Last week I attended the Doane's 2012 Agricultural Outlook Conference in St. Louis, Missouri, USA. Kevin Kliesen, business economist with the Federal Reserve Bank of St. Louis, offered insights about the US economy as well as China and Europe.

While the US economy continues to improve, gains have been purely lackluster, he said. US labor markets are mixed but slowly healing. Unemployment is still high and consumers seem cautious about spending their money. That said, he still believes financial conditions look pretty good.

Stock prices were up sharply in the third quarter, but the market continues to focus on Europe and China. Good news is that inflation has come down recently; bad news is that the US budget deficit is in dangerous territory. He said that's not a good combination for low and stable inflation over the long term.

The downshift in business capital spending is especially worrisome, he noted. This includes new orders and shipments of core capital goods - things like machinery, equipment, airplanes, the big brown truck that UPS drives - the things that really drive capital spending by companies. It's highly cyclical, meaning it declines during recession and rises very sharply during recovery.

Recently capital spending has turned negative for both shipments and orders. Kliesen questions whether this a recession signal or a recession scare? He thinks it's more of a scare reflecting developments in Europe and China.

Clearly, the global outlook is weighing heavily on the minds of businesses, particularly those who are large or have an international presence, he said. In January 2011, forecasters of the Blue Chip Forecast for Real GDP Growth expected China to grow about 9 per cent. The most recent forecast in October lowered the forecast to about 7 ¾ per cent. They've steadily marked down their forecast for China, and the same pattern is expected for 2013. China is a major global player and the US exports a lot of goods - many intermediate materials - to China. China's weakening economy tends to dampen the US export outlook.

Europe is another big market for US goods, particularly agriculture goods. It's the same story as China, just lower numbers. In January 2011, forecasters expected Europe to grow around 2 per cent. The economy began to disappoint, and now most see Europe at 0.5 per cent this year. In 2013, forecasters see very anemic, but positive growth in 2013.

For more agricultural markets coverage from the Doane's conference, click here.

Doane will be hosting another conference this year targeting investment professionals with an interest in the agriculture sector. Doane Invest - Agriculture Symposium will be held in New York City on December 11-12, 2012. Click here for more information.

Have a great week!