Business Forecast Council, BBR Analyze Nebraska Economic Reversal

After two years of a major economic slowdown in Nebraska, the state's economic future is looking brighter, according to a report by the University of Nebraska-Lincoln Bureau of Business Research and the Nebraska Forecast Council.

"The panel is cautiously optimistic on Nebraska's economic future," wrote John Austin in the May report of the Bureau of Business Research, headlined "Nebraska's Economy Returns to Growth." Austin is an economist in the University of Nebraska-Lincoln's Bureau of Business Research and a member of the Nebraska Business Forecast Council. The panel, made up of nine Nebraska public-sector specialists in revenue, economics, labor and farming, predicts that nonfarm employment is expected to emerge from its "doldrums" and nonfarm personal income growth will advance at good rates. Net farm income is expected to remain around $2 billion and the total net taxable retail sales growth will end the 2004-06 forecast period at about 4 percent.

"The Nebraska economy typically does not follow national economic trends," Austin wrote, "yet the state did experience a decrease in total nonfarm jobs in 2002 and 2003." Austin attributed the decline to consumer and business confidence following Sept. 11, 2001. "Nebraskans were as affected by those events as other U.S. citizens."

Austin also pointed to 2002 as a "disastrous" year for Nebraska's farm sector, and the post-Sept. 11 downturn combined with a poor farm year contributed to bring about a major slowdown in Nebraska's economic advance.

"However, both factors also should contribute to Nebraska's job recovery over the next few years, Nebraska should fully participate in the expected national jobs recovery and should benefit from stable farm income," Austin wrote.

The report is the first by the bureau in a year, since its monthly reports were on hiatus during a bureau restructuring. Austin said the bureau soon will begin again filing periodic research updates on Nebraska's economy, as it had for many years.

Other factors weighing in on the future besides the national post-Sept.-11 recovery and nonfarm employment and net farm income, the forecast council looked at transportation and utilities and service sectors, construction, mining and natural resources, manufacturing, wholesale trade, information, retail trade and transportation and utilities, finance, insurance and real estate, services and federal government employment sectors, with most sectors expected to see some recovery.

The construction, mining and natural resources sector had gained from low interest rates, with residential construction showing strength in 2003, but the council predicts that the pace of activity is not sustainable. Yet residential construction is expected to remain relative strong, especially the reconstruction of the interstate between Omaha and Lincoln.

The report discussed a slight recovery in manufacturing employment, growth in wholesale trade of about 1 percent per year, moderate growth in retail trade employment, above-average growth in transportation and utilities, and no growth in the information sector. The finance, insurance and real estate sector is influenced heavily by employment in the insurance business, as well as services, which depends largely on health care and food services.

The report predicts nonfarm personal income growth to improve in 2004, 2005 and 2006, but remaining below the strong growth rates of the 1990s. "Moderate growth is anticipated from most sources of income," Austin wrote. A slight increase in inflation will put pressure on wages.

The evident farm income recovery is based on improvements in both the cattle and grain industries, but the report noted that this recovery has not been shared equally. "The drought in western Nebraska has limited the recovery (while) eastern Nebraska irrigators have done well with their crops and their incomes," Austin wrote. "Good beef prices combined with good grain prices will result in farm income in 2004 slightly above the 10-year average from 1993-2002." The forecast calls for no increase in net farm income in 2005 and a small gain in 2006. The continued drought and the issue of bovine spongiform encephalopathy caused forecasters to predict a flat farm income growth rate in 2005 and a small gain in 2006.

The bureau's report also analyzed motor vehicle sales, which are expected to improve slightly in 2004, following a fairly predictable cycle. "Recent evidence suggests that sales have slackened due to a lack of pent-up demand and both higher vehicle and gas prices," Austin wrote.

CONTACT: John Austin, Bureau of Business Research, (402) 472-7932