Housing and the Agriculture Industry in the Midwest

Housing markets in the Midwest have experienced weakness in recent quarters. For example, single-family permits posted a 3.6% decline in year-to-date data when comparing December 2018 level with December 2017 in the Midwest. Single-family permitting for the first four months of 2019 are down 11.3% in the Midwest when compared to the opening months of 2018. As of April, new home sales are down 7.4% on a month-over-month basis compared to March 2019. These declines are due, in part, to weakness in the agriculture sector and will be further challenged by recent weather issues, including tornado damage.

According to the Bureau of Economic Analysis’s definition, the Midwest is divided into two main areas; The Great Lakes and the Plains regions. The Great Lakes region includes Ohio, Michigan, Indiana, Illinois, and Wisconsin. The Plains include North Dakota, South Dakota, Nebraska, Kansas, Minnesota, Iowa, and Missouri.

With respect to single-family permits across these states, the current level of the recovery since the recession can be compared to the levels seen in 1980s. Between 2007 and 2017, only Michigan posted growth (at a rate of 9.3%). The largest decline was in Illinois (-58.5%), followed by Wisconsin (-27.6%), and Kansas (-25.7%). On average these 12 states posted a decline of 16.0% in single-family permits issued in the last decade.

Underlying macroeconomic weakness is behind much of these declines. Between 1998 and 2018, Great Lakes and the Plains Regions real GDP growth averaged only 1.3% and 1.9% respectively. Despite these numbers, agriculture expansion was sustaining this region. Agriculture, forestry, fishing, and hunting industry grew at an average of 2.7% (Great Lakes) and 3.1% (Plains) during this time period. The trendline is very similar when the farming sector is separated out from agriculture, forestry, fishing, and hunting industry grouping.  Historical average real GDP growth in the farming sector between 1998-2017 for the Great Lakes region was 3.4%, with 3.6% for the Plains region. However, since the Great Recession, average real GDP growth in this sector was only 2.4% (Great Lakes) and 1.1% (Plains).

And recent data has been worse. In 2017, nationally, the farming sector declined 6.5% compared with 2016. In the Plains region, the decline was substantially higher at 13.3%, while the Great Lakes saw decline of 10.4%. According to IMF data retrieved via FRED, the global price of corn has been declining since 2013. The average price decline between 2013 and 2016 was 14.2%. Along with corn, the price of soybeans has also been declining in recent years. The average price growth in soybeans between 2007 and 2017 was only been 1.2%. The Producer Price Index by Commodity for Farm Products, shows no change in soybean while corn shows only a 0.2% increase between 2009 and 2019.

The United States trade conflict with China is contributing to the fluctuations in the price of soybeans. China used to buy 60.0% of U.S. soybean exports but has bought almost none for months due to the tariff dispute, pushing prices to a decade low in May 2019.

Additionally, employment in the agriculture sector across the 12 states has been declining. Between 1998 and 2018, the average decline in agriculture employment across the 12 states was 18.1%. Illinois declined by 25.6%, which was the largest decline in employment in this category during this time followed by Missouri (-24.6%) and Kansas (-20.7%).

Agriculture is an important driver of local economies in the Midwest. Thus, while sector growth is declining or constrained and employment continues to decline, housing and construction markets in the Midwest will remain under pressure.



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