The Beat of a Different Drummer
If the U.S. economy heads into a recession, will agriculture follow? Michael Swanson, chief agricultural economist for Wells Fargo, discussed this issue in a recent blog. His conclusion, “Both agriculture and food manufacturing walk in the economic parade of the U.S. economy, but they certainly march to the beat of a different drummer.” Swanson says that while the national economy will shrink occasionally, food expenditures tend to slow during recessions, but they rarely shrink. Swanson also notes there is no relationship between agricultural revenue and GDP (Figure 3). Agricultural revenue is shaped by factors independent of the overall economy like weather, global happenings, and international trade. According to Swanson, over the past 25 years there have been eight contractions in agricultural revenues versus two economic recessions.
Figure 3. Annual Change in Agricultural Revenue & GDP
Source: Michael Swanson, Wells Fargo Chief Agricultural Economist, What Would a Recession Mean for Agriculture and Food?, September 2022
Does the same relationship between agricultural revenues and GDP hold in Nebraska? Figure 4 presents the annual percentage changes in agricultural receipts and GDP for Nebraska—similar to the data presented by Swanson for the U.S. Figure 3 shows a definite correlation between agricultural receipts and GDP for the state. In fact, the two factors have a correlation coefficient of 0.74, meaning the two are positively correlated or tend to move in the same direction. This isn’t surprising given the relatively larger role agriculture plays in the state’s economy.
Figure 4. Annual Change in Agricultural Receipts & Nebraska GDP
Sources: USDA Economic Research Service and U.S. Bureau of Economic Analysis
If the U.S. economy dips into a recession it doesn’t mean the agricultural economy will follow. Changes in the agricultural economy are more dependent on global supply and demand conditions, global political conditions, changes in input costs, weather, and other factors separate from the overall economy. This can be both good and bad. Agriculture doesn’t share in the down times, but it doesn’t necessarily share in the good times either. To read Swanson’s blog, go to:
