By November 2001, the U.S. was officially in a recession. This recession ended a decade-long expansion - the most durable on record. In addition, the world economy remained sluggish.

But many economists predict that a brighter picture will emerge during the second half of the year. They point to low interest rates, low energy prices, controlled inflation and corporate restructuring, and say those factors paint a picture of economic recovery starting in the middle of the year.

However, what does that mean for the rural economy?

According to the January/February issue of USDA's Agricultural Outlook, the rural economy has been hit harder than other sectors. The slump in the manufacturing sector - which started four months sooner than the recession in the general economy - has hurt the rural economy, because many farm families derive their off-farm incomes from manufacturing jobs. In all likelihood, the manufacturing sector will recover more slowly than the general economy. And, the world recession is expected to last longer than the U.S. recession, which will dampen growth in agricultural exports.

However, some bright spots do exist.

  • Energy prices should stay low for this year and even into early next year. Later this year, producers with available storage should be able to purchase diesel fuel at very low prices for next year's farm operations. That will help hold down expenses.
  • Fertilizer prices are declining. Wholesale natural gas prices are close to the low of 1999, and the price of nitrogen-based fertilizers is expected to drop sharply.
  • Farm exports are projected to be up for fiscal 2002, but most farm commodity prices remain weak. The declines in fuel and fertilizer cost should help cushion the sting of low commodity prices.
  • Interest rates remain low. Agricultural producers benefit from the low interest rates the same as other consumers. Producers with good credit should be able to significantly cut their farm interest expense compared with 2000 and 2001.
  • The going rate for farm labor will likely be lower in 2002 than in 2001. Economists agree that unemployment rates probably will increase slightly in all sectors before the economy starts to turn around. As the rural job market deteriorates, fewer fringe benefits will be needed to attract farm workers.

For farm households, the overall impact will be mixed. On one hand, farm income should be up, but off-farm income will be down due to the soft economy.