Ep. 106 Economic Outlook with Ben Ayers of Nationwide Economics
- Transcription
Speaker 1 (00:08):Welcome to AgCredit Said It, your go- to podcast for insights on farm finance and maximizing your return on investment. Join us as we talk to industry leaders, financial experts, and area farmers, bringing you skillful advice and strategies to grow your farm's financial future. AgCredit Said It, where Farm Finance goes beyond the balance sheet.
Phil Young (00:38):Welcome back to AgCredit Said It where we take you beyond the balance sheet of farm finance. I'm your host, Phil Young, and today we're talking with Ben Ayers, Senior Economist of Nationwide Economics. Ben was recently the speaker at AgCredit's annual meeting and provided us with a great economic outlook that we wanted to share here as well. So welcome, Ben.
Ben Ayers (00:56):Yeah, thanks, Phil. Great to be here.
Phil Young (00:58):Good, good. Yeah, in your presentation, it was really good. I was there. You covered a wide range of topics, including the conflict with Iran, jobs, AI, inflation, tariffs, interest rates. So when to kind of break some of those down with you here today. So the thing that I wake up every morning and see on the news is the conflict in Iran. So I kind of wanted to start there. We've been hearing a lot about that. Any updates on that that you've seen that maybe have an impact on the consumer, farmers? Hat's your lens on that?
Ben Ayers (01:31):Sure. There's obviously a lot going on in the economy right now, but as you said, front and center is the war going on in the Middle East and the impact that that's having on the global economy, but particularly here at home in the US, you look at energy prices are really the main focal point here. You look at gasoline prices, about $4 a gallon across the country. They've come down a little bit here over the past couple of weeks, especially as we're ... Looks like we have a ceasefire that is tenuous at best, but holding for now. And hopefully that turns down the heat here and we see things moving towards a more permanent solution, but a lot of pressure still on many consumers. There were a lot of consumers that were already struggling to make ends meat before we had a big spike in gasoline prices.
(02:26):And now it's just put more pressure on both consumers and obviously we'll get to it, but the farm area as well. Many consumers, they can't change too much what they consume from a gasoline perspective. That's why we call ... In economics term, we say demand is inelastic for gasoline, which means you still have to drive to work, you still have to drive your kids to school. And in many cases, you just have to eat that extra cost. One of the broader trends that we've been keeping an eye on from an economic perspective was the potential for higher tax refunds this year because of the passage of the one beautiful bill last year. And we've estimated that consumers across the country probably received about 40 to $50 billion more this year in federal tax free funds. The problem is most of that's going right to the pump at this point.
(03:17):And so some of that extra stimulus that we were expecting for the economy is not happening. And it's going directly in and out of people's pocketbooks. And that's just one of those trends we're keeping an eye on. I think we're still pretty optimistic about the longer term trajectory, but certainly focused on right now, the increase in energy prices and just the uncertainty around what's going to happen here in the near term is another bump in the road for the economy as we sit here in the first half of 2026.
Phil Young (03:49):Yeah. Con, the subject to consumers, I think you talked a little bit about just general consumer sentiment in the marketplace. I mean, is it positive, negative? We're a year, what are we, year and a half into the Trump presidency here? And so how have things shifted since he's taken over and where we're sitting?
Ben Ayers (04:05):Yeah. I mean, unfortunately, when you go out and you ask consumers how they feel about the economy, it's not very positive. Many consumers, again, are been feeling the pressure, particularly on the financial front from rising costs. And we're calling this inflation fatigue because we're talking several years of this where people are going, okay, when is enough enough on a price increase perspective and when do I have to start pulling back? And so many of the consumer sentiment readings and the confidence readings that we look at are very poor. Many consumers say they're not very happy about the trajectory for the economy. They really wanted to see some relief on the inflation front, but instead we got tariffs, we have uncertainty, now we have rise in gasoline prices. So many of those hopes that people had that President Trump would come in and change the inflation picture hasn't happened because the priorities have been on other types of policies, rightly or wrongly there.
