Nebraska Forecast Council: Steady economic growth foreseen through '09

The Nebraska Forecast Council is optimistic about the Nebraska economic outlook heading into 2007, with aggregate farm income, manufacturing growth, employment growth and total nominal income growth predicted to increase in 2007, and continue growing through 2008 and 2009.

The forecast council's final economic outlook for Nebraska in 2006, published through the University of Nebraska-Lincoln's Bureau of Business Research, predicts 5.9 percent increases annually from 2007-09 in nonfarm personal income, with 3.2 percent increases in net taxable sales for 2007, and net taxable sales increases of 4.3 percent and 5.1 percent in 2008 and 2009, respectively.

"The panel remains optimistic about the outlook for the Nebraska economy," the council reported in the bureau's publication, Business in Nebraska. "Employment will continue to expand in Nebraska. Aggregate farm income is expected to grow rapidly in 2007 and it will remain high in 2008 and 2009. Manufacturing employment also is expected to grow robustly. Employment growth will help generate growth in both income and taxable sales in Nebraska."

Nebraska will experience broad-based employment growth over the next three years, with consistent growth in all sectors, the council reported. Even construction employment is expected to expand beginning in 2007 as the sector begins to recover, after declining in 2005 and 2006. Manufacturing employment also will grow during the three-year outlook period, but faster rates of growth are expected in the services, financial, and transportation industries. Job growth is expected to be tepid in the wholesale and retail trade industry, reflecting a pattern exhibited since 2000.

Fueled by rapidly rising grain prices over the last part of the year and good crop yield levels, Nebraska's net farm income is forecast to be $2.8 billion in 2006. The 2006 forecast is about 4 percent above the 2005 level and well above the 1996-2005 annual average. Looking forward, risks facing the industry include continuing dynamic patterns in the ethanol industry, the uncertainty of a new farm program in 2008, and the ongoing drought. In the next two-to-three year window of time, however, the council expects relatively favorable earnings for the state's agricultural production sector as a whole, with particularly strong expectations for feed/fuel grain producers. For 2007, farm income is expected to rise to a near-record $3.5 billion and then increase slightly to $3.6 billion in 2008 and $3.7 billion in 2009. These strong income forecasts are in spite of an expected decline in farm program payments.

Construction employment decreased in Nebraska in 2005 and 2006, as decades of rapid growth in residential construction came to an end. Looking forward, by the council said employment in both segments of the construction industry is expected to stabilize and begin to expand in 2007, with solid growth in 2008 and 2009.

The council noted, "commercial construction opportunities in Omaha have slowed from their previous blistering pace." Growth will slow in 2007, with a gradual improvement envisioned for the next several years. Throughout the forecast period, demands for new ethanol plants, expanded hospital and nursing home facilities, and schools continue to provide a firm floor for commercial construction activity across the state.

Residential construction is expected to reach bottom in the winter months of 2006-07. While the market is affected somewhat by past overbuilding, income growth and mortgage interest rates continue to be favorable. Housing activity will rebound in the out-years of the forecast, the council said.

Recent data indicate an upturn in employment in both the durable and nondurable goods manufacturing sectors. Employment in the durable goods sector is forecast to increase 2.5 percent in 2006, with the growth rate slowing to 1.6 percent in 2007 and 1.4 percent in 2008 and 2009. Nebraska's durable goods manufacturers have benefited from an improved national economy, with employment showing signs of growth in metals manufacturing, motor vehicle parts and miscellaneous manufacturing, which includes surgical and medical instruments manufacturing. The strong agricultural economy supports employment growth in the farm machinery and equipment sector, according to the forecast council.

Other segment-specific highlights of the forecast include:

* In the transportation and warehousing sector, employment growth is expected. Strong growth in trucking and rail and moderate growth in warehousing implies that the transportation and warehousing industry will continue to be an engine of job growth in Nebraska during the forecast period.

* Employment in wholesale trade is expected to be flat in 2006 and grow between 0.2 percent and 0.3 percent in 2007 through 2009.

* Retail job growth is expected to average around 0.5 percent to 0.6 percent per year from 2007 through 2009, roughly in line with anticipated population growth in the state.

* The rate of job loss in the information industry steadied to just 400 to 600 jobs per year from 2004 through 2006. Industry employment is expected to stabilize and grow modestly over the next three years.

* Conditions are favorable for continued growth in the financial industry, with anticipated job growth at around 2.5 percent per year through the outlook period.

* The rapidly growing services sector now accounts for more than one-third of employment in the economy. This share will grow over time, as services sector employment typically grows faster than total employment. Overall services employment is forecast to grow 2.6 percent in 2006, 2.7 percent in 2007, 2.8 percent in 2008 and 2.9 percent in 2009.

* Even with expected moderate inflation, non-farm wages and salaries are expected to grow at about 5.4 percent per year from 2007 through 2009. Employee benefits are expected to grow nearly 7 percent per year, driven by increasing health care costs. Members of the Nebraska Business Forecast Council were John Austin, Department of Economics, UNL; Chris Decker, Department of Economics, UNO; Tom Doering, Nebraska Department of Economic Development; Ernie Goss, Department of Economics, Creighton University; Nick Hernandez, Nebraska Department of Labor; Bruce Johnson, Department of Agricultural Economics, UNL; Ken Lemke, Nebraska Public Power District; Franz Schwarz, Nebraska Department of Revenue; Scott Strain, Greater Omaha Chamber of Commerce; Thompson; and Keith Turner, Department of Economics, UNO (emeritus).

The report is online at http://www.bbr.unl.edu.

CONTACT: Eric Thompson, Director, Bureau of Business Research, (402) 472-3318