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Economy to Continue Growth in 1998

PULLMAN, Wash. — With higher growth, lower inflation and lower unemployment in the seventh year of the third longest economic expansion in the nation’s history, who could ask for anything more?

How about no sign of an end in 1998?

That’s the promising outlook offered by John Mitchell, U.S. Bancorp, Portland, although he believes the pace of expansion will slow. Writing for the 1998 Pacific Northwest Agricultural Situation and Outlook Report, which will be published Jan. 2, Mitchell says there are no traditional signs of an end to the economic upturn that began in March 1991.

Mitchell said in 1998:

  • Faster growth, lower unemployment and lower inflation experienced in 1997 are unlikely to reappear.
  • Signs point to slowed growth in jobs.
  • Weakening Asian economies and currency declines will dampen the U.S. economy.
  • Lower import prices will help contain inflationary pressures in the U.S. economy.
  • Consumer spending will slow with increased debt and less enthusiastic equities markets.
  • Permits for new residential housing will, again, decline 2 percent to 3 percent.
  • The inflation rate will move slightly higher, to about 2.5 percent.

Munisamy Gopinath, Oregon State University agricultural and resource economics department, reported the United States is losing market share in international markets for agricultural products.

“Although the value of U.S. agricultural exports increased from about $15 billion in 1962 to $60 billion in 1996, its market share fell from 22 percent to 14.6 percent in the same period,” Gopinath said.

1997 is expected to close with a $4 billion drop to $56 billion.

Commodities in which the United States has lost market share in the last three decades include wheat, corn, cotton and tobacco.

Gopinath said adding value to Northwest agricultural products is the most likely way for the region to improve its export picture.

He said the Northwest must broaden its understanding of changing structures and patterns of foreign demand. “Increasing industrialization of agriculture suggests that there is an urgent need to strengthen the partnership between farmers and food processors so the comparative advantage of both can be realized through internationalization,” Gopinath said.

Deregulation of the U.S. electric power industry could drive up power prices Northwest farmers pay. Legislation in congress would allow restructuring of electricity rates. “If the industry becomes less regulated, it is probable that low-cost states will pay higher rates for electricity, but there are too many factors involved to predict how large those increases might be,” says Bob Smathers, University of Idaho agricultural economist.

Northwest electricity rates could climb 30 percent to 35 percent after the industry is deregulated, according to projects by the Energy Information Administration’s Office of Integrated Analysis and Forecasting.

Deregulation would allow utilities to sell their power anywhere they choose. This could result in low-cost Northwest power producers to export power to higher-paying customers in the Southwest. Thus, Southwest power rates would fall, but Northwest rates would increase.

Smathers said the speed at which deregulation will occur isn’t known, but that deregulation already is underway and competition is coming. It will take time for changes to occur as regulations are changed and the transmission system undergoes changes to facilitate competition.

“Look for Pacific Northwest rates to remain fairly stable in the short-run, but don’t rule out increases in the long-run as other states attempt to purchase low-cost electricity from our current suppliers,” Smathers advises.

The 1998 PNW Agricultural Situation and Outlook Report is the product of 44 agricultural economists and other authorities at Washington State University, Oregon State University, University of Idaho and private industry. It will be published Jan. 2 in the “Capital Press.”

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