 |
Economic Review
|
The U.S. economy just completed another stellar year, marked by strong growth and declining inflation. Indeed, the low inflation of recent years has been instrumental in reinvigorating the U.S. economy, helping unleash a new vibrancy and confidence across the country. However, the shock wave working its way toward us from the Western Pacific will likely be a countervailing force in our economy. Financial turmoil in a handful of Asian countries should slow the growth of spending by foreigners on U.S. goods and services. On balance, most economists are currently guessing that reduced demand for our exports will trim perhaps a half percentage point off our overall growth rate over the next year. Of course, the degree of uncertainty surrounding this estimate is large. The actual slowdown will depend on how developments in Asia play out including the policy response there and abroad. In a speech given at the University of Wyoming, Mr. Hoenig cautioned that even those of us in the Tenth District are not immune from events in Asia. Many local industries such as agriculture, technology, and manufacturing are world-class competitors and will be affected by these events. Allowing the Asian crisis to go unchecked would surely have had an increasingly harmful effect on the economies of our district. Back to top Economic Review home
While the impacts of the Asian financial turmoil on the United States have been widely discussed and studied, few analysts have looked at the likely impact on the Tenth District Economy. Gazel and Lamb examine the negative impacts of the Asian financial turmoil on the Tenth District and find that while the overall impact on the district economy is likely to be moderate, some segments of the economy could be hurt significantly. Two important sectors of the Tenth District economy likely to be affected by the Asian economic crisis are manufacturing and agriculture. District manufacturing activity is concentrated in several industries that could be negatively affected by the Asian crisis, especially electronics and food processing. Moreover, manufacturing activity has risen sharply in Tenth District states in recent years and manufacturing employment now accounts for almost 13 percent of total employment, making declines in manufacturing activity potentially serious for the district. Another important sector in the Tenth District economy is agriculture, which accounts for a large share of economic activity in some district states. Moreover, agriculture is heavily dependent on exports to support demand for its products. Within agriculture, some specific commodities such as wheat, soybeans, and red meat are likely to be negatively affected by the Asian crisis. Back to top Economic Review home
The computer sector has been one of the fastest growing segments of the U.S. economy over the past two decades. The dynamic nature of the computer sector and the sector's increased prominence in overall spending in the economy have led some analysts to suggest that the economy is entering a New Era, where the economy will return to the high-growth, low-inflation conditions of the 1950s and 1960s. Although spending on computers is spread throughout all sectors of the economy, the key channel through which the economy might be transformed is investment spending on computers by businesses. Spending on computers by businesses is key because the contribution of computers to output growth depends crucially on the quantity of computers used in the production process. If rapid spending on computers does lead to faster output growth, then understanding the magnitude of the contribution of computer capital to output growth will be crucial for long-run forecasting and policy analysis. Haimowitz examines whether computers have fundamentally changed the economy. He finds that computers have had only a modest impact on output growth until now, but the future impact could be larger. Back to top Economic Review home
During the last several years, concern has increased that changes in the financial system have made it harder for rural banks to attract enough deposits to meet local credit demands. While urban banks may face some of the same problems, it is widely believed that funding pressures have increased more for rural banks than for urban banks. In response, bank trade groups and rural development officials have proposed new measures to expand rural banks' access to loanable funds. Three factors have led to the increased concern about the ability of rural banks to fund their loans. Firs, loan-deposit ratios have risen sharply, reaching record highs in the last two years. Second, rural deposit growth has been sluggish. Third, increasing numbers of rural banks have been taken over by urban banks and converted to branches. Keeton examines recent loan and deposit trends in Tenth District states to see what evidence exists for each of the three sources of concern about rural funding pressures and to see if the concerns are more justified for rural banks than urban banks. Overall, the evidence indicates that sluggish deposit growth has increased funding pressures at rural banks but not any more than at urban banks of the same size. In short, increased funding pressures appear to be a small-bank problem rather than just a rural problem. This finding is tempered, however, by two important caveats. First, funding pressures could become more severe at rural banks than urban banks if rural investors begin investing as much of their wealth in mutual funds as urban investors do. Second, small-bank funding pressures are likely to have a bigger impact on rural borrowers because small businesses in rural areas are more dependent on small banks for loans. Back to top Economic Review home |