Overview of the Rural Economy

Sarah A. Low, Associate Professor of Regional Economics Fred V. Heinkel Chair in Agriculture

Director, Community Economic & Entrepreneurial Development, MU Extension program

Rural Economic Outlook Conference, Stillwater, OK

October 8, 2019

The author wishes to acknowledge to Dave Shideler, Mallory Rahe, Austin Sanders, Maria Kuhns, and Kate Thompson for their assistance with this presentation.

All opinions are those of the author and not University of Missouri or MU Extension.

Outline

I. Where Are We? Economic and Demographic Update

II. Outlook—Looking Forward

III. Rural Economic DevelopmentI. Rural Manufacturing

II. Agritourism

III. Rural Entrepreneurship

IV. Policy Implications and Conclusions

Where Are We?

Nationally—Overview

• Gross Domestic Product (GDP) humming along

• Consumer spending and disposable income growth low

• Federal funds rate falling

• Trade-related changes creating market uncertainty for businesses

• Period of rural population decline has ended

Regional Economy—Overview

• Despite slowdown, Oklahoma Gross State Product (GDP) looks good relative to the region

• Rural economies are more diverse than ever before• There is much more than Ag and Energy

• Other Opportunities for Rural Areas?

• Above U.S.

• Higher than Missouri!

Growth in Oklahoma’s

Economy Since 2001

MU Extension Labor & Workforce Development

80.0

90.0

100.0

110.0

120.0

130.0

140.0

150.0

160.0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Change in Real GDP (2001=100)

Arkansas Illinois Indiana Iowa

Kansas Kentucky Nebraska Oklahoma

Tennessee United States Missouri

Source: US Bureau of Economic Analysis, Chained 2012 Dollars

U.S. Consumer Spending and Disposable Income Growth Low

Real disposable personal income and real consumer spending, 2019

Source: Bureau of Economic Analysis

Federal Funds Rate—Will Politics Affect It?

Source: Fred.stlouisfed.orgShaded areas represent U.S. recessions

Federal Reserve Bank of Kansas City

• Oklahoma wage and salary employment growth just below U.S.

• Year-over-year positive after recent dip

Payroll Employment, 1980-2018

Percent Employment Change, 2010-18• Oklahoma and

Missouri employment growth stronger than neighboring states’

USDA Economic Research Service Rural Atlas

Growth in Construction and Other Services

• Oklahoma over national average in services, construction, and trade

• Oklahoma employment lagging in FIRE, tourism, manufacturing

Federal Reserve Bank of Kansas City

Rural Oklahoma—More than Mining and Agriculture!

Source: USDA ERS Economic Typology, 2015; USDA Atlas of Small Town and Rural America

Percent Employed in Agriculture : 2013-2017

• Relatively little agricultural employment

• Will commodity prices and trade uncertainty reduce the economic importance of production agriculture in rural Oklahoma?

Rural Agricultural Dependency Continues Decline

USDA Economic Research Service Rural Atlas

Professional Industries (FIRE, management,

administrative support), 19.87%

Government and government

enterprises, 16.05%

Accommodation and services, 12.66%

Wholesale and Retail Trade, 12.60%

Educational Services and Health Care,

10.84%

Mining & Utilities, 6.68%

Manufacturing, 6.11%

Construction, 5.67%

Transportation and warehousing &

Information, 4.27%

Farm employment, 3.35% Arts, entertainment,

and recreation, 1.50%Forestry, fishing, and

related activities, 0.40%

Oklahoma

24.43%

12.41%

13.14%13.13%

13.68%

0.97%

6.72%

5.36%

6.06%

1.33%

2.30%

0.48%

United StatesSource: Bureau of Economic Analysis, CAN25

Total Full & Part-Time Employment by Industry, 2017

Nationally, Rural Population Loss Has Stemmed; Regionally it varies

Nonmetro population change, 2010-17 Population change by metro/nonmetro status, 1976 - 2017

Decline in Oklahoma Exports to Canada—USMCA?

• Canada (24%)

• Mexico (14%)

• Germany (9%)

• China (6%)

Federal Reserve Bank of Kansas City

Oklahoma exports YTD through 2019Q2 (% change)

Oklahoma’s top export markets

• Cash receipts forecast to decrease, driven by crop receipts

• China’s retaliatory tariffs on U.S. commodities leading to reduced prospects

• African swine fever combined with tariffs = lots of uncertainty

Ag Outlook

Source: USDA, Economic Research Service; USDA, Foreign Agricultural Service, Global Agricultural Trade System

0

100

200

300

400

500

600

700

800

900

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Beef and veal Wheat Pork Cotton Other plant products

What Does the Future for Ag Exports Hold? Oklahoma Commodity Exports ($M), 2000-17

Rural Economic Development Opportunities

What Do We Know About Regional Rural Development Approaches?• Industrial attraction is a difficult strategy• bh

• New market opportunities – consumer preferences are changing

• Creative and collective business problem solving works

• Must capitalize on regional strengths• Oklahoma has expressed interest in food manufacturing and agritourism

policy as regional strength in rural economic development

• I’m a believer in entrepreneurship as a rural community sustainability tool

Manufacturing is more important to the rural economy than the urban economy

The importance of manufacturing

to rural communities has stabilized

Source: USDA, Economic Research Service analysis of Bureau of Economic Analysis, Regional Economic Information System data

Manufacturing share of nonmetropolitan (rural) jobs and earningsPercent as share of private, nonfarm total

Earnings

Jobs

‘07-’09 recession

2001 recession

Workforce Issues:

U.S. gross manufacturing

job gains & losses

Source: BLS Business Employment Dynamics

Manufacturing is a relatively high wage sector for rural America

Food manufacturing important to rural areas

A group of over 70 Oklahoma food manufacturers, growers, and producers

Missouri too!

