UNL report: Slower economic growth projected for Nebraska

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Posted: Tuesday, January 21, 2014 12:00 am

Nebraska’s economy will grow over the next three years, but not as fast as forecasters thought last summer and not as fast as the nation as a whole, a new projection indicates.

The reason: Falling grain prices will cut Nebraska farm income by 7.3 percent this year, a setback from agriculture’s recent boom years but a turn toward more normal ag income levels.

“The Nebraska economy lacks a spark to match the growth of a recovering U.S. economy,” said University of Nebraska-Lincoln economist Eric Thompson.

But since Nebraska’s economy didn’t falter as badly as the U.S. economy during the recession, it doesn’t have as far to recover, said the report by 12 economists, issued through the UNL Bureau of Business Research.

The economists said the farm income drop will offset part of an expected 4.1percent rise in nonfarm income for the state this year, a 3.8 percent gain in 2015 and a 3.7percent rise in 2016, the report said, all faster than the expected inflation rate.

The result will be a 1.1 percent increase in jobs this year, a 1 percent gain in 2015 and a 1.1percent increase in 2016, the report said, a less rosy outlook than last summer’s forecast of jobs growing by 1.5percent this year and 1.6 percent in 2015.

Being held back by declining farm income is a reversal from recent years, when bulging farm pocketbooks kept Nebraska’s economy and employment healthy during the Great Recession.

From a record $7.5 billion in 2011, farm income will “stabilize” at $5.2 billion in 2015 and 2016, the report said. That’s still $2 billion more than a decade ago.

Nonfarm income is expected to grow from $80.9billion in 2013 to $90.7 billion in 2016, and by 4.1 percent in 2014, 3.8percent in 2015 and 3.7percent in 2016.

Besides salary gains, higher interest rates will boost income such as dividends and Social Security payments. But employers are expected to continue to shift health care costs to employees.

The economists predicted U.S. job growth of 1.7 percent this year and 1.4 percent each in 2015 and in 2016, plus U.S. inflation of 1.8 percent this year, 2 percent in 2015 and 2.1 percent in 2016.

Overall in Nebraska, the economists see employment growing from 968,800 in 2013 to 999,500 by 2016.

Some sector-specific predictions:

>> The services industry will be among the fastest-growing, adding 5,600 to 5,900 new jobs each year from 2014 to 2016. The sector, which includes professional, scientific and technical services as well as health care and hospitality, accounted for 38 percent of Nebraska employment in 2013. Health care employment, already the largest component of Nebraska’s economy, is expected to grow by 1.5 percent to 2 percent annually through 2016.

>> Building permits and housing starts, which rose in 2013, are expected to increase through most of 2014 before cooling late in the year as the housing recovery runs its course. Commercial construction will see stronger growth, as new commercial office space is needed to accommodate Nebraska’s increased employment. Road building should also increase, as newly earmarked sales tax receipts are disbursed.

>> Growing foreign demand will fuel Nebraska’s food processing industry, so the state’s manufacturing sector should see steady, moderate growth through 2016, with 1,000 jobs added in 2014. However, the ethanol industry will continue to deal with poor margins and stagnant demand, and a tight labor market will slow manufacturing growth.

>> The transportation industry, which saw solid growth in 2013, is expected to add 1,500 to 2,000 jobs per year through 2016. The sector’s strength comes from Nebraska’s location along the Interstate 80 corridor, along with its training programs, skilled workforce and entrepreneurial tradition in transportation services.

>> Retail sales will grow 4.6percent this year, 5 percent in 2015 and 5.5 percent in 2016 to $35.7 billion, led by sales of motor vehicles and building materials. However, Nebraska’s retail trade sector is no longer a reliable source for net job growth. As of 2013, Nebraska has 5,000 fewer retail trade jobs than it did in 2001 as the sector has turned increasingly to big box stores, automated inventory control and online sales.

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Jan 2014 BIN 011014 (PDF)

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