When it comes to hard landings, Dr. Marci Rossell told the DFA Annual Meeting audience in Kansas City, Mo., that the worst financial landing was in the 80s when the Federal Reserve was aggressively raising interest rates which played a part in engineering a very serious recession. Dr. Rossell, who is a world-renowned economist, a financial expert and a former CNBC Chief Economist, says when you take a historical review, you can better understand that today’s circumstances are quite different than the 80s or even 2008-2009.
“The circumstances today are not the same,” she noted, although she shared that the technology sector of the economy looks similar to 2000-2001.
Parallels
When looking at the circumstances that led up to the 80s economic recession, Dr. Rossell pointed out that there are some similarities.
“You see in the 1970s inflation had become a significant problem for the U.S. economy just like inflation had become a problem for the U.S. over the last 18 months,” Dr. Rossell said.
This eventually led to very high, double-digit interest rates in the 80s that those farming during that time remember well.
“You probably remember the widespread devastation to the ag economy in the U.S. and all the bankruptcies and all the farms that were sold,” she says. “It was devastating.”
Differences
Despite interest rates rising significantly in the past 12 months, Dr. Rossell outlines three reasons that what’s happening in today’s economy differs from decades ago. And, even with the feds raising interest rates once again, she says that what is happening now isn’t the same as in prior decades.
“I want to make very, very clear, we are not in a recession right now,” she remarks.
The reason Dr. Rossell believes the U.S. is not in a recession is that:
- Recessions require declines in consumer spending.
- Recessions require declines in retail sales.
- The unemployment rate really must go up.
“None of those things have happened yet,” Dr. Rossell says, although she notes that this could happen, but has not unfolded just yet.
When looking at inflation expectations in today’s economy, Dr. Rossell says they have stayed well anchored. One example she says that makes our economy differ compared to the 70s is that the unemployment rate was much higher back then.
Unemployment Struggles
In the 70s, all the baby boomers were entering the labor force, although Dr. Rossell shared that there was a lot of slack in the labor markets back then.
“The recession was very painful in terms of increases in the unemployment rate back then,” she says. “That is not the world we’re living in right now.”
Today, the unemployment rate hovers around 3.5%, meaning that anyone who wants a job, has a job.
“In fact, if I look at labor markets, there are two job openings for every one unemployed person in the U.S. right now,” Dr. Rossell shared.
Dan Basse, president of AgResources Company told the PDPW audience last month that as far as we can see going forward, the U.S. will be losing 500,000 to 3 million people per year from the workforce.
“This happens when Boomers and Millennials and others retire and we don’t see Gen X’s or Gen Z stepping up,” he says. “This is a big deal. This is going to keep wage pressures on many items.”
This also impacts labor, as fewer people in the workplace have more job options than ever before. Basse noted that robotic milking or any labor-saving technology is a good investment for a dairy farm, especially as we think about labor challenges presented today and those to come down the road.
For more information from the 2023 DFA Annual Meetings:
