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Labor Market, Farm Prices to Limit State Growth Through 2019

Low farm prices and a tightening labor market will limit Nebraska's economic growth during the next three years, according to the latest long-term economic forecast from the University of Nebraska–Lincoln's Bureau of Business Research.
"A sharp drop in cattle prices and another decline in crop prices have driven farm incomes down further during 2016, and prices and farm incomes are expected to remain at low levels over the next three years," said Eric Thompson, an economist who is director of the Bureau of Business Research. 
"Weakness in its largest sector will cap growth in the Nebraska economy, despite strong growth in other sectors such as construction and business services," Thompson said.
Policies discussed by the incoming Trump administration also have potential to influence growth. Tax proposals and plans to reduce regulation will promote economic growth while plans to limit international trade and immigration will hinder growth. Nebraska’s export-dependent agriculture and manufacturing sectors may be especially vulnerable to limitations on international trade. 
The forecast, which is updated twice yearly, predicts economic growth three years into the future. The forecast calls for moderate economic growth in Nebraska from 2017 through 2019. Nebraska employment is expected to rise by between 1 and 1.1 percent per year, or about 11,000 jobs a year. Thompson develops the forecast in consultation with the Nebraska Business Forecast Council, a group of economists who work for the university, utilities and state government agencies. 
Net farm income dropped to $4.05 billion in 2016, its third straight year of decline and a nearly 46 percent drop since its record high of about $7.5 billion in 2013. Thompson said commodity prices and farm income are stabilizing at their current low levels. Farmers are forecasted to lose about $500 million in government payments through 2018 because the federal agricultural risk coverage is declining based upon the average yields and prices in recent years. After bouncing up and down in 2017 and 2018, net farm income should rebound to about $4.3 billion in 2019, a 6 percent increase compared to 2016 levels. 
"In a more stable price environment, agricultural producers will be able to improve operating profits by increasing efficiency," Thompson said. 
In the non-farm sectors of the Nebraska economy, wage and salary income are predicted to grow by more than 4 percent a year, well above the expected rate of inflation. Worker shortages, the aging of the Baby Boom generation and job growth in high-wage industries such as construction and transportation will help push real hourly wages upward. 
The construction industry remains the fastest growing. It is expected to add more than 5,000 jobs over the next three years, with annual increases of 3 to 3.5 percent. Low interest rates and rising incomes should lead to more home construction in urban areas, while state and local governments are expected to continue to spend state-allocated dollars on road construction. 
The services sector is expected to add about 7,000 jobs per year, for a 1.7 percent annual growth rate. Most service-sector job growth will occur in education and health care, leisure and hospitality and business and professional services. 
Low farm incomes and persistent labor shortages will impede growth in manufacturing, which is expected to see negligible growth, adding only about 1,500 jobs by 2019. Most of those would result from plans to build a new poultry processing facility near Fremont. 
Changes in federal transportation policy also could be a mixed bag for Nebraska, the forecasters said. Transportation jobs are expected to return to 2008 levels, before the Great Recession caused significant job losses. The trucking industry is benefiting from lower diesel fuel costs, although it still faces challenges in attracting and retaining long-haul truckers. The trucking industry would benefit if the Trump administration softens its regulation of vehicle emissions and work schedules.
Reduced regulations on greenhouse gases could benefit railroads by slowing the decline of their coal-hauling business. However, new pipeline projects could reduce rail shipments of oil, the report shows. Public sector employment growth is expected to be modest during the 2017 to 2019 period, given the state's budget deficit and expectations for moderate economic growth.
The Nebraska Business Forecast Council is made up of John Austin, Bureau of Business Research at Nebraska (retired); David Dearmont, Nebraska Department of Economic Development; Phil Baker, Nebraska Department of Labor; Ken Lemke, Nebraska Public Power District; Scott Loseke, Nebraska Public Power District; Brad Lubben, Department of Agricultural Economics at Nebraska; and Eric Thompson, Department of Economics and Bureau of Business Research at Nebraska.
Published: December 9, 2016