Chapter 6. Macroeconomic Situation
CHAPTER 6. SUMMARY OF MACROECONOMIC ENVIRONMENT
Beef demand shifters can be categorized into two broad categories; macroeconomic and
industry factors. Macroeconomic factors include key factors that can cause the beef demand
curve to shift, but are driven by forces in the United States economy that the beef industry has
no opportunity to influence. Conversely, industry factors are those factors which the beef
industry has some opportunity to exert influence over. Stated another way, macroeconomic
factors set the stage for the broad demand environment within which the beef industry
operates. Previous chapters in this report focused attention on industry factors to provide the
beef industry guidance with respect to future investments expected to provide opportunities
for improving domestic beef demand. In assessing those industry factors, it is also important to
highlight components of the macroeconomic environment that the beef industry is operating in
since that will establish the overall setting for domestic beef demand.
Figure 1. U.S. Population.
Residents, Annual (July 1), 1980-2020
M
i
l
l
i
o
n
350
340
330
320
310
300
290
280
270
260
250
240
230
220
80 82 84 86 88 90 92 94 96 98 00 02 04 06 08 10 12 14 16 18 20
Source: U.S. Census Bureau , 2013-2020 Census Bureau forecasts
Year
A key factor in aggregate demand for consumer goods is population growth. Population shifts
slowly, but over longer periods of time can have a big impact on aggregate demand for food. US
population continues to grow as depicted in Figure 1. Recent population increases have ranged
from 0.7% to 1%. Forecasts for future population growth by the US Census Bureau indicate that
the United States population is expected to grow near the high end of that range for the next
several years, before moderating slightly. Modest population growth is expected to help
support aggregate demand for beef in the years ahead.
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Chapter 6. Macroeconomic Situation
Figure 2. Personal Disposable Income vs.
Personal Consumption Expenditures.
T
r
i
l
l
i
o
n
$
'
s
Quarterly at Annual Rate, 1980.1-2012.4
14
12
10
8
6
4
Disposable Personal Income
2
0
80.1
Personal Consumption Expenditures
85.1
Source: U.S. Department of Commerce
90.1
95.1
00.1
05.1
10.1
Year & Quarter
Previous research documents the importance of consumer incomes and personal consumption
expenditures on beef demand. Increases in income lead to increases in demand (i.e., a shift out
and to the right) for consumer goods, including beef, because consumers increase their
expenditures as incomes rise (Tonsor, Mintert, and Schroeder, 2010). Figure 2 provides an
overview of US consumer disposable income and personal consumption expenditures since
1980 (U.S. Department of Commerce). The chart illustrates that, over a long period of time, the
United States economy grew dramatically as reflected by growth in disposable income. The
chart also makes clear that US consumers have a strong tendency to consume most of every
dollar of additional income as personal consumption expenditures rose in lock step with
disposable income. The negative impact of the United States economic recession is also clear.
Disposable income declined in 2009, the only time during the last three decades that disposable
income (and personal consumption expenditures) fell. The weakness in disposable income, and
personal consumption expenditures, helps explain why beef demand declined in 2009 as the
impact of the recession reverberated throughout the economy leading to demand declines for
most consumer goods. Importantly, both disposable incomes and personal consumption
expenditures started to increase again during 2010-2012 and beef demand started to improve
as incomes and expenditures rose. The linkage between economic growth and strength in
domestic beef demand is strong and underlines the importance of growing consumer incomes
to support increases in beef demand.
Consumer confidence, partly measured by the personal savings rate, also impacts demand.
When consumers are more confident about their economic prospects, they tend to reduce their
savings rate and, when confidence declines, the savings rate increases. In the short run, dollars
devoted to savings are not available for consumption. In this context, increases in the personal
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Chapter 6. Macroeconomic Situation
savings rate can curtail personal consumption expenditures. Figure 3 depicts US consumers’
personal savings rate since 1980 (U.S. Department of Commerce). In the early 1980s the
personal savings rate ranged from about 8% to a peak near 12%. Over the course of the next
two decades the personal savings rate declined sharply, bottoming out at just 1.3% in 2005. The
long-term decline in the personal savings rate boosted demand for consumer goods, including
beef, because it allowed consumers to allocate more dollars to consumption. US consumer
savings rates increased markedly, however, as the United States slipped into a severe recession
starting in 2007. The savings rate rose to 6.2% in 2008 which, combined with the weakness in
disposable income, effectively reduced demand for consumer goods, including beef. As the
economy recovered from recession, the savings rate declined moderately and fell below 5% by
the fourth quarter of 2012. As the United States economy continues to recover, disposable
incomes are expected to rise and the savings rate is likely to stabilize, or possibly decline
moderately, which should prove supportive for beef demand.
Figure 3. Personal Savings.
% of Personal Disposable Income
Quarterly, 1980.1-2012.4
14.0
12.0
P
e 10.0
r
8.0
c
e
6.0
n
t
4.0
2.0
0.0
80.1
85.1
Source: U.S. Department of Commerce
90.1
95.1
00.1
05.1
10.1
Year & Quarter
The economic environment the meat industry operates in changed significantly in recent years.
