Welcome to our May report covering Creighton's April survey results. The survey of bank CEOs in 10 Rural Mainstreet states indicates areas of the country dependent on farm/energy income are experiencing improving growth while our more urban-based survey of supply managers in nine Mid-America states indicates the economy is growing at a healthy pace and with positive projections.
| From the Desk of Ernie Goss
Taxpayer Bailouts Ahead for Insurance Companies and College Students
After Solendra, AIG, Fannie Mae, Freddie Mac, and General Motors picked the pockets of the U.S. taxpayer, two other groups are waddling over to feed at the public trough.
Section 1342 of the Affordable Care Act forces taxpayers to make insurers whole from losses they incur selling policies below cost on the ObamaCare exchanges through 2016. The government payouts are designed to hide the 2014 premium increases that would be required to support insurance companies that have enrolled too few young, healthier citizens, and too many older, less healthy folks.
Without the taxpayer bailouts, which will require higher taxes or federal debt, insurance companies would have to raise more visible premiums to avoid large losses and/or bankruptcy. The second looming and ominous rescue "victim" is the American college student, whose debt has doubled to $1.1 trillion since 2007. By the end of 2013,
enrollment in the plans (that allow students to rack up big debts and jettison the unpaid balance regardless of amount after a set time period)
has surged to more than 40 million debtors.
President Obama's 2011 revised plan required student borrowers to pay only 10 percent a year of their discretionary income in monthly installments. Under the plan, the unpaid balances for those working in the public sector (e.g. IRS) or for nonprofits (e.g. NORML) are forgiven after 10 years.
As a result of federal government over feeding, universities have increased tuition at a rate twice that of medical care, and three times that of all consumer prices over the past decade. Next, watch for Pfizer, maker of Viagra, to be soliciting a bailout to straighten out its financing.
Read more articles on Professor Goss' blog Economic Trends.
Mid-America & Rural Mainstreet Indicators Graph
| Mid-America Region
Economy Begins Second Quarter Briskly:
Exports Drive Growth Higher
Mid-America April 2014
April survey results at a glance:
- Leading economic indicator highest level in three years.
- Inflation gauge jumps to highest since March 2012.
- Strong new export orders for the month.
- Almost two-thirds expect Affordable Care Act to have little or no impact on company.
| Rural Mainstreet
Economy for April Strengthens:
Regulations Sink Rural Home Lending
April Survey Results at a Glance:
- Rural Mainstreet Index rises for a second straight month indicating modest growth for the month.
- Bank CEOs estimated a $4.30 per bushel break-even price for corn.
- Approximately one-fourth of bankers reported they no longer make owner-occupied home loans due to greater regulation.
- A significant number of bankers reported their bank would discontinue making residential real estate loans.
| The Outlook
From Professor Goss expects:
- Wage gains to escalate the second half of 2014 for specific occupations (e.g. welders, software developers, accountants) due to shortages.
- Monthly rents to begin increasing more swiftly as more and more Americans seek housing.
- Inflation to pick up in the second half of 2014.
National Association of Business Economics (May 2014):
- "Widespread Labor Shortages Ahead for the U.S." American workers have endured six years of depleted wealth, stagnant wages, and general insecurity. But their fortunes are about to change, according to a surprising new study from The Conference Board. From a Buyer's Market to a Seller's Market predicts unemployment in the United States - currently 6.3 percent and falling rapidly - will reach its "natural rate" of 5.5 percent by late-2015. The decline will continue well past this benchmark; over the next 15 to 20 years, U.S. unemployment may even dip below 3.8 percent, the lowest rate recorded since the 1960s."
- For April, Creighton University's survey of supply managers and the national survey of supply managers point to improving growth for the second quarter of 2014.
- U.S. employers added 288,0000 jobs in April. Unemployment rate declined to 6.3%, its lowest level since 2008.
- Exports rose by 2.3% in March to their highest level since November thus narrowing the nation's trade deficit.
- In April 733,000 Americans gave up their job search and left the labor market. The number of long-term unemployed still stands at 3.5 million.
- New residential housing construction remains weak. As a result, house prices are growing at unsustainable paces for much of the U.S. Watch for bubbles.
- April's consumer price index rose by 0.3%. Too high for comfort.
Supply Manager Report
* North Dakota
* South Dakota
Read state-by-state, six-month projections by supply managers from nine states surveyed regarding current economic conditions in their communities.
The anti-science Luddites are at it again.
signed a law requiring food producers to label foods that contain genetically modified farm products. This will force the price of food up dramatically making it unaffordable for many families to live in this state. Even when advisable, food labeling laws cannot be set at the state level.
On June 12, the U.S. Census Bureau will release retail sales numbers for May. An increase of more than 1% from May's retail sales will be bullish for the economy but bearish for bonds as the threat of inflation rises.
On June 17, the Bureau of Labor Statistics releases consumer price indices for April and May, respectively. Monthly increases of more than 0.2% will encourage the Fed to maintain and potentially reduce its monthly bond buying program. It will point to higher long-term interest rates and could even encourage the Fed to raise short-term interest rates before the end of 2014. This is a very, very important release.
On Friday June 6,
the U.S. Bureau of Labor Statistics (BLS) will release the employment report for May. Another strong report (job additions above 200,000) will result in long-term interest rates rising more quickly.