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good afternoon and welcome to webinar on Nebraska's economic forecast this forecast is for the rest of 2017 and also for the year's 2018 and 2019 so it's a three year forecast for Nebraska's economy and it's presented by the Bureau Business Research which is part of the College of Business Administration at the University of nebraska-lincoln my name is Eric Thompson I'm the director of the Bureau of business research as well as an associate professor of economics here at UNL I should also say that the report itself the forecast itself that we're going to show you here in the next few minutes is a product of both the Bureau of business research and the Nebraska Business forecast Council the latter group being a group of economists in the university state government and state utilities who come together twice a year to develop this three-year forecast for the Nebraska economy so the members of the Nebraska Business forecast Council include myself dr. David Rosenbaum of the University of nebraska-lincoln dr. Brad Lubin of the department of agricultural economics at the university nebraska-lincoln dr. John Austin who's a retired from the Bureau Business Research at the University of Nebraska Lincoln from the state of Nebraska we have Phil Baker from the Nebraska Department of Labor dr. Dave Germont from the Nebraska Department of Economic Development and then we have Ken Lemke and scott lisicki from the Nebraska public power district so I want to thank all of those members of our Nebraska Business forecast council for helping develop the forecasts of them present to you here in a moment we're going to have a PowerPoint presentation going through the various elements of the forecast I want to before I get started with that though I want to do do want to mention a few other features of our webinar presentations we have several windows on your screen in the lower right part of your screen we have what's known as a chat window so you would be able to chat during the PowerPoint presentation with any of the other individuals who join the webinar today our our attendees at the webinar today so I encourage you to do so especially if you see a name that you recognize those attendees are listed in the central right part of your screen in addition to that we have a question-and-answer window that's in the central atom center part of your screen so during the webinar presentation as we're going through the PowerPoint or at any time during the webinar you can go ahead and type in a question I'll be answering those questions at the end of the webinar once we're done with the PowerPoint presentation sometimes people like to type in their question at the end as well but you feel feel free you can type in your question at any point during the webinar the last feature we have with the webinars we do have a few poll questions this time we'll have two poll questions that we asked the webinar attendees so we have a few general questions about key trends in the Nebraska economy and try to get your opinion on that subject and then after afterwards we provide some information answering that poll question so you can see the first poll question there I'll prompt you to go ahead you can answer now or I'll prompt you to go ahead and answer a little bit later when we're getting closer to the part of the PowerPoint where we'll be able to present the answer anyway with those with those points out of the way I'm going to go ahead and start and go through our PowerPoint presentation on the Nebraska economic forecast for 2017 through 2019 well first let's just have a brief outline very simple outline for the presentation today only two elements the first that we're going to present before the Nebraska economic forecast we're going to present a US economic forecast so Nebraska is a very diversified economy very linked in with a national economy very linked in with the global economy so I can't really do a presentation or forecast for the Nebraska economy with without first telling you about my assumptions and my outlook for the US economy obviously the Nebraska economy has unique features doesn't always go in lockstep with the US economy but it does tend to follow it I like to say that the growth of the US economy cents something of a speed limit for the growth of the Nebraska economy and so it's important to note is the US economy going to be growing very rapidly over the next few years is it going to grow at a moderate pace is it going to be slow US growth because those things will affect the Nebraska economic outlook okay so let's start with that US forecast we're going to talk about the strengths of the US economy the weaknesses of the US economy and the bottom line what does it mean for us economic growth starting with the strengths this has been true for several years now but given the upheaval of the Great Recession and the weak economy over the last 10 years it's always important to point this out that hey we have now achieved a self-sustaining recovery in the US economy so we're not getting growth because of a government fiscal spending and things like that we're getting growth because the economy is now on a self-sustaining path so because of job growth over a number of years we have growing real wages which supports growth in consumer spending spending on things like housing and in the last few months we've even seen a pickup in business investment so getting more demand from the business sector as well so a self-sustaining recovery for the US economy that's certainly in a strength we have right now something new is we seem to be now be benefitting from improved economies in Europe and Asia so the Chinese economy has been growing a little faster after a period of slower growth and the European economy has been growing faster I think the best example that is a report that came out about a week ago that that was about