(05:03):And many consumers say they're very concerned about the trajectory, concerned about where they are from a job perspective. And that's what they're saying. There's the other side of the coin where they might be saying things are poor, but they're still spending pretty well. And so it's this interesting difference between what they're saying about where they feel the economy is and what their behavior's actually telling us. And when you look back at the past year or so, pretty resilient spending from the consumer. And that's one of the reasons why, despite some of the disruptions caused by some of the policy changes last year, the economy still did pretty well. We expanded a 2% rate from a total economic growth perspective last year. And even still early here in 2026, we're still seeing some resiliency from the consumer. And a lot of that is because people still have jobs.
(05:55):We're not seeing a lot of jobs added, but we're not seeing a lot of jobs taken away as well. And so we're in kind of this low, higher, low fire environment, kind of a steady state for the labor market. And that's really what's been supporting the consumer and keeping the economy moving forward. And so when we look at the forecast here, we're very focused on the labor market and what that means for the broader economy and then certainly the consumer in particular.
Phil Young (06:24):Have you seen any data on income from people? Is it kind of stagnant or is income rising or is it even keeping up with inflation? What's that look like? I don't know if you've seen anything on that. Yeah.
Ben Ayers (06:39):I mean, incomes are still rising. You look at many of the wage growth measures that we would look at for the economy and wages are still rising above average within many sectors. Now they're not rising as quickly as they were a couple years ago. We have seen some softening of the labor market, which is weighing on wage growth a little bit, but there's still pretty solid wage growth across the board. As you pointed out, the key question is, is that enough? Is it keeping up with inflation? And particularly when you went back to ... I'm referring to a consumer price index when that was running at eight, nine, almost 10% a couple years ago. Certainly, even thou wage growth was stronger, it wasn't keeping up with the pace of inflation at that point. What we would call real wage growth. So adjusted for inflation wage growth was running negative when you go back to 2021, 2022, and really over most of 2023, when we have seen inflation has pulled back here over the past couple years, it's still running in that two to 3% range, but wage growth is more like three to 4%.
(07:47):And so we are seeing that wage growth wages are keeping up with inflation. The problem for many people is there's a big hole that was made a couple years ago when the wages weren't keeping up with inflation. So you need multiple years of wages running faster than inflation to really kind of feel like you're caught up with what you lost a couple years ago. And we're still kind of at the early stage of that process. And again, for many people, they're still feeling the pressure day to day as they see the prices continue to go up, even though their wages are going up as well.
Phil Young (08:22):And I think in your presentation you talked about this and it was kind of a big thing months ago was tariffs. Any updates on tariffs on, is that still hot and heavy? What's going on in that area?
Ben Ayers (08:34):Yeah. I mean, tariffs have taken a bit of a backseat here because of all the news around the conflict with Iran, they're still there. And particularly just a month or two ago, we got a big change from the Supreme Court where they struck down what we call the IEPA tariffs that the Trump administration was placing on particularly Canada, China, and a few other countries. Those are struck down and had to make some shifts on the tariff front. I would say we're at a point with tariffs where many businesses have adjusted. We're about a year in, and so many businesses have been forced to make adjustments to their supply chains, to where they get their inputs to try to mitigate the impact of tariffs. And so for many businesses, unless something really changes on the tariff front over the next couple of months here, there's not going to really be a meaningful difference for them going forward because they've already made the changes that were necessary.
(09:31):They onshore some things, they changed the sources they had, again, all try to mitigate the cost of tariffs. But obviously there's still some uncertainty created here and we're likely to see some more changes from the administration. They want to kind of recoup what they lost when the IPA tariffs were taken off and still apply some tariffs across the board. So still probably expecting some shifts, some changes here, but by and large, I think the peak uncertainty around that has passed. That occurred last year when there was so many changes on that front, many things coming down on announcement front, probably still some more minor moves here, but really when you look at a broader picture for tariffs, we're expecting this policy to remain in place, at least in the near term here. Something around a 10 to 15% effective tariff rate for most goods coming in the country, that's kind of the new norm.
(10:27):And again, many businesses have already adjusted to that, so probably not as much uncertainty or as much change around that going forward, but clearly a policy that's with us now and it's probably not going away at least for a little while.
