nebraska - federal reserve bank of kansas city · the housing recovery gained further momentum as...
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Nebraska’s economy cooled in step with national economic trends at the end of 2012. A weaker global econ-omy and a contraction in government spending weighed on the U.S. and Nebraska economies. After a fall surge, hiring at Nebraska firms slowed in the fourth quarter amid heightened uncertainty regarding fiscal policies and economic growth. Still, consumers sustained the state’s economic growth with stronger retail and home sales.
Similar to the nation as a whole, a weaker global economy was a drag on the Nebraska economy. Softer economic growth, especially in developing countries, contributed to flat export activity and slower hiring at Nebraska factories. With limited growth in shipments, wholesalers and transportation companies reduced staff. In addition, local spending cuts translated to fewer jobs in government services and education.
Yet, Nebraska’s economy continued to expand with consumer spending. Employment rose 0.8 percent in the fourth quarter, slower than the 1.5-percent growth in the third quarter. The housing recovery gained further momentum as more people bought homes, which lifted home prices, boosted building activity and spurred hiring in the construction trades. At the same time, rising incomes fueled strong retail sales during the holiday season and store owners and entertainment venues added staff to handle
holiday crowds. The healthcare industry continued to expand to meet consumer needs, with the strongest job gains at hospitals and outpatient care facilities.
Despite drought, Nebraska’s farm economy produced stronger incomes and a surge in capital spending. Prof-its on irrigated cropland with adequate access to water soared, while crop insurance payments compensated for drought-reduced yields on nonirrigated land. A post-harvest decline in crop prices and strengthening cattle and hog prices narrowed losses for the livestock industry. Potential changes in tax policies at year-end prompted a flurry of capital spending. Furthermore, strong demand for farmland drove values higher despite more farmland for sale.
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NebraskaEconomic information for the Cornhusker State
T H E
E C O N O M I S T :
The Nebraska Economy Cooled Heading into Winterby Jason Henderson, Omaha Branch Executive, and Maria Akers, Associate Economist
Executive Summary
As Omaha Branch executive, Jason Henderson is the Federal Reserve Bank of Kansas City’s regional economist and lead officer in the state of Nebraska and is responsible for briefing the Kansas City Fed’s president on business activity in the state.
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F e d e r a l R e s e r v e B a n k o f K a n s a s C i t y - O m a h a B r a n c hM a r c h 2 0 1 3
NebraskaEconomic information for the Cornhusker State
T H E
E C O N O M I S T :
With modest job gains at the end of the year, Nebraska’s
unemployment rate fell slightly to 3.7 percent by December
(Chart 1). Still, Nebraska’s labor market lost momentum in
the fourth quarter. After strengthening during the past year,
annual nonfarm job growth in Nebraska tapered to less than
1.0 percent. Some businesses delayed hiring amid uncer-
tainty surrounding potential tax policy changes and immi-
nent federal spending cuts. At the local level, cost reductions
trimmed government service jobs and educational staffing
(Chart 2). In addition, information and financial activities
firms continued to shrink payrolls in the fourth quarter.
Weaker global economic growth, particularly in emerg-
ing markets, also dampened economic growth in Nebraska.
Since 2010, developing countries have accounted for more
than half of Nebraska’s manufactured exports, driven by sales
to Mexico and China. After rising sharply in 2011, total ex-
port sales leveled off in 2012 (Chart 3). Softer global demand
for processed food products led to a slight drop in shipments
of nondurable goods compared to last year. Foreign demand
for durable goods, however, remained solid with an uptick in
sales of machinery and manufactured metal products offset-
ting a decline in orders for transportation equipment.
With flat export demand, the pace of hiring at Nebraska
factories fell below year-ago levels. Durable goods factories
were still hiring, particularly for specialized skills, while em-
ployment at nondurable goods plants edged down. In ad-
dition, wholesalers and transportation firms reduced staff
further in 2012, though job losses were not as steep as the
year before.
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5
6
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-1
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1
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3
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012
Job Growth (Left Scale)
Unemployment Rate (Right Scale)
Percent change from year ago Percent
Nebraska E C O N O M I S TTHE
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Chart 1: Nebraska Nonfarm Job Growth and Unemployment Rate
Chart 2: Nebraska Employment Growth by Sector
Chart 3: Nebraska Manufactured Exports
Source: Bureau of Labor Statistics.
Source: Bureau of Labor Statistics.
Note: Number in parentheses is the industry share of total manufactured exports in Nebraska for 2012.Source: WISERTrade.