the Greek economy so as those of you following the news over the last decade know the Greek economy is really struggled and then in almost a depression for much of that time and so this week there is a last week there was another surprise with the Greek economy but this time the surprise was positive they had been expecting the Greek economy to be in a recession the last quarter and actually got a positive surprise that it actually grew and avoided recession so if the Greek economy is doing better I think that should build your confidence that the European economy especially Germany France other parts of northern Europe are doing better another real positive restraint for the economy is two of the key prices in the economy are staying low which helps a lot of businesses particularly we have low oil prices because of the strong exploration and fracking sector here in the United States I think global oil prices are going to stay low during this forecast period and that's obviously helpful for a lot of consumers and a lot of businesses and it seems to be happening in a way now that will even allow for some expansion of the US energy industry so in term concluding oil production so that's a positive for our country's economy also appears interest rates are going to stay well they did run up a little bit after the US election but now they return down to the levels they are at before the US presidential election suggesting that those basic economic forces higher savings in a lot of in many parts of the world less demand for money even income inequality is tending to lead to more savings and therefore lower interest rates and so those fundamental economic issues seem to be in place to keep rates low as well so low oil prices low interest rates obviously are positive for the expansion of some businesses and we've made a lot of progress on the first half of the year in terms of deregulation in the United States and that's a positive strength for economic growth as well deregulation of both environmental policy the labor market including health care and financial deregulation let's look at some of the weaknesses that the US economy faces we do have an aging workforce with that baby boom generation increasingly reaching retirement age you have more people exiting the workforce every year as a result so net labor force growth entrance - exits from the labor force is slowing obviously labor human capital is the key to the one of the key inputs to the economy if that's growing slowly does tend to tamp down overall economic growth in the US economy we also have some increasing evidence some challenges with workforce quality in the United States there's a growing bifurcation in the middle class in the US economy now some of that is middle-class people moving up to the upper middle class people with technical skills and so forth achieving that success but the other part of it is increasing number of people falling from the middle class to the lower middle class and that's partly related to challenges and workforce quality and productivity not not quite as strong as it was an earlier generation so that's an issue now with our slower growing labor force one way to improve that would be improved labor force growth would be through of course legal immigration increased legal immigration however more recently there's been been a reduction in legal immigration in the US and of course that's a decision we need to make as a society what we want to do how many immigrants we want to have but a reduction in the rate of legal immigration will tend to contribute to the slower growth of our labor force and be a little bit of a negative for economic growth the other other thing is I guess we haven't made quite as much progress on economic policies we might have hoped this year so plans for tax reform there's some ideas out there but they're still pretty unsettled it doesn't seem to be unified plan for federal tax reform and it's unclear what we're going to get certainly 2017 so that's a bit of a weakness now or I guess an absence of a strength we were expecting to have another weakness is there are no plans for a reform of those key entitlement programs Social Security Medicare those are really drivers of the long-run deficit in the US economy unless those are reformed I think a lot of people a lot of businesses are going to worry about long-run deficits long-run growth of spending by the federal government in the United States and that just creates some uncertainty with people particularly wondering well what are tax rates going to look like in the future if we don't reform these entitlement programs obviously that can affect things like investment so without plans to build confidence by informing and retitle net programs that's a bit of a negative for economic growth but we had a lot of strengths too if you remember the last slide so what's the bottom line when you put it all together well I think we will be able to maintain our moderate growth in GDP at the federal level and good good solid job growth as well and again it's due to a mixed bag of issues domestic workforce issues that I discussed are going to be a little bit of a drain on growth but we do have positives like the stronger growth in Europe and China and those low prices for energy and money the new policy proposals those tend to be more of a pointing towards moderate growth because they're still kind of a mixed bag we've made some progress in terms of deregulation but haven't made progress on some of the other areas such as tax reform and in fact aren't aren't planning to make progress on the key issue of entitlement reform so with the mix very mixed situation overall it suggests moderate economic growth in the US over the next three years so that's the speed limit that Nebraska faces when we think about Nebraska's economic growth let's talk about that to talk about growth in the Nebraska economy it's important first of all to look at the key industries so there's at least three key industries that drive the growth of the Nebraska economy we like to focus on three of those industries the first is the agricultural production complex so that's a that's a long-winded phrase but the point we're trying to make is that we're not just talking about farming and ranching although those are critical we're talking about the key industries that supply farmers and ranchers and the key industries that process agricultural commodities taking that all together that's really the heart of the Nebraska economy in a lot of ways we also have the transportation industry so if you compare Nebraska to other states we have almost twice the share of our workforce involved in the transportation industry whether that's trucking rail related warehousing almost twice the share is the typical state so transportations a big industry in Nebraska obviously a rail Center but we're also the center for a lot of for to at least two major trucking firms as well and then lastly the insurance industry and Nebraska has been a center for the insurance industry for decades and decades and it's also a key certainly a high-paying industry tends to be a little bit focused in the metropolitan areas of the state so let's look at the prospects for those three key industries for agriculture I always like to start with a little discussion of the long-run we know there's some challenges in Ag right now for the near-term but the long-run picture is still very strong Nebraska has at least two very important things going for it that should keep it a growing agricultural state in the future the first is that Nebraska quite simply has a production cluster in agriculture much like this much like the Silicon Valley has a production cluster and information technology and high technology has a lot of key industries and different segments of technology Nebraska is the same way with agriculture we're very strong in a diverse and interrelated group of agricultural industry so the Nebraska Department of Ag a few years ago put out a list stating that Nebraska was number one in irrigated acres number one in commercial red beef red meat production cattle on feed numbers number two in corn based ethanol production corn grains soybean production among the leading states as well as hay strong and hog and pig slaughtering and hog and pig raising could do a little bit more in terms of raising but the point is we have a diverse and strong agricultural production cluster these industries are interrelated and so this becomes a great place to invest because you're near your suppliers you're near to your customers that's just a big asset for our AG industry over the long run the other thing we have quite simply is we got the overall aquifer you can see just by this map that a large share of the Ogallala Aquifer in terms of the acres it covers is in Nebraska and the other key point is we have a very healthy aquifer in Nebraska so Kansas Oklahoma Texas the aquifer is getting quite low not able to contribute as much to irrigation as it has in the past much less so actually in Nebraska we have a much healthier recharging aquifer we do need to cut back here and there on irrigation but by and large we can continue to be for decades to come a place where irrigation is sustainable that's a big positive for businesses thinking about it making an investment in agribusiness to know that in Nebraska we're always going to have a crop rain or shine maybe not the whole crop droughts are still a big problem in the state but even in a even in a dry year we're still gonna have a pretty good crop here in Nebraska that's a that's a tremendous advantage to get more investment in the AG industry here in our state so because of those two reasons to cluster the aquifer the long-run prospects for Nebraska agriculture are quite strong however we do know that we have some short-term challenging conditions we've had a drop in farm income over the last four years now we did it did start at record levels so it's dropped from record levels all the way back to more normal levels and then unfortunately past those normal levels and there's been a little bit low in recent years so that's a problem now the good news is coming we think that agricultural commodity prices have now stabilized here in 2017 they may not rise much but at least they've stopped falling in terms of crop and livestock prices but without it without an increase in prices ob
iously there's going to be a limit to how much farm income can grow I sorry for that interruption we'll proceed with the webinar now another recent or another negative we face here in 2017 for farm income is there will probably be a decline in federal support for agriculture federal transfer payments through the agricultural support coverage and price loss coverage programs basically the the support levels in those programs are set on a rolling average of prices and yields and as we move farther and farther away from those high prices in 2011 2013 that rolling average is declining and the support level is declining another another I wouldn't call this a negative but just a fact of life they're very unusual they're very high yields in Nebraska AG in 2016 we think that those yields will return to trend and so that means a little bit less revenue if yields are strong are solid rather than strong so all that suggests them it'll be a little bit of a further drop-off in farm income here in 2017 although we do think this is the year when farm incomes bottom up so here is our outlook for farm income in Nebraska we think farm income is 4.4 billion in 2016 again partly due to the strong harvests we believe it will fall to 3.7 billion this year 2017 so unfortunately another year of decline however it should bounce back get some of that back in 2018 and 2019 and make it all the way back to 4.2 billion in 2019 so pretty close to the 