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Fragile Growth in a High Interest Rate Economy

Bureau of Business Research Release Three-Year Forecast
Fragile Growth in a High Interest Rate Economy
The Bureau of Business Research and the Nebraska Business Forecast Council released a new three-year economic forecast.
The Nebraska economy is expected to expand modestly during 2024 and 2025 before the rate of growth accelerates in 2026, according to the new forecast from the University of Nebraska–Lincoln Bureau of Business Research and the Nebraska Business Forecast Council.
“While the economy will benefit from real wage growth, high interest rates are expected to slow state economic growth in 2024 and 2025,” said Eric Thompson, director of the Bureau of Business Research and K.H. Nelson Professor and chair of economics at Nebraska.
“There also will be an elevated risk of recession over the next two years as the impacts of high interest rates continue to work their way through the economy, slowing consumer spending and business investment,” Thompson said. “Policy mistakes are another potential risk. The U.S. must avoid recent tendencies to embrace a 'shortage economy,' featuring over-regulation of energy and labor markets and restrictions on trade and immigration.”
Employment is expected to grow by 0.6% in Nebraska in 2024. Employment growth will also be modest in 2025, at 0.7%, before accelerating to 0.9% in 2026. 
Job growth in 2024 and 2025 will be concentrated in the services industry, which includes business services, health care, and leisure and hospitality. There also will be solid job growth in the construction industry and nondurable goods manufacturing, which includes food manufacturing. 
Job growth will be limited in retail and wholesale trade, durable goods manufacturing and the public sector.
“Slow growth in the labor force will make it difficult to add labor in industries with modest wages,” Thompson said.
The outlook is positive for Nebraska agriculture. Nebraska farm income was near $8 billion during 2023, a near record level. Farm income is expected to fall to around $7 billion in 2024 due to a drop in crop insurance payments. However, farm income will remain near $7 billion in both 2025 and 2026 as agricultural commodity prices and input costs fall slightly. At $7 billion, Nebraska farm income remains high by historical standards due to strong crop and livestock prices and rising production. Farm incomes during the 2024 to 2026 period will primarily reflect earned income, as federal government payments will be limited. 
Given modest job growth, Nebraska nonfarm income will grow by 3.6% in 2024, slightly above the expected 3.0% rate of inflation. Nonfarm income will grow by 3.6% in 2025 and 3.8% in 2026, even as the expected rate of inflation falls, to 2.5% in 2025 and 2.0% in 2026. 
“Nebraska job growth will be sufficient to support growing real incomes in the state,” Thompson said.

The Bureau of Business Research will host a free webinar about the Nebraska economic forecast on Friday, Dec. 15, 12-12:45 p.m. central. Register at
The Nebraska Business Forecast Council is composed of David Dearmont, Nebraska Department of Economic Development; Mitch Herian, Bureau of Business Research; Scott Hunzeker, Nebraska Department of Labor; Scott Loseke, Nebraska Public Power District; Brad Lubben, Department of Agricultural Economics at Nebraska; Hoa Phu Tran, Nebraska Department of Revenue; Melissa Trueblood, Nebraska Public Power District; and Thompson.
Published: December 14, 2023