The U.S. financial mess is buttoning pocketbooks nationwide. Americans are spending less on everything, including food, energy, travel, non-essential items like furniture and jewelry--you name it, and its down. They are hoarding cash at the moment, quite justifiable in light of recent banking and Wall Street stumbles.
This is an especially bad omen for agriculture, because so much of what people spend money on comes from the farm.
Food is the most obvious. People do have to eat, but they can eat much lower on the feeding chain, and do it at home instead of in restaurants. For higher valued products like beef, this could be very costly. This fear is being reflected in the commodity futures markets on the Chicago Mercantile Exchange and the Chicago Board of Trade. After a big crash most traders are referring to as Black Monday yesterday, only modest progress toward recovery was made today.
This current consumer spending trend is something of a self-fulfilling prophecy. As revenues drop at businesses, they cut employees and people who are out of work are forced to spend less. Backlogged, unsold inventory in stores and warehouses lead to layoffs and cuts in manufacturing activity--and less raw material is purchased from the farm.
The first line of defense to businesses facing this prospect is a bank line of credit, to tide them over until good times return. Banks are cutting back credit lines right and left. Businesses, including farms and ranches, lay off employees or close down altogether, in response.
Restoring the nation's banking system, as the bail-out attempts to do and the Federal Reserve and FDIC are moving to do, is certainly one of the needed steps.
To the extent that this restores consumer confidence--that's when the real recovery begins.
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