Phil Young (10:40):Yeah. The other kind of thing I think you touched on in your presentation was artificial intelligence and the impact that's having on consumers and just businesses. Yeah. Refresh and share what your thoughts are on AI and where that's maybe going in the future.
Ben Ayers (10:57):Sure. Everything's about AI right now, isn't it? It is. Yeah. You hear about it every day, every article. And you're just hearing these huge numbers of investments from company, trillions of dollars of investments from companies in AI because there is a lot of potential there for a boost of productivity. I think at least what we're seeing here in 2026 is we're still at the early stages of this. We're seeing a lot of investment, a lot of build out, a lot of optimism, maybe even a little bit too much optimism out there when you look at the equity markets and where things have gone there. But we are seeing a meaningful impact on the economy because of this already. You look back at 2025, again, we talked about consumers being a positive tailwind for the economy, but AI was as well. Massive investment there added a pretty good amount of the economic growth we had last year.
(11:54):A few of the quarters last year, 30 to 40% of the growth we had in the entire economy was tied up in some of the investment that we were making in AI. So a very large impact on investment on the business sector side. We're also seeing a pickup in productivity, and that's really from a economic perspective. That's what we're concerned about as economists is how many people are working and how productive are they? Because that's basically essentially what economic growth is in the US, is how many people are working there and how much are they producing to support the economy. And in as far as AI can boost that productivity, that's a potential medium and long-term boost to the US economy. We're starting to see some early signs of that more broadly. The other side of that is some of the potential disruptions that happen as we switch from an economy that has not really do anything with AI to one that really incorporates that more broadly.
(12:54):And that's still some disruptions for the labor market. And we hear a lot of questions about that. "Am I going to lose my job because of AI? Are there going to be disruptions?" And we haven't seen a lot of that yet, but certainly there are still those concerns for many people that there is going to be a shift in the labor force. We're going to have jobs that are likely phased out to a large degree because of AI adoption and not needing some of those workers to do that anymore because you're utilizing AI. I think the other side of this, there's going to be a lot of jobs that are created because of AI that we don't even know about right now or other areas where there's going to be some jobs, but there is that transition period. And I think the economy's still in the early stages of that and something we're keeping an eye on for a three, five, even 10-year outlook as far as what changes is that going to create for the labor market and what could that potentially mean for the broader economic growth?
Phil Young (13:52):I hear a lot of people, you have people on both sides of this issue where they're like, "Yeah, this is a bubble and it's going to burst. Like you said, there's been lots and lots of dollars dumped into this. It kind of has a feel of a dot com bubble, but at the same time, you've got people on the other side saying, Hey, we need to have some serious conversations about UBI, universal based income because we think it's going to take everyone's job. And that may be 10 years down the road, but any feel for what you think or ...
Ben Ayers (14:23):Yeah. I mean, I think that truth is always kind of somewhere in the middle. Agreed. I mean, there are going to be, unfortunately, some people that are going to lose their job because of AI. And that's just part of that transition for the economy. And hopefully, again, we create more jobs than we even know about because of the adoption of this and the boost the growth that we'll potentially see. But we know there's going to be some transition and some disruption in the near term. As far as the bubble, I get that question a lot. I mean, especially when you look back at history, again, you look at the dotcom bubble. And there certainly are some things you look at the equity markets in particular and you say, "Ooh, those valuations are pretty elevated.
(15:02):Are we Concerned about things being too far?" And there probably is some areas where there's a little bit of overexuberance on this, but I can say that there are pretty meaningful returns already for many businesses and they're finding good value out of these investments. And I think more broadly, I don't think it's a big bubble that's going to pop. I think it's something that we're in a little bit of a overexcited phase and things will kind of settle down to more of a steady state here over the next couple years. But I'm not worried about things really throwing the economy or the equity market off tremendously because of a bubble aspect. It's just, this is a great opportunity and many people are taking advantage of it and putting a lot of investment in that. And I think a lot of that investment will reap a lot of great returns.
(15:48):Some of it won't, but I think more broadly, it'll be a positive thing.
