All three have recovered from the 2008 economic recession, but at a lower level than the original trends. This suggests that the standard of living for a growing population will be lower.

DEFICIT INCREASE LIKELY 

Fiscal stimulus will increase the potential for inflation. Monetary policy will limit inflation and slow growth in GDP. 

Spending during the Bush II administration increased the deficit — and we’re still paying for it. Reagan finally had to pass the biggest tax increase ever to slow the deficit.

Wheat and corn prices suffered during the Reagan-Bush period, while livestock prices improved. Wheat, corn, and cattle prices improved during the Bush II period. 

In the near term, the deficit is likely to increase; foreign capital will be attracted to U.S. investments; the value of the dollar will strengthen; the trade deficit will increase, with fewer exports; unemployment may increase; the standard of living will decline; farm asset values will decline; and farm income will shrink.

If the new administration is successful in reducing the size of government, this will likely result in reduced staffing in federal farm offices such as FSA and NRCS. This suggests longer waits and more difficulty in getting assistance, benefits, and certifications. 

(Dr. Larry D. Sanders is Professor and Economist, Policy and Public Affairs, Oklahoma State University, Stillwater.)

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