#313. Rural Rebound

Posted on | The Agurban

Rural Rebound
Excerpts from The Main Street Economist, Federal Reserve Bank of Kansas City

If recent history holds true, rural America could lead U.S. economic gains in 2011. Stronger commodity markets and export activity have positioned rural America for sustained growth in the year ahead. As the recovery strengthens, consumer spending should reinforce service sector gains and overcome the sluggish housing market.

Commodity industries could remain the primary drivers of the rural economy in 2011 with limited supplies and rising demand. United States Department of Agriculture projects agricultural commodity inventories to remain just above historical lows next year with increasing demand offsetting strong production. Moreover, the Energy Information Administration projects that global crude oil demand will be larger than global production in three of the four quarters in 2011. Looking ahead, energy and agricultural prices are projected to remain high in 2011.

Strong global demand could also support rural export and manufacturing activity. In 2010, agricultural exports were expected to reach their second-highest level on record and remain strong heading into 2011. In addition, resurgent manufacturing export activity could further boost the rural economy. Exports of U.S. nonagricultural goods jumped 21 percent in 2010 with stronger gains in exports of durable goods. With manufacturing activity accounting for roughly 20 percent of rural earnings, persistent gains in exports and factory employment could bolster the rural economy. In turn, stronger goods and commodity production could boost demand for transportation, distribution and other wholesale trade services, supporting further gains in professional and business services.

A hearty economic recovery could also stimulate consumer spending on Main Street. Retail sales strengthened at the end of 2010, and many economists expect personal consumption expenditures to rise almost 3 percent by the end of 2011.
Healthy rural employment and income gains could lift consumer spending further in the year ahead.

Still, the rural economy faces stiff headwinds from a weak residential housing market. Similar to the nation as a whole, rural homebuilding remains weak, especially after the end of the federal homebuyers tax credit program. Homebuilding, while weak, is expected by many economists to rebound roughly 5 percent in 2011.

To see the full report, visit here.