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0
2
4
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10
Construction Health Services
Manufacturing Retail Trade, Leisure and Hospitality Services
Professional and Business
Services
Wholesale Trade and
Transportation
Information and Financial
Activities
Education
Q4 2011
Q4 2012
Percent change from year ago
0.0
0.5
1.0
1.5
2.0
2.5
3.0
Food and Kindred Products (41%)
Machinery, Except Electrical (23%)
Chemicals (10%) Transportation Equipment (8%)
Metal Manufacturing (5%)
2010
2011
2012
Billion dollars
Consumers helped propel Nebraska’s economic growth in the fourth quarter. Rising incomes supported consumer spending and boosted employment in the retail and lei-sure and hospitality industries. Retailers added staff as re-tail sales ramped up during the holiday shopping season and eclipsed the previous year’s total by almost 4.0 percent (Chart 4). Auto sales in particular strengthened at year-end, especially in rural areas of the state. Performing arts and sports venues were also hiring in the fourth quarter, as were quick-service restaurants. Healthcare providers con-tinued to fill job openings, primarily at medical centers.
Housing markets in Nebraska improved further dur-ing the fourth quarter. The number of building permits issued climbed as home sales strengthened and mild win-ter weather kept construction sites busy (Chart 5). In fact, hiring by builders and developers pushed construction employment 10 percent higher than year-ago levels. Ne-braska home prices rose further and some real estate agents in metro markets noted a shift toward a “seller’s market” as houses typically sold faster. With reduced home invento-ries, the number of homes for sale in the Omaha and Lin-coln markets dropped below a five-month supply. In ad-dition, the number of multifamily housing projects under construction in Nebraska during 2012 jumped 45 percent compared to 2011 with strong demand for rental units.
In contrast, commercial construction activity waned with fewer projects under way at year-end. Though still higher than year-ago levels, the value of commercial con-struction contracts in Nebraska fell further during the fourth quarter (Chart 6). Existing office and industrial space was readily available for rent with relatively stable va-cancy rates in Omaha and Lincoln.
Nebraska E C O N O M I S TTHE
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Chart 4: Nebraska Net Taxable Retail Sales
Chart 5: Nebraska Residential Real Estate
Chart 6: Value of Nebraska Construction Contracts
Source: Nebraska Department of Revenue
Sources: Census Bureau and FHFA
Source: FW Dodge
1.5
1.7
1.9
2.1
2.3
2.5
2.7
1.5
1.7
1.9
2.1
2.3
2.5
2.7
J F M A M J J A S O N D
2012 2011 2010
Billion dollars
0
50
100
150
200
250
300
350
400
450
2010:Q1 2010:Q3 2011:Q1 2011:Q3 2012:Q1 2012:Q3
Commercial
Residential
Million dollars
97
98
99
100
101
102
103
104
105
-60
-40
-20
0
20
40
60
80
100
2006:Q1 2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1 2012:Q1
Single-family building permits (Left Scale)
Home Price Index (Right Scale)
Percent change from year ago Index (2006Q1 = 100)
Despite the drought, farm income in Nebraska re-bounded in the fourth quarter (Chart 7). With a substan-tial share of Nebraska farmland under irrigation, farmers with dependable access to water sold bumper harvests at high crop prices. For farmers that relied on scant rainfall to grow a crop, crop insurance payments supplemented farm income. In addition, a post-harvest dip in crop pric-es provided some relief to the livestock industry by lower-ing feed costs.
Higher farm income and pending changes to the tax code prompted a wave of farm capital spending before the end of the year. Farm machinery and equipment sales spiked as farmers rushed to take advantage of bonus de-preciation allowances originally set to expire at the end of 2012 that were later extended through 2013.
Farmland values surged again at year-end despite more farmland for sale. Irrigated farmland values posted the strongest year-over-year increase at 32 percent, with a 27-percent rise in both the value of nonirrigated acre-age and ranchland (Chart 8). The typical upswing in the number of farms placed up for sale at the end of the year was greater than usual due to record-high farmland prices and uncertainty about impending tax changes.
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Nebraska E C O N O M I S TTHE
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Chart 7: Nebraska Farm Income and Farm Capital Spending
Chart 8: Nebraska Farmland Value Gains
* Bankers responded to each item by indicating whether conditions during the current quarter were higher than, lower than, or the same as in the year-earlier period. The index numbers are computed by subtracting the percentage of bankers who responded “lower” from the percentage that responded “higher” and adding 100.
Source: Federal Reserve Bank of Kansas City
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20
40
60
80
100
120
140
160
180
200
0
20
40
60
80
100
120
140
160
180
200
2004 2005 2006 2007 2008 2009 2010 2011 2012
Farm Income Capital Spending
Diffusion Index *
-10
-5
0
5
10
15
20
25
30
35
40
45
-10
-5
0
5
10
15
20
25
30
35
40
45
2006:Q1 2007:Q1 2008:Q1 2009:Q1 2010:Q1 2011:Q1 2012:Q1
Non-irrigated
Irrigated
Ranchland
Percent change from year ago