2011 NIFA HOUSING INNOVATION MARKETPLACE CONFERENCE JANUARY 26, 2011 ERIC THOMPSON, DIRECTOR UNL BUREAU OF BUSINESS RESEARCH & NEBRASKA BUSINESS FORECAST COUNCIL 2011 Economic Outlook for Nebraska

Outline UNL Bureau of Business Research 2 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) UNL Bureau of Business Research 3

Macroeconomic Outlook On balance, the recovery likely to continue However, there is an unusually high risk of double- dip recession due to  Weakness in the real estate sector  Imbalances overseas  Uncertainty about fiscal policy UNL Bureau of Business Research 4

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 UNL Bureau of Business Research 5

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? UNL Bureau of Business Research 6

7 Major Nebraska Industries Agriculture Insurance Manufacturing Related To Agriculture Transportation Professional 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  But, farm incomes returned to record levels in 2010 and are expected to stay there in 2011 Negatives  Conditions for livestock producers UNL Bureau of Business Research 8

Strength of Insurance Carriers Industry UNL Bureau of Business Research 9

Manufacturing Employment UNL Bureau of Business Research 10

Employment Outlook (pro-cyclical sectors) Business and Professional Services UNL Bureau of Business Research 11

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 UNL Bureau of Business Research 12

Employment Trends and Outlook Non-Farm Employment UNL Bureau of Business Research 13

Employment Growth 2010 and 2011 IndustryGrowth Non-farm total0.0% 1.4% Construction-3.0% 1.0% Manufacturing-0.8% 1.0% UNL Bureau of Business Research 14

Employment Growth Other Industries 2010 and 2011 IndustryGrowth 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% UNL Bureau of Business Research 15

Other Measures of Growth 2010 and 2011 Measure Growth Nominal Income 2.5% 3.8% Taxable Sales 3.2% 4.5% Population 0.8% 0.8% UNL Bureau of Business Research 16

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 period UNL Bureau of Business Research 17

Opportunities For Nebraska Economy Temporary Spike in Population Growth? Nebraska Population Year Growth Rate % % % % % % % UNL Bureau of Business Research 18