Phil Young (15:53):Nice. Yeah. I want to shift gears to talk about interest rates, the Fed. I think in the next, if I understand correctly, the next month, month and a half here, could be a big leadership change here at the Fed. What do you see there? I can't remember if Trump picked his next guy or what that looks like, but can you kind of walk us through what you think the Fed market or the Fed's going to do?
Ben Ayers (16:15):Sure. It's a pretty complicated time for the Fed. There's a lot of crosswinds, particularly, there were a lot of crosswinds last year, but then they thought, oh, things are settling down this year and now suddenly we have the conflict again in the Middle East and have some pretty good upside risk for inflation here, at least in the very near term because of the spike in energy costs and how that flows through the economy. So the Fed's probably looking at that and being a little bit concerned about inflation because they want to keep inflation under control, but they're also seeing a labor market that isn't adding a lot of jobs. We've added only about 300,000 jobs in the US over 2025. We've seen things bounce up and down here in the first couple months of 2026, but not a very dynamic labor market here. And that kind of pulls on two different directions for the Fed because they want to support the labor market by maybe lowering rates, but they also know that has the potential for boosting inflation.
(17:12):You already have some inflationary pressure in the economy and then you add in the jump in energy prices pretty complicated for them. So it's not surprising that at least right now over the past couple of meetings, they've taken a bit of a wait and see type approach. They lowered rates several times at the end of last year. They brought rates down to a level they thought was supportive for the economy, but not too supportive or something that we as the economists would call a neutral rate. And they're kind of in a wait and see mode to see how this plays out over the next couple months. And we've seen just over the last couple weeks, some of the speeches and the meeting minutes from the last Fed meeting were very much down the middle. There were some people that were saying, "Yeah, we need to lower rates.
(17:55):We're concerned about the state of the economy." Then there are other people saying, "Hold on, we're worried about inflation. We're worried about things taking off there. Why would we lower rates? Maybe we need to consider having to raise rates when you look out over the next couple months." And then as you mentioned, we have the bit of a wild card there of a new Fed chair coming in. Chair Powell's term ends about a month from now. President Trump has put out Kevin Warsch as his nominee and we'll be having some of those nomination hearings over the next couple weeks, but assuming those go smoothly and we have a new Fed chair coming in, he's probably going to push for lower rates over the rest of the year, given the stance that the administration has and just some of the commentary that we've heard from that nominee over the past couple months pushing for lower rates, he's likely to come in and drive that.
(18:45):So a lot going on for the Fed. I think you add it all up. I think they maintain an easing bias, meaning that I think the next move for them is much more likely to be a rate cut than a rate hike. It just depends on when that actually happens. Given what's going on with the conflict in the Middle East and the rise in energy prices might be a little later than we expected as they try to kind of wait that out and see how things go over the next couple months and then into the summer. But we still expect by the end of the year two modest rate cuts. I think a couple of the meetings towards the end of the year, we'll probably see two modest rate cuts. It's kind of been the pattern for the Fed the last couple years to be on hold early in the year and then somewhere in the second half of the year, do some modest rate cutting.
(19:33):So I think that's likely to be the case, especially with the switch in the Fed chair coming, but a lot of uncertainty there. And you certainly see that in the market expectations. At one point they said, "Yeah, they're going to cut a lot." Then they pulled it back all the way out and said, "Maybe the Fed won't cut at all. " Now they're saying, "Yeah, they'll probably modestly cut once or twice this year." We've been pretty consistent saying we think they're going to cut twice this year, but it might be again, be a little later than we originally thought in the year, just given the timing of things and some of the uncertainties out there right now.
Phil Young (20:05):Yeah. As you were talking, I was thinking, I was like, "Man, I'm sure someone's done this as map out the month of the meeting and their typical behavior on raising and lowering or staying flat." Like you said, it seems like their behavior is end of the year, maybe make a change up or down. It'd be fascinating to see a graph on what month they did what over the last 20 years or so. But anyway, but yeah, so obviously our audience is farming, our audience is agriculture. Can you speak to that side of it and maybe how all these things roll together or what you're seeing in the ag economy?
Ben Ayers (20:46):Yeah. Again, a lot to keep track of and a lot of potential impacts here, but unfortunately what we've seen within the ag market has been several years of pretty challenging conditions.
