Forecasters: Nebraska economy to grow modestly through 2014

            State forecasters expect Nebraska's economic growth to remain modest over the next two years, helping the state maintain low unemployment and relative strength compared with the U.S. economy.

            In its latest long-range report, the Nebraska Business Forecast Council said it anticipates Nebraska's total job growth to be an even 1 percent by the end of 2012, and then tick up mildly -- by 1.4 percent -- in both of the next two years.

            The council's job-growth estimates for 2012 and 2013 are somewhat lower than its forecast from January (1.3 and 1.7 percent, respectively), reflecting weakness in job creation. Its two-year personal income growth estimates also were pulled back slightly from the January forecast, said Eric Thompson, associate professor of economics at the University of Nebraska-Lincoln and the director of UNL's Bureau of Business Research, which publishes the bi-annual forecast.

            "While the outlook for growth has weakened somewhat, the Nebraska economy is expected to grow at a moderate pace over the next three years," Thompson said. "However, the prospects of a slowing global economy create risks for our state's export-oriented economy. The potential exists for a second recession next year, though this is not the most likely outcome."

            Annual farm incomes, which soared to a record $5.4 billion last year, are forecast to drop to $3.5 billion in 2012 and then reach $4.1 billion in both 2013 and 2014. Drought and the rising value of the U.S. dollar pushed the decline in income in 2012. Thompson said that while 2012 will be a challenging year for Nebraska agriculture, farm incomes could be strong in 2013 and 2014 if normal weather patterns return. However, current drought highlights the increasing income volatility within the agricultural sector.

            Non-farm incomes, meanwhile, are expected to climb 3.5 percent overall in 2012, followed by gains of 3 and 4 percent in 2013 and 2014, respectively, the report says.

            Other industry-specific forecasts in the report:

• The services sector, which makes up 38 percent of the state's employment and includes industries such as health care, professional and scientific jobs, and arts, recreation and entertainment, should continue broad growth through 2014. Health care, hospitality and business services, some of the largest parts of the sector, will grow solidly. Overall, the services industry is expected to grow by 1.9 percent in 2012, by 2.3 percent in 2013 and by 2.1 percent in 2014. That is roughly 7,000 to 8,000 jobs yearly.
• Modest improvements in building permits and housing starts for single-family homes and townhomes will lead to increases in new-home construction employment, reinforcing the modest rebound already under way in the private commercial construction sector. Public commercial construction projects will remain flat as big projects in Lincoln continue but fewer new large projects launch. The state's economy will need to grow considerably before it is able to support pre-recession levels of construction employment; the overall industry is forecast to grow 3 percent -- about 1,200 jobs -- this year, and by 2 percent each year in 2013 and 2014.
• Nebraska's manufacturing industry, which lost nearly 10,000 jobs during the recession, likely will continue its growth from last year. But rising labor productivity suggests that job levels may not fully recover, even as output improves. Growth also will be limited by weakness in Europe and the negative impact on exports of a strong U.S. dollar and other factors. Durable goods employment will rise 2 percent in 2012 but is expected to dip to just 1 percent growth in each of the next two years; non-durable goods jobs, such as food processing and pharmaceuticals, will decline 0.5 percent this year before climbing 0.5 percent in 2013 and 1 percent in 2014.
• Financial services -- including finance, insurance and real estate -- should continue to expand gradually as the housing recovery gets under way. Employment in the financial industry will grow by 0.5 percent in 2012, by 1.5 percent in 2013 and 1 percent in 2014.

            In addition to Thompson, members of the Nebraska Business Forecast Council are Chris Decker, Department of Economics, University of Nebraska at Omaha; Tom Doering, Nebraska Department of Economic Development; Ernie Goss, Department of Economics, Creighton University; Jason Henderson, Federal Reserve Bank of Kansas City, Omaha Branch; Bruce Johnson, Department of Agricultural Economics, UNL; Ken Lemke, Nebraska Public Power District; Scott Loseke, Nebraska Public Power District; Phil Baker, Nebraska Department of Labor; Franz Schwarz, Nebraska Department of Revenue; Scott Strain, Greater Omaha Chamber of Commerce. The full report is available in Adobe Acrobat PDF format at http://bbr.unl.edu.

Short-term economic indicator also released; signals winter weakness and slowdown

            The Bureau of Business Research also released today the Leading Economic Indicator for Nebraska. Produced by the Department of Economics and Bureau of Business Research in the UNL College of Business Administration, the indicator predicts short-term economic growth. Latest data show that the Indicator dropped 1.11 percent in June, signaling weakness and significant slowdown in the state's economy this fall and winter. The full indicator report is available at the CBA website, www.cba.unl.edu.

Writer: Steve Smith, University Communications, 402-472-4226