Employment declines vary by industry

Rural wages below urban

Opposing Dynamics—Consumer demand differencesSugar Manufacturing (commodity) Wineries (regional, specialty)

Source: Authors’ calculations with National Establishment Time Series data

• Births and Deaths

• Average employment

• Number of establishments

• Total employment

Food Manufacturing Research• Smaller and young food manufacturing establishments may be catalyzing

employment growth in rural and urban America

• Relocalization of food and beverage manufacturing is occurring within a bimodal structure• Large, mature firms’ location is based on traditional determinants and agglomeration

• New, small plants are emerging across the U.S., perhaps to provide niche offerings to local and regional customer base

• Perhaps resulting in a Creative Destruction cycle if mature, large firms acquire innovative ones

• “Agri Culture” and entrepreneurial ecosystems are related to food and beverage manufacturing start-up location, in addition to traditional factors

Agritourism

Agritourism• A recreational or educational enterprise on a

working farm • Pick-your-own fruit• Farm tours• Dude ranches

• Female operators, older operators, and those operating large ranches with cattle or horses are most likely to have agritourism income.

• Beginning, small- and mid-sized farms are using agritourism to remain competitive

• U.S. Agritourism revenue has more than tripled, 2002-17

• $950M in 2017, excluding wineries (5.6% of farm related income)

202,184,000

566,834,000

704,038,000

949,323,000

269,277,264

661,414,058

759,881,054

949,323,000

0

200,000,000

400,000,000

600,000,000

800,000,000

1,000,000,000

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Rev

enu

e ($

)

Year

Tripling of Agritourism Revenue Between 2002 and 2017

Source: Authors’ calculations using Census of Agriculture data

Inflation adjusted dollars (2017) Nominal Dollars

Agritourism Cluster is Close to Oklahoma

From: Anders, Low, & Thilmany (2019)

Rural Entrepreneurship

Entrepreneurship Declining Nationally

• Self-employment rates remain high in rural areas but are getting closer to urban self-employment rates

• Employer establishment births, one of the better proxies for entrepreneurship, has been declining in the U.S. for decades

• “Churn” is a measure of entrepreneurial activity, the sum of the birth rate and the death rate• Here, I use county level employer

establishment birth and death rates

Employer Establishment Births over Population – All Industries, 2013-16

U.S. Census Bureau

Oklahoma Employer Estab. Dynamics, 2013-16

– All Industries

Birth Rate - All Churn - All

Death Rate - All

High (>1 StDev. Above Average)

Low (Below U.S. Average)

Above Average (Average to 1 StDev above)

U.S. Census Bureau, 2013-16 annual average normalized by population

Mining

Birth Rate Churn

Death Rate

High (>1 StDev. Above Average)

Low (Below U.S. Average)

Above Average (Average to 1 StDev above)

U.S. Census Bureau, 2013-16 annual average normalized by population

Manufacturing

Birth Rate

Death Rate

Churn

High (>1 StDev. Above Average)

Low (Below U.S. Average)

Above Average (Average to 1 StDev above)

U.S. Census Bureau Business Dynamics Statistics

Tourism and Recreation (NAICS 71 & 72)

Birth RateChurn

Death Rate

High (>1 StDev. Above Average)

Low (Below U.S. Average)

Above Average (Average to 1 StDev above)

U.S. Census Bureau, 2013-16 annual average normalized by population

< mean

<1 st. dev. above mean

>1 st. dev. Above mean

Few launch innovative companies

A lot of people are self-employed

Example: Entrepreneurial Rural Manufacturers

• Today, manufacturers in rural America have trouble being competitive globally without having a niche:

• My research shows that entrepreneurial manufacturing plants are more resilient in rural areas• Independent

• Smaller

• These results are counter to traditional economic development thinking (recruit branch plants, for example)

• Support locally-rooted entrepreneurial businesses because they can be hubs of innovation

Entrepreneurial (small, independent) Rural Manufacturers are the Most Resilient, 1996-2011

Policy Discussion & Conclusions

New to our Region!

Electrification Telephony Highway System Broadband

NeedRural Economic

RecoveryRural

CommunicationNationwide (defense)

MobilityRural Prosperity

Driving Problem Rural PovertyDiffuse localized

systemsCongestion & Condition Cost of Information Access

GAP ConnectivityLong Range Connectivity

Capacity & SafetyAdequate coverage at

acceptable speeds

SolutionRural Electrification

ActTelecom Act of 1934 Federal Aid Highway Act Telecom Act of 1996

Benefit Increased ProductivitySpeed of

CommunicationIncreased Commerce

Increased Economic Opportunity

Opportunity CostRural OutmigrationDelayed Recovery

Safety service access

Restricted Market Access

Restricted Market SizeTime Lost

Lost Competitive edgeLost Productivity

Federal Cost of Implementation1 $3.7 Trillion2 Nominal3 $616 Billion4 122.8 Billion5

Time to Implementation

1936 – 1942 (6yrs)1934 – ~1992

(58yrs)1956 – 1991 (35yrs) 1996-Present (22yrs)

Absent a Huge Federal Investment—what does the future of Rural America look like?

Conclusions

• Nationally, the economy’s growth may be slowing

• Conditions in Rural America are varied regionally

• Services sector is dominant in Rural America• Ag & Mining disproportionately higher in Oklahoma but only 10 percent of

employment

• Both sectors face uncertainties

• Manufacturing and agritourism are sexier rural development policy options

• Entrepreneurship may be the key to sustainable rural communities

Questions?LowSA@Missouri.edu