“Not As Strong As 2013”: Nebraskaâ€™s Economic Outlook
January 16th, 2014
Omaha, NE –Â Creighton University economist Ernie GossÂ says Nebraskaâ€™s economy wonâ€™t be quite as strong this year as it was in 2013.
â€œThe primary reason is just simply agriculture, and those commodity-based economies like Nebraska, where youâ€™re talking about primarily agriculture, where grain prices are down by 35 to 40 percent over the last year,â€ said Goss, who tracks Nebraskaâ€™s economy through several surveys of people like bankers and supply managers. â€œThatâ€™s spilling over into the broader Nebraska economy.â€
Goss says heâ€™s hearing this from ag equipment manufacturers, fertilizer producers and other companies they survey. Whatâ€™s slowing the ag economy? Goss said the Federal Reserve had been keeping interest rates low, which kept the value of the U.S. dollar low, which was good for commodity prices.
â€œAs the U.S. economy is improving, and it is improving, the dollar tends to go up in value,â€ Goss said. â€œThatâ€™s what weâ€™re seeing. When the dollar goes up in value, agricultural commodity prices tend to move down, so thatâ€™s what weâ€™re seeing. Weâ€™ve been a big beneficiary of the Fedâ€™s policy of reducing the value of the dollar, reducing interest rates.Â Now weâ€™re going to be on the flip side of that.â€
Goss says Nebraska consumers are also not as active. Holiday purchases were up 3 to 4 percent from last year, but he says 5 to 6 percent growth is expected. In general, retail trade is not where it needs to be.
â€œThe consumer is not back,â€ Goss said. â€œNow to some degree it has to do with consumers retrenching and paying off debt, which is not a bad thing.â€
Goss says businesses are acting in a similar manner, not spending, not expanding. Sales are growing 2 to 3 percent, but profits are growing 10 percent.
â€œThereâ€™s some squeezing going on there, and I know thereâ€™s cost containment,â€ Goss said. â€œThatâ€™s what weâ€™re seeing, a lot of cost containment, which means not as much hiring as weâ€™d like to see, depending more on squeezing current employees.â€
â€œOne consistent signal weâ€™ve been getting in our leading economic indicator research is that business confidence is tepid, especially about the future,â€ said Eric Thompson, University of Nebraska-Lincoln economist and director of theÂ UNL Bureau of Business Research. Business expectations are one part of a leading economic indicator for Nebraska he produces monthly.
â€œIn fact, thereâ€™s typically been a few more businesses saying they might cut back than expand,â€ Thompson added. â€œSo the business confidence is not strong.â€
Thereâ€™s a similar feel from some other measures. â€œWe look at manufacturing hours. That hasnâ€™t been growing much in Nebraska,â€ Thompson said. â€œBuilding permits were a real source of strength in Nebraska during much of 2013; itâ€™s been growing, but slowly now.â€
Like Goss, Thompson says the increased value of the U.S. dollar and a moderation of the ag economy are factors.
â€œThereâ€™s reason to expect that the value of the U.S. dollar may trend up and certainly has in the last few months and may continue to trend up,â€ Thompson said. â€œThatâ€™s probably the result of some good developments with our national economy, but the effect in Nebraska might be to put a bit of a pressure on agricultural prices and exporters in general, so thatâ€™s another factor I think will slow our economic growth here in Nebraska a little bit in 2014.â€
Thereâ€™s also a little bit of a hangover from the latest recession, which has technically been over for several years.
â€œI think the Great Recession probably has made businesses a little more cautious, maybe more cautious than they had been historically,â€ Thompson said.
â€œIs there still this pall hanging over the economy? The answer is yes, and itâ€™s called uncertainty,â€ Goss added.
To some degree, the rest of the country is now starting to catch up, which will cause Nebraska to lose some of the economic advantage it has enjoyed over other states.
Before we leave you with a picture of economic doom and gloom for the near future, both Thompson and Goss say there are important things to remember. First, Thompson says a slowing of the ag economy was inevitable, after several boom years.
â€œI want to emphasize that Nebraska agriculture is still quite strong,â€ Thompson said. â€œIf you looked at agricultural incomes compared to 10 years ago, those incomes are much higher than they were. So our agricultural economy is in strong shape, but after the boom years of 2011, 2010, to some extent 2012, obviously the drought limited the sector somewhat in 2012, but compared to those years, 2014 is sort of a return to normal, but itâ€™s a new normal of a larger, higher income agricultural sector.â€
When you look at economic measures in recent years, like unemployment, Nebraska has been in better shape than many other states.
â€œWhat weâ€™re finding is that over the next two or three years, we would expect the Nebraska economy will grow a little more slowly than the national economy,â€ Thompson said. â€œSo U.S. economic growth will be solid and Nebraskaâ€™s economic growth will be moderate and perhaps a little slower than U.S economic growth.â€
â€œThere will be some bumps in the road as there always are,â€ Goss added. â€œBut right now it looks to be a reasonably good year for Nebraska, not as strong as 2013 though. The next five years arenâ€™t going to be as great as the last five years, but they arenâ€™t going to be bad.â€
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