2016 level so I would call farm income in Nebraska stable but not a source of growth now ever now able to ask the first poll question why you'll see this in a minute why is job growth stalled in the Nebraska transportation industry so if you look over the last few decades that was a source of real job growth in Nebraska trucking and rail why has that job growth stalled so you see you have a few choices there is it because of labor shortages that are affecting the industry is it because a weak demand for coal by electric utilities you know we hole all a lot of coal through the state on trains or are both actors having a significant effect so think about your answer and we'll get back to answering a poll question here a minute go ahead and vote okay let it let's talk about the transportation sector again maybe some challenges now we'll talk about that in a minute but has some real long-run strengths as well we have a strong AG sector that involves a lot of hauling things around so that's a positive for our agricultural for our transportation industry in terms of employment we're on Interstate 80 that's kind of a booming corridor for transportation all the states along Interstate 80 especially between Chicago and Denver have seen growth in their transportation and trucking industry certainly Iowa has as well so that's a positive for us we our rail industry center with a major presence including the headquarters in one case that a major presence from two of the four large national railroads and obviously we have two leading at least two leading nationally leading trucking companies and just more generally we have a very skilled workforce for rail obviously but also for trucking and a lot of entrepreneurship new companies being formed in especially in trucking and so the those are our big advantages for transportation and of course we have a lot of advantages for insurance as well because the industry has been present here we have very qualified workforce a lot of states you couldn't find an abundant group of skilled insurance workers but if you want to expand here in Nebraska that workforce is present we have a lot of excellent training programs all shout out the actuarial science program here at UNL preparing people for careers in the insurance industry and obviously we we've designed our policies in the state to be supportive of the insurance industry since it's been such a major industry here for so long so all three of our key industries have things going for them that should really pay off in the long run however in the case of agriculture there are some near-term challenges I would say the same is true of transportation as well here now you can see the detailed forecast for two of our key industries here in Nebraska transportation and warehousing that data is reported together you can see between over the last decade from 2007 to 2016 we actually lost four thousand jobs in transportation warehousing including 2000 jobs last year so the industry has been under a little pressure now we are expecting growth over the next three years but just 500 new jobs by 2019 so that's why I say that job growth at least has stalled in Nebraska transportation industry the reason for that is both if you look at the poll question there are labor shortages that clearly affect the trucking industry it's just hard to find people that want to work as long haul truckers a you know being away from home in the evenings sometimes obviously that's a that's a negative with that occupation and then Morasca has a big demand for a long-haul truckers so it's sometimes hard to find enough people so labor shortages are real issue we also do we are affected by some of the changes in the electric utility industry and the declining demand for coal within the electric utility industry where a huge railroad state we're right next to the major Wyoming coal mines we hole a lot of coal and as as that has become less in demand to burning and hauling a coal that has impacted employment in our rail industry so the the best answer would be both although you wouldn't be wrong if you picked labor shortages or weak demand for coal financial services is a large diversified sector that includes insurance as well as banking and real estate now the growth prospects are a little stronger there you can see between 2007 and 2010 we added almost 5,000 jobs expect to add another 2200 jobs over the next three years now part of that will be growth in banking and finance but we are expecting stability and perhaps a little growth in our key insurance sector as well let's move along and talk about some of the other details of our forecast before we do that so let's ask the second poll question so I talked a little bit about some of the challenges in agriculture over the next few years not long run long run looks great but over the next few years talk a little bit about some of the challenges transportation is facing at least in terms of job growth so that leads to the following question will real per capita income so real by really mean inflation adjusted per capita income rise or fall in Nebraska over the next three years again several of our key sectors are expected to be a little sluggish over the next few years so will we still be able to grow real per capita income during the period so you can vote rise fall you can wrote vote unchanged which will include pretty close to unchanged so those are your three choices so think about your answer and we'll provide some information about that in just a moment okay well let's get some more detail about our about our economic outlook our industry employment outlook now one of the strong sectors in Nebraska economy over the next three years will be the construction sector didn't add a lot of jobs over the last decade from 2007 to 2016 but we expect construction to add 4,500 jobs or 1500 jobs per year over the next three years so we have a little bit of a turnaround