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Recession in the Horse Industry: Coming or not?

College Station, Texas - February 1, 2008- Over the past few weeks there has been more and more talk about the odds of a recession in the United States. Economist's opinions are mixed as to whether we will have a recession, but all agree that, at the least, the economy is slowing and headed towards slower growth.

Whether an economic slowdown or an actual recession, both have implications for the broader horse industry that are worth considering, says David P. Anderson, PhD, Texas AgriLife Extension Economist at Texas A&M University.

Recession

Recessions are defined as negative economic activity, as measured by GDP, lasting more than a few months, spread across the economy. That means that the economy actually shrinks in size during a recession. The last recession took place in 2001.

Annual GDP growth has averaged about 5 percent, in current dollars, annually, over the last decade. This growth has been fueled by rising worker productivity, stable prices, a lack of inflationary pressure, falling real prices for some goods, and the expansion of new technologies and new products.

"This economic slowdown can be traced, probably first and foremost, to the rapid rise in energy prices," Anderson said. "Over the last 3 years, oil prices have more than doubled to $100 per barrel. Gasoline and diesel prices have risen from $1.00 to over $3.00 per gallon. That increase in price has the effect of reducing the amount of money consumers have to spend on other items." Since consumer spending is, roughly, 70 percent of GDP the resulting change in spending should be expected to have an effect on economic growth. In addition, nearly everything we buy is transported to its final destination, sold in stores lit by electricity, and is produced using higher cost energy.

Add to that mix rising interest rates, falling real estate and home values, and the sub-prime mortgage mess that is the result of lax lending standards and fueled by a low interest rate environment and rising real estate values. The result is much more pressure on consumer spending and choices.

The effect of ethanol, energy prices, and drought on feed prices can't be overlooked for those with horses. Feed is an expense that the normal consumer does not have. High corn, soybean, and wheat prices are pulling prices higher for all crops, including alfalfa and other hay. Alfalfa prices have increased more than 20 percent, nationally, over the last year. Drought in some areas of the country over the last couple of years has also contributed to high hay prices.

For businesses selling feed and equipment to horse owners, more questions arise. How recession proof are horse owners? They are clearly hit by higher feed and fuel costs, but how will that translate to spending on other items? That will depend largely on how their jobs and businesses do during this economic slowdown. Not all areas of the economy are showing signs of trouble. Areas like oil and gas are doing well. But higher costs may have an effect on horse related activities, whether trail rides, cutting horse events, rodeos, and other events. It may also lead to lower prices for horses at sales.

The horse industry, like all others, relies on a growing economy for its wellbeing. Some thought and planning will help the industry succeed in this troubling economy.

About the Center for Equine Business Studies

Approved in concept by The Texas A&M University System's Board of Regents, the Center for Equine Business Studies at Texas A&M University is to become a valuable and constantly available resource for all aspects of the equine industry as it works to provide economic and market information to the industry. The Center will focus its studies on the impact of the horse industry, environmental and tax issues; provide economic analysis of the potential impacts of programs and proposed legislation on the U.S. and international horse industries; as well as develop entrepreneurship training for the many small businesses that serve as the lifeblood to the industry's economic landscape.

 

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