By many measures, 2013 was a pretty good year for Nebraska’s economy. Mike Tobias reports on indications that change is coming in 2014, from the perspective of two economists who closely monitor Nebraska’s economic pulse.
Creighton University economist Ernie Goss says Nebraska’s economy won’t be quite as strong this year as it was in 2013.
“The primary reason is just simply agriculture, and those commodity-based economies like Nebraska, where you’re talking about primarily agriculture, where grain prices are down by 35 to 40 percent over the last year,” said Goss, who tracks Nebraska’s economy through several surveys of people like bankers and supply managers. “That’s spilling over into the broader Nebraska economy.”
Goss says he’s hearing this from ag equipment manufacturers, fertilizer producers and other companies they survey. What’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.
“As the U.S. economy is improving, and it is improving, the dollar tends to go up in value,” Goss said. “That’s what we’re seeing. When the dollar goes up in value, agricultural commodity prices tend to move down, so that’s what we’re seeing. We’ve been a big beneficiary of the Fed’s policy of reducing the value of the dollar, reducing interest rates. Now we’re going to be on the flip side of that.”
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.
“The consumer is not back,” Goss said. “Now to some degree it has to do with consumers retrenching and paying off debt, which is not a bad thing.”
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.
“There’s some squeezing going on there, and I know there’s cost containment,” Goss said. “That’s what we’re seeing, a lot of cost containment, which means not as much hiring as we’d like to see, depending more on squeezing current employees.”
“In fact, there’s typically been a few more businesses saying they might cut back than expand,” Thompson added. “So the business confidence is not strong.”
There’s a similar feel from some other measures. “We look at manufacturing hours. That hasn’t been growing much in Nebraska,” Thompson said. “Building permits were a real source of strength in Nebraska during much of 2013; it’s been growing, but slowly now.”
Like Goss, Thompson says the increased value of the U.S. dollar and a moderation of the ag economy are factors.
There’s also a little bit of a hangover from the latest recession, which has technically been over for several years.
“I think the Great Recession probably has made businesses a little more cautious, maybe more cautious than they had been historically,” Thompson said.
“Is there still this pall hanging over the economy? The answer is yes, and it’s called uncertainty,” 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.
“I want to emphasize that Nebraska agriculture is still quite strong,” Thompson said. “If 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 it’s a new normal of a larger, higher income agricultural sector.”
When you look at economic measures in recent years, like unemployment, Nebraska has been in better shape than many other states.
“What we’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,” Thompson said. “So U.S. economic growth will be solid and Nebraska’s economic growth will be moderate and perhaps a little slower than U.S economic growth.”
“There will be some bumps in the road as there always are,” Goss added. “But right now it looks to be a reasonably good year for Nebraska, not as strong as 2013 though. The next five years aren’t going to be as great as the last five years, but they aren’t going to be bad.”