in housing obvious especially in the cities Omaha and Lincoln but also in select towns and small cities especially where they're making a concerted effort to build more housing for their workforce so some of that obviously when you build those new neighborhoods there needs to be some commercial development to support those residences in any case where as you'll see in a minute we've got strong growth and service employment already showed you the strong growth in finance employment so just a need for more office space in the state so that also drives that commercial construction industry so we got a small pretty strong residential construction pretty strong commercial construction industry and we're investing more in Road building here in Nebraska so put that all together strong construction growth over the next three years we're even expecting to add a few manufacturing jobs over the next three years about 2000 jobs about half of that will be due our new poultry processing plant in Fremont it's expected to come online I think by 2019 but we have some other opportunities in agricultural processing that will benefit the state and hopefully we'll see a little bit of a rebound in the AG equipment industry as farm income stabilizes and grows a little bit and as older equipment starts to wear out so even some good news in manufacturing and of course a lot of job growth in services you can see the services sector includes healthcare it includes restaurants lodging and other parts of the entertainment industry it includes a key sector called business services accountants computer programmers consultants architects lawyers people whose primary customers are other businesses businesses as primary customers or other businesses that's a relatively high wage industry and that's growing very fast as well so we think services can grow by about one and a half percent per year in terms of jobs and create about six thousand Nebraska jobs each of the next three years so actually more than half of our job growth will be in the services sector ok so what's the bottom line here how will Nebraska do in terms of job growth we think job growth will be about one percent per year over the next three years a little stronger in 18 and 19 then during 2017 so a good solid rate of growth now will be a little bit less than the u.s. growth during that period the biggest differences in 2017 I think that's partly the result of some success we've had here in Nebraska since the Great Recession ended our enemy has been relatively strong we've really recovered from the Great Recession in many ways other part of some other parts of the country have as well but if you look at the country as a whole there's still big states that have not fully recovered from the Great Recession in the southwest Arizona Nevada the Central Valley of California some of the states in the southeast so there's parts of the country where they still need to put people back to work after the Great Recession and they just have a little bit more capacity to grow because they've still got people that need to be absorbed back in the labor market we have a few of those in Nebraska as well that we've largely recovered from the Great Recession so for that reason growth will be a little stronger in the u.s. in 2017 but by the time you get to 2019 we should do just about as well as the nation in terms of job growth and because thankfully the US should be fully recovered from the Great Recession by then as well probably a little slower because again our population growth slightly lags the US population growth let's look at several of the other key indicators and in doing so will answer our second poll question and so you see here the outlook in Nebraska four key indicators such as non-farm personal income taxable sales CPI the inflation rate and population so non-farm personal income person farm income will be kind of a week but non-farm personal income will grow at a good 4 percent clip over the next three years we'll get back to taxable sales in a minute now you can see their CPI what's the inflation rate going to be so if you subtract the inflation rate from the rate of growth of non-farm personal income you kind of get a real personal income growth rate you can see that is about 1.5 to 2.2 percent depending on the year and if you subtract from that the population growth rate then you get to our poll question what is the real per capita income growth going to be it's going to be about we estimate about 0.7 percent in 2017 and 1.5 percent in 2019 so solid growth in real per capita come here in Nebraska a real increase in the standard of living and a real sustained economic recovery so that's the positive news so I see people were kind of split most of you had rise or unchanged and that hopefully will turn out to be correct that's our expectation now as you can see with non-farm income growth we should get growth in taxable sales obviously farm income plays a role there as well and you can see that in 2017 you know we already have some data for the first few months of the year it's been a little weak in terms of taxable sales and farm income is going to be down slightly as well so we're expecting a weaker year in terms of taxable retail sales but we should have a full bounce-back in 2018 and 2019 again taxable sales doesn't grow quite as fast as personal income because people are spending more and more of their income on services which are not subject to sales tax by and large well those are the key points we wanted to make about the Nebraska economic forecast outlook and I certainly appreciate each of you taking some time this afternoon to attend our webinar sorry for the sorry that we blanked out there for a minute but thank you for your patience waiting up waiting for us to get back on line I'm going to go ahead and see if we have any questions here Pete not too late feel free to type in a question while you're