EIDSON & PARTNERS

Why this recession will last longer than expected

The Bureau of Labor Statistics' July 2 Economic Situation Summary surprised a lot of people: investors, pundits and politicos alike. No green sprouts here.

The facts are clear:

• Total June job losses reversed a recent trend, posting a staggering loss of 467,000 jobs.
• Equally troubling is the decline in weekly hours of work.

This really should not be a surprise. The larger story had already been reported in an excellent article on June 12. Reporting in USAToday, Dennis Cauchon turned in a well researched story that points to the real problem. Unemployment is not the major story.

IT'S THE UNDEREMPLOYMENT, STUPID.

- The hours worked per week in May (then June) represent record lows (data from 1964 forward).
- Weekly earnings for private sector jobs are down since 1Q09.
- Cauchon reports that businesses cut wages by 6.2% in the first quarter. He quotes Laura Sejen of Watson Wyatt as, "this recession is unlike any since the Depression."

No doubt, this recession will be protracted. Before there can a real turnaround, the economy will have to grow enough to reverse both the underemployment, and then the unemployment.

MY PREDICTIONS:

1. High unemployment: 10+% for the next 24 months.

2. Stock market: stagnant with weak earnings for 24 months

3. Commodity prices: soft with the exception of energy.

4. Long term interest rates: rising based on US deficits.

China & Food Policies

Today I heard Dr. Dave Weatherspoon, Dean, Michigan State University College of Agriculture and Natural Resources, explain China's food policy for dealing with the projected exponential growth in demand for food.

Professor Weatherspoon pointed out that:

- China's middle class totals 300,000,000 people and is growing rapidly.
- The economy is expected to continue its 8% annual growth.
- As incomes rise, the demand for more, higher value food per capita grows.
- In a county with land and water constraints and a food system build on small farms, the long term outlook is for China to be a significant net food importer.

So, how are Chinese policymakers planning for a future built on food imports?

The answer, in part, is to help African nations build their agricultural capacity and infrastructure by investing $25 billion in Africa's agriculture system over three years, offering 4000 agriculture-related scholarships per year and helping to build/rebuild infrastructure to support agriculture exports.

He told of a recent visit to Namibia, a nation of barely 1 million people. He reported that throughout the country there were crews of Chinese workers repairing roads - reported 40,000 workers.

He left the audience with the profound sense of how rapidly the worldwide food system is changing and how important our food policies really are.