(20:59):Lots of rising costs for production. We have lower crop prices in particular, a pretty good market on the animal side and livestock side, but not nearly as good on the crop side of things. And then we just talked about interest rates. Farm loan interest rate has been pretty elevated. You look still even here in early 2026, seven, 8% is kind of the going rate for operating loans. And so the story coming into 2026 was not a great market, soft market for prices, a lot of financial pressures on many farmers, but there were some hope that this year that we'd maybe start to turn the corner and that we would see things improve. Prices come up a little bit, maybe production costs would settle down and maybe farmers could start to catch up. Well, again, a lot of sensitivity here to the war with Iran and we've seen diesel prices now up to 550 per gallon.
(21:56):Fertilizer prices have spiked and many people bought that ahead of the planning season, hopefully. So maybe they're not going to be as pressure, but still a lot of cost pressure for many farmers and just kind of adding to the challenging environment as we look over the course of the year. I'll reference some data I just saw from the American Farm Bureau Federation. They just put out data saying about 70% of farmers are saying right now they can't afford the fertilizer that they need for this year. And not surprisingly, we've seen, unfortunately, farm debt has gone up tremendously over the past couple years. I think at the national level, we've added about $100 billion in farm debt just over the past couple years. And that's telling us that there's a lot of pressure there and that many farmers are feeling challenged by the conditions. And what we've seen over the past month is just only added to those concerns and the challenges that farmers are going to face over the year.
(22:54):I think what we're hoping to see is that these prices come back to normal over the course of 2026. There's going to be some near term pressure still on energy prices, on fertilizer prices, but we're already start to see maybe the light at the end of the tunnel of this conflict and we'll start to see those prices come down a little bit. And that combined with maybe some easing on the interest rate front could really help to boost the farm sector towards the end of the year. But I think this year is still a bit of a struggle. And I think that especially with some of the near term disruptions, it's another challenging year for the market. We might get some more support from the government in the form of assistance payments, those sort of things that kind of helps people bridge the gap. But I looked at some of the survey data and even with some of the recent bridge assistant payments going out, about 50% of respondents said, "I'm just going to use that to pay off debt." They're not going to use that to build out their operations, buy new equipment, really invest in their farm or their agribusiness.
(23:59):They're going to just use that to kind of tread water. And that's kind of the environment we're in right now, unfortunately. And again, some of the recent market movements have just added more pressure, particularly from a financial standpoint. Again, we're hoping that's pretty short lived and by the time we get to the summer or at least into early fall, those prices are coming back down to where they were pre-war, kind of get through this shock. And farm sectors has always been very flexible and very resilient. And this is another shock unfortunately to that, but I think we are optimistic by the end of the year conditions will improve and hopefully that sets us up for a better 2027.
Phil Young (24:38):Indeed. Yeah. Well, Ben, anything else we didn't talk about that you wanted to share? I think we kind of highlighted a lot of it from what you shared at our annual meeting, but ...
Ben Ayers (24:49):Yeah, I think that's ... Yeah, maybe we can just talk a minute about farm incomes because that's kind of a nice natural extension from the previous question.
Phil Young (25:00):Sure. Yeah.
Ben Ayers (25:01):Yeah. I think we talked a lot about the pressure that many farmers are feeling. One of the key areas we're looking at is farm incomes. We don't have an update from the USDA yet for what that will look like now that we have to factor in the spike in energy cost and fertilizer cost here, but expecting that farm income over the year will continue to be pressured and the farm income this year might be even a little bit lower than it was last year. And so just kind of highlighting the continued pressure there. Fortunately, many folks are probably going to continue to tap into loans to just make ends meet and kind of continue to feel a challenge by the environment. But again, we're hopeful that things will improve as we get into 2027. We can include that one or not. It doesn't matter. Okay.
Phil Young (25:51):Yeah. Yeah, good. Okay. Well, Ben, hey, thanks for joining us today and just appreciate the outlook you provided and so appreciate your time. So to our listeners, thanks for listening to another episode of AgCredit Said It, and we'll talk to you again next time. Thanks.
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