Increases in ag income, related industries predicted; Nebraska outlook good

Nebraska's aggregate farm income is expected to grow rapidly in the remainder of 2007 and into 2008-09, giving the Nebraska Business Forecast Council optimism for the Nebraska economy. The strength in the commodity sector and related industries like manufacturing and transportation, as well as expected employment expansion, enhances Nebraska's economic outlook through 2009, according to Eric Thompson, director of the University of Nebraska-Lincoln Bureau of Business Research.

The bureau and forecast council's semiannual report, available at BBR Web site, focuses on the U.S. macroeconomic outlook and turned to the Nebraska outlook, predicting 1.4 percent growth in non-farm employment through 2007, and 1.8 percent non-farm employment growth in 2008 and 1.9 percent in 2009. Non-farm nominal personal income is predicted to make gains - 5.8 percent in 2007, and 6.3 percent and 6.5 percent in 2009. Net farm income is predicted to grow an astounding 27.8 percent in 2007 and then 2.9 percent in 2008 and 4.2 percent in 2009.

"2007 is the first year in which farm incomes should fully benefit from the increases in corn prices and acreage," Thompson said, and ag economists have been aware that farm incomes will significantly increase because of the commodity price, which has risen dramatically from demand for ethanol. "Solid employment growth, rising proprietor incomes and strong growth in dividend and interest incomes will lead to strong overall growth in non-farm personal income in Nebraska" as well, Thompson said. "In nominal terms, non-farm income is expected to grow by an average of 6.2 percent per year over the outlook period. Adjusting for an average inflation rate of 2.5 percent, income growth will average 3.7 percent in real terms."

Overall employment growth is expected, with construction employment declining in 2007, but predicted to grow in 2008 and 2009. The Business in Nebraska report cited the National Association of Home Builders' report that building permits were down 15 percent in Nebraska in the first part of 2007 compared to 2006, and the market continues to be affected by overbuilding. According to the report, housing construction is expected to recover in 2008 and 2009. Construction on commercial buildings like hospitals, hotels and restaurants is up, with retail space up, and new ethanol plant construction having a positive impact on construction. Construction employment is predicted to decline 2 percent in 2007 and rise 2 percent in 2008 and 4 percent in 2009.

The report cites high gasoline prices causing a small reduction in gasoline consumption and affecting gas tax revenues. This could limit growth in road construction for the short term.

Other details in the bureau report:

- Non-durable manufacturing employment is expected to increase only slightly in 2007 (0.4 percent) with job growth in manufacturing 1.2 percent in 2008 and 1 percent in 2009.

- Commodity sector strength favors expansion in transportation, with employment expected to grow 3.8 percent in 2007, and 3 percent in 2008 and 2009.

- Retail and wholesale trade employment will drop slightly or remain flat in 2007, but return to modest growth in 2008 and 2009. Information industry employment will drop a few hundred jobs in 2007 before stabilizing in 2008 and 2009.

- Financial services industry job growth will increase 1.5 percent by the end of 2007 and 1.8 percent in 2008 and 2009.

- Strong growth in services employment is expected over the next three years, forecast to grow by 2.7 percent in 2007 and 2.8 percent in 2008 and 2009. Health care and social assistance is the largest segment of that sector, and business and professional services are expected to grow rapidly in the same timeframe.

- Non-farm personal income is expected to reach 5.8 percent at 2007 end (down slightly from the 2006 forecast of 5.9 percent); while forecasts for 2008 are 6.3 percent growth and 2009, 6.5 percent growth. Non-farm wages and salaries are expected to grow 4.9 percent in 2007, 5.3 percent in 2008 and 5.4 percent in 2009. Moderate inflation is expected. - Net taxable retail sales are expected to reach 3.1 percent growth by end of 2007, and growth is expected to increase 4.1 percent in 2008 and 4.8 percent in 2009.

More detailed information is available in the report, at www.bbr.unl.edu.

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).

Contact: Eric Thompson, director, Bureau of Business Research (402) 472-3318