Forecast: Nebraska economy to grow amid 'new normal' for farm incomes

            Farm incomes in Nebraska over the next two years will continue descending from 2011's record levels, but state economic forecasters said today that they expect steady economic and job growth across most of state's industries through 2015.

            In its latest long-range report, the Nebraska Business Forecast Council said it anticipates Nebraska's total job growth to be 1.3 percent by the end of 2013, and then tick up to 1.5 percent in 2014 and 1.6 percent in 2015. Those employment predictions are unchanged from the council's February forecast.

            Despite the expectation of overall progress on jobs, the rate of income growth for Nebraska's non-farm workers is expected to dip in 2013. This slowdown -- from 4 percent in 2012 to 2.2 percent in 2013 -- will result from the expiration of the temporary cut in the payroll tax rate this year. But forecasters expect income growth in the state to accelerate in 2014 (by 4.4 percent) and 2015 (by 4.6 percent).

            Nebraska farm incomes are a separate matter, said Eric Thompson, associate professor of economics and director of the Bureau for Business Research at the University of Nebraska-Lincoln College of Business Administration, which publishes the semi-annual report. Farm incomes in the state are forecast to drop to $5.2 billion in 2013 (a 3.7 percent decline from 2012), then to $5 billion in 2014 (a further 3.8 percent decline) and remain at $5 billion in 2015, according to the council's forecast.

            The gradual dissipation of drought across the Corn Belt has led to suggestions that corn prices will fall substantially by harvest, which could mean a $1.5 billion to $2 billion reduction in net earnings for Nebraska corn producers, a drop that will last into future years. Farm incomes also will be affected in coming years when a new farm bill removes direct farm subsidy payments, which are worth about $400 million a year.

            Nebraska, however, has a relatively unique counter-balancing effect -- it has major crop production sectors and major livestock production, so reduced crop revenues would mean reduced input costs for the livestock sector, helping it return to profitability. Those gains could allay a considerable portion of the lower crop earnings, forecasters said. This rebalancing of income flows between the crop and livestock sectors would be more sustainable, and ethanol producers would also benefit from lower corn prices.

            "A rebalanced Nebraska agriculture sector would maintain farm income near $5 billion per year," Thompson said. "This amount is effectively the 'new normal' for Nebraska agriculture."

            Other industry-specific forecasts in the new report:

• The services sector, with 38 percent of the state's employment and includes health care, professional and scientific jobs, plus arts, recreation and entertainment, will continue broad growth through 2015. As one of the fastest growing portions of the economy, it accounted for about 58 percent of net job growth in Nebraska last year. Health care employment is expected to grow by 2 percent to 2.5 percent each year, with similar rates in the hospitality and professional services industry, including businesses that provide services to other businesses. Overall, this sector of the state economy will grow 2 percent this year, 2.3 percent in 2014 and 2.5 percent in 2015. This translates into 7,600 to 9,300 jobs per year.
• Nebraska continues to benefit from a housing recovery; building permits and housing starts should continue climbing over the next two years. Several large commercial projects in Lincoln are winding down, but new infrastructure spending should mean growth in 2014 and 2015 as the state begins projects funded by general sales tax revenues earmarked for roads. Forecasters expect construction jobs to swell by 3.5 percent (about 1,500 jobs) in 2013 and by 4 percent (another 1,800 jobs) in both 2014 and 2015.
• The state's food processing industry will see steady growth via demand from and investment by foreign markets. Manufacturing industries that sell primarily to the region's farm sector are likely to see some drop in sales as farm incomes return to more normal levels. Overall, the state will benefit from increased foreign demand for food products and strong growth in the energy sector. Non-durable goods employment is forecast to rise at or near 1 percent each year through 2015.

            In addition to Thompson, the council includes John Austin, Department of Economics, UNL (retired); David Dearmont, Nebraska Department of Economic Development; Chris Decker, Department of Economics, University of Nebraska Omaha; Tom Doering, Nebraska Department of Economic Development (retired); Ernie Goss, Department of Economics, Creighton University; Bruce Johnson, Department of Agricultural Economics, UNL; Scott Hunzeker, Nebraska Department of Labor; Ken Lemke, Nebraska Public Power District; Franz Schwarz, Nebraska Department of Revenue; and Scott Strain, Greater Omaha Chamber of Commerce.

            The full report is available in Adobe Acrobat PDF format at http://cba.unl.edu.

Writer: Steve Smith, University Communications