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August 2013 - Volume 21, Number 3

   

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The Size (and Price) of the Toy!

by Deborah D. Thornton

The favorite toy of many little (and big) boys is a shiny, new pickup truck. Pickup trucks are used for both work and play, by electricians, carpenters, and weekend warriors. A new 2013 Ford F-150 will run a big boy a minimum of $25,000, and as much as $50,000.[1] Because of this, new registrations of pickup trucks can be a good indicator of blue-collar job stability and growth and disposable cash levels.

 

Dr. Bruce Yandle, Distinguished Adjunct Professor of Economics at the Mercatus Center of George Mason University and a member of the Public Interest Institute Academic Advisory Board, has created a “Pickup Truck Economic Indicator.”[2] In 1998 the number of light trucks sold nationally became greater than the number of cars sold, and has remained so ever since. Beginning in May of 2008, at the start of the 2008 recession, both car and truck sales fell drastically. According to Dr. Yandle, “pickups are (again) outpacing autos.” His conclusion, reinforced by the daily observation of more and newer pickups at gas stations, is that “America is building again. Things are getting better.”

 

As a rural, mostly agricultural state, pickup trucks are an integral part of the Iowa economy, but frugal farmers are typically not going to buy a new truck unless they’re confident of their ability to pay for it. So, especially for Iowa, new registrations of pickup trucks may be a good indicator of consumer confidence and long-term economic growth.

 

The Iowa Workforce Development News and Trends Webpage lists Iowa vehicle new registrations, a good proxy for new vehicle purchases. It also provides the raw data back to January 2009 and current to May 2013.[3] The following chart shows the new car registrations compared to new truck data.

 

 

Since 2009 there have been only a few months where Iowa truck registrations were greater than car registrations, different from the national experience. More people typically register (after buying) trucks in December and January, presumably to take advantage of year end/beginning vehicle sales and after the fall crop sales for many farmers. The “cash for clunkers” program in July and August of 2009 apparently drove many new fuel-efficient car sales, as in these months the truck sales were as low as 48 percent of car sales. Tax refunds and the new model introductions also result in regular spikes in new registrations in May and August of each year.

 

However, when the trend line is added to the chart, it is apparent that truck registrations are climbing at a faster rate than car registrations, and if the trend continues, truck registrations should outpace car registrations by early 2014.

 

At the same time, Iowa farmland prices continue to rise – though many are concerned about a potential “bubble,” based on some land sales of $20,000 per acre. According to Iowa State University, the market price of “average” Iowa farm land was about $8,300 in 2012.[4] One investor’s newsletter estimates that this price is reasonable, supported by the current levels of corn price and per acre yield (which make up farm income), and current interest rates, and is not necessarily a “bubble.” If interest rates remain low for “the long haul” and the price per bushel of corn remains high, then the expected average price per acre may jump up to $11,000 or $15,500. On the other hand, if corn prices drop and interest rates rise, the price may fall back to the $4,500 per acre of 2009.[5] Unfortunately corn prices, interest rates, and weather are difficult for any one individual to predict or control.

 

On the downside, the Creighton University farmland-price index for Iowa decreased to just under 50 in June, from 62.2 in May, possibly indicating a drop, or at least more stability, in land prices during 2013. The overall Rural Mainstreet Index increased to 62.2, a solid, positive figure, from 58.1.

 

If current economic trends continue, and Iowa farmers have a good harvest this year, many boys will have large, shiny, expensive new toys under the Christmas tree…or in the driveway!

 

(Endnotes)
[1] “Best Cars,” U.S. News and World Report, July 25, 2013, <http://usnews.rankingsandreviews.com/cars-trucks/Ford_F-150/> accessed on July 25, 2013.
[2] Bruce Yandle, Ph.D., “The Economic Situation,” Mercatus Center at George Mason University, June 17, 2013, pp. 2-3, <http://mercatus.org/publication/economic-situation-june-2013> accessed on July 17, 2013.
[3] “News and Trends,” Iowa Workforce Development, <http://www.iowaworkforce.org/trends/> accessed on July 25, 2013.
[4] “Farm Land 2012 – Boom or Bubble?” Farmland Forecast, June 19, 2012, <http://farmlandforecast.colvin-co.com/2013/06/19/farm-land-2013---boom-or-bubble.aspx> accessed on July 25, 2013
[5] Ibid.


IOWA ECONOMIC SCORECARD is our quarterly economic forecast, arriving in February, May, August,
and November. It consists of statistics about and analysis of the Iowa economy.

 

IOWA ECONOMIC SCORECARD is published by Public Interest Institute at Iowa Wesleyan College, a
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