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May 7, 2020

The Nebraska Economy Responds to the COVID-19 Pandemic

The Nebraska Economy Responds to the COVID-19 Pandemic
Dr. Eric Thompson, director of the Bureau of Business Research, explains reasons for the contracting economy in the latest long range forecast.
The COVID-19 Pandemic has upended the outlook for Nebraska’s economy.

The Nebraska economy has contracted sharply during the spring of 2020, with a spike in unemployment and revenue loss for business. While the state economy should recover at a rapid pace, economic activity will drop in Nebraska for 2020 as a whole, according to the new three-year forecast from the University of Nebraska-Lincoln’s Bureau of Business Research and the Nebraska Business Forecast Council.

Nebraska employment is expected to drop by 2.4% in 2020 compared to 2019 with non-farm personal income falling by 0.8% and farm income declining by 22.6%.

“The economic downturn has been especially severe in industries which require face-to-face interaction between customers and workers or which serve travelers or customers who crowd together,” said Dr. Eric Thompson, an economist and director of the Bureau of Business Research. Key examples include retail trade, air travel, leisure and hospitality and personal services. Segments of the health care sector also have experienced significant job loss.

Assuming the spread of COVID-19 is brought under control, employment should bounce back more quickly than after a typical recession as customers return to most industries and as the businesses community adapts to changing consumer preferences. Nebraska employment will grow 2.0% in 2021 and 1.4% in 2022.

The rate of job loss in Nebraska, while substantial, has not been as rapid as nationwide. “Nebraska has a smaller share of employment in several hard-hit industries,” according to Thompson. Nebraska has a smaller share of employment in travel and tourism than the nation, and is not focused on motor vehicle or oil production. Nebraska also has a larger share of employment in the essential industries of food production and processing, and industries like finance and insurance where there is more potential to work from home.

Among individual industries, retail trade employment is expected to decline by 3.9% in 2020, with employment bouncing-back at a 2.4% pace in 2021. Retail employment will fall 0.5% in 2022, continuing the industry’s long-run trend of job loss.

Services employment, which accounts for 40% of all Nebraska jobs, is expected to decline by 3.6% in 2020, with most severe job loss occurring in the restaurants, lodging and personal services. Service industry employment will grow by 3.1% in 2021 and by another 2.5% in 2022, allowing the industry to regain its role as the engine of Nebraska job growth.

Impacts also will spread more broadly across the economy to industries such as finance, construction, and information as well as to state and local government. Employment in these industries and sectors is expected to fall by about 1.0% in 2020.

The agriculture and manufacturing industries will be impacted by a global economic recession which has reduced commodity prices and opportunities for export. Manufacturing industry employment will fall between 2% and 3% in 2020. Losses will be broad-based. Further, the ethanol sector has contracted sharply, which represents lost manufacturing employment but also has implications for Nebraska agriculture.

Low commodity prices, challenges in the ethanol industry and the periodic shutdown of meat processing facilities will pressure the agriculture sector in 2020. Government payments may account for 50% of farm income during the year.

Government payments also will support personal income in Nebraska in 2020. However, rapid growth in transfer payments, such as enhanced unemployment insurance and one-time payments to households, will not be sufficient to offset multiple sources of loss including falling wages and salaries, proprietor income and income from dividends, interest and rent. These transfer payment also will disappear in 2021, limiting income growth to just 2.2% in that year, despite a recovery in employment. Non-farm personal income is expected to grow by 3.7% in 2022.

The Nebraska Business Forecast Council is composed of David Dearmont, Nebraska Department of Economic Development; Scott Hunzeker, Nebraska Department of Labor; Ken Lemke, Nebraska Public Power District; Scott Loseke, Nebraska Public Power District; Brad Lubben, Department of Agricultural Economics at Nebraska; David Rosenbaum, Department of Economics and Bureau of Business Research at Nebraska; Jim Schmidt, Department of Economics at Nebraska; Hoa Phu Tran, Nebraska Department of Revenue; and Brian Williams, Nebraska Public Power District; and Thompson.

Read the current Business in Nebraska report.