2011 NIFA HOUSING INNOVATION MARKETPLACE CONFERENCE

JANUARY 26, 2011

ERIC THOMPSON, DIRECTORUNL BUREAU OF BUSINESS RESEARCH &

NEBRASKA BUSINESS FORECAST COUNCIL ETHOMPSON2@UNL.EDU

2011 Economic Outlook for Nebraska

Outline

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Macroeconomic outlook

Nebraska employment in 2010 and outlook for 2011

Nebraska income and population outlook

Forecast Process

UNL Bureau of Business Research develops a preliminary 3-year economic forecast from a statistical model

Nebraska Business Forecast Council meets to review the preliminary forecast based on: Industry contacts Council member research

Final report developed (Council met on Jan 21, 2011)

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Macroeconomic Outlook

On balance, the recovery likely to continueHowever, there is an unusually high risk of

double-dip recession due to Weakness in the real estate sector Imbalances overseas Uncertainty about fiscal policy

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Macroeconomic Outlook

Positives Solid, positive savings rate

households less leveraged spending in-line with income.

Income growth supports consumption growth - some job growth and growing weekly hours mean rising wage income

Corporate profits encourage business investment Combination of fiscal restraint (divided government)

and accommodative Federal Reserve

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Macroeconomic Outlook

Negatives Construction sector – hurting rather than helping

Improvement in repair, remodeling/additions Continued weakness in new home construction, and

associated commercial development Policy environment

Risk that fiscal constraint will not materialize Concerns about ineffective regulation of the financial

sector Collapse of Chinese real estate and financial sectors European contagion Spike in energy prices?

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Major Nebraska IndustriesAgricultureInsuranceManufacturing Related To AgricultureTransportationProfessional Services

The first two performing relatively well in the recession, the latter two will rebound in 2011

Relative Strength of Key Industries

Agriculture

Farm Income There was a big drop in farm income in 2009 from

record levels in 2008. But, farm incomes returned to record levels in 2010

and are expected to stay there in 2011

Negatives Conditions for livestock producers

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Strength of Insurance Carriers Industry

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Manufacturing Employment

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Employment Outlook (pro-cyclical sectors)

Business and Professional Services

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Fewer Problems with Property Values and Unemployment

Areas within Nebraska never had a large bubble in housing prices, so it also never had a drastic price decline Nebraska consumer is in better shape, in terms of

changes to wealth and income

Nebraska has maintained one of the lowest unemployment rates in the county This is due to the quality of the labor force

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Employment Trends and Outlook Non-Farm Employment

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Employment Growth 2010 and 2011

Industry Growth 2010 2011

Non-farm total 0.0% 1.4%Construction -3.0% 1.0%

Manufacturing -0.8% 1.0%

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Employment Growth Other Industries2010 and 2011

Industry Growth 2010 2011 Transportation -2.5% 3.7%Wholesale Trade -1.2% 0.5%Retail Trade 0.0% 1.0%Information -4.0% 0.0%Financial Activities -0.8% 1.5%Services 1.1% 2.3%Federal Government 0.5% -4.6% State & Local Gov’t 0.1% 0.0%

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Other Measures of Growth 2010 and 2011

Measure Growth 2010 2011Nominal Income 2.5% 3.8%

Taxable Sales 3.2% 4.5%

Population 0.8% 0.8%

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Risks For Nebraska Economy A Lost Cost Advantage

In the latter half of the last decade, an exaggerated cost of living made many areas on the West and East Coasts less competitive. Climate, access to oceans have amenity value, but

property prices had risen far in excess of those amenity values on the East and West Coasts

This problem has now been addressed Property prices have declined, more in line with the

real value of amenities

As a result, Nebraska has lost a competitive advantage that it held in the 2005-2008 period

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Opportunities For Nebraska Economy Temporary Spike in Population

Growth?

Nebraska Population Year Growth Rate2005 0.6%2006 0.5%2007 0.6%2008 0.8%2009 0.8%2010 0.8%2011 0.8%

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