Jan. 26, 2017

Momentum from 2016 economy will benefit first half of 2017

Steve Kyle
Chris Kitchen/University Photography
Steve Kyle explains to the Agricultural and Food Business Outlook Conference Jan. 24 that the new Trump administration is introducing negative economic shocks that may well trigger a trade war.

The positive economic momentum from 2016 will benefit the U.S. economy in the first half of 2017, according to Cornell economist Steve Kyle. After that, he said, the U.S. will likely feel the effects of policy change from President Donald Trump’s administration and the Republican-led Congress.

“It’s hard to say with any certainty what these policies might be, since there are both negative and positive ideas under discussion,” he said during his presentation at the Dyson School’s Agricultural and Food Business Outlook Conference Jan. 24.

Kyle, associate professor of economics, fears that Trump and Congress soon may ignite bitter trade wars.

Trump’s recent executive orders to freeze hiring in the federal government, withdraw from trade deals and gut the Affordable Care Act, as well as threatening to deport undocumented workers during the campaign, may lead to negative economic shocks.

“While there is the potential for negative shocks, there can be positive boosts through Trump and the Republicans’ willingness to increase both spending for infrastructure and the deficit on projects,” said Kyle.

With interest still rates still near zero, the Federal Reserve Bank has little room to maneuver should the economy sour, as the bank cannot lower interest rates much further. “That could be a negative thing,” he said.

Considering Trump and the Republicans do what they promised on social causes during the election campaign, “There is now more uncertainty than before. Markets and investors hate that,” Kyle said.

If heavy tariffs are imposed on U.S. imports, our “trade partners are not going to sit still and do nothing. There will be retaliation. There will be consequences, but we won’t see [those consequences] right away,” he said.

Kyle further gazed into his chart-filled crystal ball to predict the U.S. economy for 2017. The first half of the year will see low unemployment, stable interest rates, a strong dollar and slight gross domestic product growth, the economist predicted.

“The first part of the year is already baked in,” he said. “On fiscal policy, however, that’s a big question. Trump is a wild card.”

New York agriculture in ‘steady’ state

Jennifer Ifft, assistant professor of agricultural economics, examined the economics of the New York agriculture and food sector. The current 2017 New York agricultural outlook is “steady,” relative to 2016, as dairy receipts are predicted to increase slightly, and aggregate farm income appears to be level, she said.

Net farm incomes are close to 10-year lows, while inflation-adjusted wages for Northeast farmworkers increased in 2016. For this coming year, fuel, interest and labor expenses are all expected to increase.

New York agriculture may be affected by priority issues for the new Trump administration, as a significant share of commodities produced in New York are exported. Labor costs are a major farm management challenge for many of the state’s producers, and they could be affected by national immigration policy changes, Ifft said.

For the farming industry, regulation is cited as a concern, including the idea that New York has a high cost of conducting business. “The state’s farmers have higher insurance and property tax expenditures than other states that specialize in dairy, fruit and vegetable production,” Ifft said.

Panel weighs White House implications

Robert Gray, managing partner at Gray and Oscar; John Newton, director of market intelligence for the American Farm Bureau; and Elizabeth Wolters, assistant director for the New York Farm Bureau, spoke on a panel that examined implications of a Republican-controlled Congress and White House.

The panelists emphasized that there was little public discussion of agriculture and agricultural policy by the Trump administration during the transition period. The nomination of former Georgia Gov. Sonny Perdue for secretary of agriculture was the last major cabinet appointment. “As such, it is hard to predict what new directions agricultural and food policies might take,” said Andrew Novakovic, the E.V. Baker Professor of Agricultural Economics, and conference organizer.

Noting a long-standing concern for agriculture, the panelists emphasized that immigrant labor remains a top economics concern to watch.

Because agriculture depends heavily on trade, future trade agreements and relations will also be a high priority. Economists expect a relaxation in environmental regulations, some of which – for the agricultural industry – have been confusing and vexing, they said.

Both Wolters and Ifft noted that New York has the authority to maintain more stringent environmental regulations than the federal standards, which may be a challenge for the future cost competitiveness. While current programs are set through the end of 2018, the speakers noted that federal agricultural policy is expected soon to be open for discussion.