doing that I'll let you know how you can stay in touch with bbr we produce two to three sometimes four reports on the Nebraska economy each month you can follow us on social media you can see our relevant information for Facebook LinkedIn and Twitter you can also subscribe to our newsletter so we basically will send you a little email with a link to a report you can subscribe to that by sending your preferred email address to bbr at UNL dot edu so i'll just wait a moment here to see what questions we have so overall growth through the year yeah so let me let me go let me go ahead and ask for that first question the rate of overall growth in the for the year so you saw I think in some of the numbers we presented that will have a will have decent growth in non-farm income and employment in Nebraska in 2017 now if you add in the expected drop in farm income then overall income growth will be a little slower around I think 3.1 percent if you add the two rates together and in the appropriate fashion so that's a little slower than we would hope for and you can see that the job growth was slightly slower as well at 0.9 percent rather than 1.1 percent so the you know the fact that agriculture is still adjusting does slower economic growth somewhat although I think we're still experiencing moderate economic growth but a little slower here in 2017 relative to 2018 and 2019 second question would repeal of universal health care be positive for business so one put one guest asked that yeah you know we made the point earlier that deregulation should be positive for economic growth you know a straight repeal of the regulations associated with the assumed this was referring to the Affordable Care Act would be positive for business now of course we're not we're talking about repeal and replaced so it's important to in that case to replace the Affordable Care Act with with a new approach or new Act that that reflects good economic policy as well so you know be careful about how much people are being subsidized and so forth but with that caveat said yes I think we've argued throughout the webinar and throughout our forecast that deregulation should be a positive for economic growth another question from Mitch where do you see the bio sciences cluster going well you know I think I think the bioscience cluster to some extent in Nebraska is actually related to our AG industry it's obviously also related to medical research and we have some important strengths in that here in Nebraska as well especially in the Omaha area also in Lincoln but if you if you widen it to include the the AG part of Biosciences we're strong in many areas of the state and you know I think I think Biosciences are part of the long run story for Nebraska agriculture that's one of those key service providers suppliers to agriculture that tends to concentrate in Nebraska along with the rest of the industry and as our healthcare industry continues to grow our teaching hospitals continue to thrive a lot of researc
going on there as well that'll also be helpful for the Biosciences cluster so I don't think it will be a huge share of Nebraska growth that will be a source of growth in entrepreneurship and high wage employment here in our state another question by Tim Stewart wire income tax revenues lagging number seven events that income tax revenues are lagging due to expectations about lower future income tax rates especially for higher income earners so there may be some pressure on income taxes on the early part this year or in 2017 as people who have the ability to do so are shifting their income tax burden to future years hoping that rates will be lower in those future years and there are some plans to lower rates so that could be one factor of again another factor could be agriculture so the profitability level in agriculture is not what it was a few years ago with farm incomes under pressure some of the service providers to agriculture equipment dealers and so forth are earning high incomes like they used to and obviously if the incomes are falling for high high income earners who pay a higher rate or a high rate effective rate that could put some pressure on income tax revenues as well but again that's those things are part of a cyclical phenomenon that shouldn't be permanent if we continue to get real income growth a second question for Mitch a second last question oh that seems to be a repeat okay do you find there is a relationship between workforce supply in medical sciences AG or others and economic growth yes so Nebraska and many states this is true of really throughout the United States there is there are issues with skills gaps so obviously one effect of the Great Recession it didn't just cause the economy to shrink it caused the economy to change and some of our large growing industries before the Great Recession came out of the recession smaller and not really growing very fast anymore whereas other new industries emerged so and this happens in all the large recessions the recession of the early 80s that happened as well there's kind of a mismatch between the skills that new businesses need and the skills that some of the workers have from there from the old economy and so these skills mismatches can affect growth obviously the high level of skill specialized skill meeting and some of the Medical Sciences the Biosciences part about all the many of the occupations in agriculture I highly specialized skills in many ways if those aren't sufficient it'll slow economic growth that is something we are affected by here in Nebraska and I but I don't think it's just a risk I think it's in many states well what a great group of questions I appreciate those thank you so much again for your time this afternoon feel free to contact us at BB our UNL excuse me BB are at UNL edu if you have any further questions you'd like to ask and we were so pleased to present our forecast to you to hear today
