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BBR Report Projects Moderate Economic Growth for Nebraska

Nebraska's economy will grow at a moderate pace during the next few years, though not as fast as the national economy, state forecasters predicted through a report produced by the University of Nebraska–Lincoln College of Business Administration Bureau of Business Research.

In its latest report, the Nebraska Business Forecast Council says Nebraskans will see accelerating growth in nonfarm income this year. However, the state's farm sector is adjusting to a "new normal" as farm income continues to decline from its record-shattering total in 2011, when it hit $7.5 billion. Farm income is expected to stabilize at about $5.1 billion per year in 2014, a decline of about 7.3 percent from the previous year.

"Nebraska will experience moderate economic growth over the next three years, but growth in Nebraska will lag national economic growth," said Eric Thompson, associate professor of economics at the University of Nebraska–Lincoln and director of the Bureau of Business Research, which publishes the semi-annual report.

"As the agriculture sector normalizes after several years of high commodity prices, the Nebraska economy lacks a spark to match the growth of a recovering U.S. economy," he said.

A 1.1 percent increase in the number of Nebraska jobs is projected for 2014. That's a reduction from previous projections because forecasters had underestimated how much lower farm income would limit growth in non-farm employment.

Forecasters also reduced their projections for growth in nonfarm income to 4.1 percent, compared to the 4.4 percent forecast they issued in July. However, it still is faster growth than the 3.3 percent seen in 2013. Nebraska nonfarm income is predicted to grow faster than inflation in each of the next three years.

The report noted that a record corn crop sent prices tumbling from more than $6 per bushel in 2012 to less than $5 in 2013. The price drop reduced the income of crop producers -- but it increased the income of cattle ranchers and other livestock producers. The net result was a $500 million decline in overall Nebraska farm income.

Similar results are predicted for 2014. Forecasters predict prices for crops and livestock, as well as ethanol production levels, will stabilize, allowing the ag sector to expand modestly in 2015 and 2016.

Other industry-specific forecasts in the new report:
  • The services industry will be among the fastest growing portions of the economy, 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 post-recession 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 also should increase, as newly earmarked sales tax receipts begin to be dispersed. 
  • With growing foreign demand fueling Nebraska's food processing industry, the state's manufacturing sector should see steady, moderate growth through 2016, with the strongest growth occurring in 2014, when the industry is expected to add 1,000 jobs. However, manufacturing industries that serve the farm sector should expect to see some dropoff in sales. The ethanol industry will continue to deal with poor margins and stagnant demand and a tight labor market will slow manufacturing growth in the state.
  • 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.
  • Thanks to growing household wealth and increasing consumer confidence, retail sales are expected to grow faster than income. 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. Contributing factors include an aging population and slowly growing labor force. The sector has turned increasingly to big box stores, automated inventory control and online sales.

Published: February 11, 2014