Increasing feed grain prices, beginning in 2005-2006, pushed production costs sharply higher
for all livestock and poultry producers, leading to a sharp reduction in profitability. In the
aggregate, the industry responded by putting fewer pounds of meat in front of US consumers
via a combination of reduced production and larger meat exports. The result was US
consumers’ per capita consumption of meat and poultry declined from a peak of 221 pounds
(retail weight) in 2006 to 202 pounds in 2012, a decline of nearly 10 percent. Beef consumption
declined more sharply than either pork or chicken consumption, falling to 57.4 pounds in 2012,
13 percent less than in 2006 (Figure 4). In contrast, pork and chicken consumption both
declined approximately 7 percent during the same period. Importantly, beef supplies are
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Chapter 6. Macroeconomic Situation
expected to decline further the next two years, whereas pork and poultry producers are poised
to start increasing supplies.
Figure 4. U.S. Per Capita Retail Meat Consumption.
Annual, 1980-2014
110
Pork
Beef
Poultry
100
P
o
u
n
d
s
90
80
70
60
50
40
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
14
Year
Source: U.S. Department of Agriculture, Economic Research Service
Livestock Marketing Inf ormation Center f orecasts f or 2013 and 2014
Reduced availability of meat and poultry resulted in retail meat prices moving higher, an
adjustment that is still underway (Figure 5). Inflation adjusted retail prices for choice beef and
pork in 2012 were 11 and 8 percent higher, respectively, than in 2006. In contrast, inflation
adjusted retail chicken and turkey prices during the same time period escalated more rapidly,
rising 19 and 28 percent, respectively.
Significant shifts in per capita meat supplies induced large changes in meat prices in recent
years. Additional adjustments are still taking place, partly in response to a long-term change in
production costs. As a result, it will be important to distinguish between beef price changes
attributable to beef supply shifts vs. demand shifts. For example, if per capita beef supplies
decline as expected the next two years it will result in beef prices moving significantly higher,
even with stable beef demand. Beef’s relatively long production period means that the
adjustment to a higher cost regime will take longer than for principal meat protein competitors.
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Chapter 6. Macroeconomic Situation
Figure 5. U.S. Retail Meat Prices.
C
e
n
t
s
P
e
r
Inflation Adjusted, Annual, 1980-2012
625
575
Pork
525
Choice Beef
Chicken
475
425
375
325
275
P
o
u
n
d
225
175
125
75
80
82
84
86
88
90
92
94
96
98
00
02
04
06
08
10
12
Year
Source: U.S. Department of Agriculture, Economic Research Service
& U.S. Department of Commerce, Bureau of Economic Analysis
Price Deflated by Consumer Price Index-All Urban Consumers
References
Livestock Marketing Information Center. “Table 1.111, Quarterly Commercial Cattle Slaughter,
Beef Production, Per Capita Beef Disappearance and Cattle Prices.” Updated April 28, 2013.
Livestock Marketing Information Center, Lakewood, Colorado.
Tonsor, G.T., J. Mintert, and T.C. Schroeder. 2010. “U.S. Meat Demand: Household
Dynamics and Media Information Impacts.” Journal of Agricultural and Resource Economics.
35:1-17.
U.S. Department of Agriculture, Economic Research Service. “Livestock & Meat Domestic Data.”
Updated April 30, 2013. Available at http://www.ers.usda.gov/data-products/livestock-meatdomestic-data.aspx#.UZmIZErNmSo.
U.S. Department of Agriculture, Economic Research Service. “Meat Price Spreads.” Updated
May 16, 2013. Available at http://www.ers.usda.gov/data-products/meat-pricespreads.aspx#.UZmKekrNmSo.
U.S. Census Bureau. “2009 National Population Projections (Supplemental).” Available at
http://www.census.gov/population/projections/data/national/2009.html.
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Chapter 6. Macroeconomic Situation
U.S. Department of Commerce: Bureau of Economic Analysis. “Consumer Price Index for All
Urban Consumers.” Updated May 16, 2013. Available at Federal Reserve Economic Data,
http://research.stlouisfed.org/fred2/series/CPIAUCNS.
U.S. Department of Commerce: Bureau of Economic Analysis. “Disposable Personal Income.”
Updated April 26, 2013. Available at Federal Reserve Economic Data,
http://research.stlouisfed.org/fred2/series/DPI?rid=53&soid=18.
U.S. Department of Commerce: Bureau of Economic Analysis. “Personal Consumption
Expenditures.” Updated April 26, 2013. Available at Federal Reserve Economic Data,
http://research.stlouisfed.org/fred2/series/PCEC.
U.S. Department of Commerce: Bureau of Economic Analysis. “Personal Savings as a Percentage
of Disposable Personal Income.” Updated April 26, 2013. Available at Federal Reserve Economic
Data, http://research.stlouisfed.org/fred2/series/A072RC1Q156SBEA.
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