Recent trends in economic indicators such as unemployment rates and job growth clearly favor Nebraska. However, these trends may differ from the state’s performance in core measures of economic strength such as entrepreneurship, net migration and capital formation. Given this, the University of Nebraska - Lincoln Bureau of Business Research seeks to track these core economic measures in Nebraska and in all U.S. states.

The state entrepreneurship index is one effort to track these core trends. Specifically, the index is used to track entrepreneurship in Nebraska and compare with the other forty-nine states.

The index was developed by Eric C. Thompson and William B. Walstad in Entrepreneurship in Nebraska: Conditions, Attitudes, and Actions (Gallup Press, 2008). In this report, we use the same methodology to calculate a 2010 index and compare it to the 2008 index.

Like the 2008 index, the 2010 index is modified from the original index constructed by Thompson and Walstad1. The new index is believed to better reflect the entrepreneurship environment because it avoids an upward bias of income in high cost-of-living states while maintaining as a good measure of growth in business formation and technological innovation.

The five components are:

• Percent growth in employer establishments
• Percent growth in employer establishments per capita
• Business formation rate (i.e, firm births per capita)
• Patents per thousand residents
• Gross receipts of sole proprietorships and partnerships per capita.

An index for each component consists of calculating how much each state’s performance deviates from the median state. The state at the median gets a value of 1.0. A state one standard deviation above the median gets a value of 2.0, while a state one standard deviation below the median gets a value of 0.0. The overall entrepreneurship index is calculated by taking a simple average of the five index values for each state. Table 1 illustrates Nebraska’s detailed component value and rank in 2008 and 2010, while Table 2 and Table 3 compare the 2008 entrepreneurship index to the 2010 index of for Nebraska’s neighbors and nationwide.

NEBRASKA

NEBRASKA’S NEIGHBORS

THE REST OF THE UNITED STATES

CONCLUSION

Our Thanks …

The Bureau of Business Research is grateful to The Jim and Penny Krieger Family Foundation for sponsoring the original research allowing us to develop the State Entrepreneurship Index.

Copyright 2010 by Bureau of Business Research, University of Nebraska-Lincoln. Business in Nebraska is published in four issues per year by the Bureau of Business Research. Inquiries should be directed to Bureau of Business Research, 347 CBA, University of Nebraska–Lincoln 68588-0406. See the latest edition of Business in Nebraska at http://www.bbr.unl.edu

Unemployment rates and job growth are popular measures for state economies. However, these trends may differ from the state’s performance in core measures of underlying economic strength such as entrepreneurship, net migration and capital formation. Given this, the University of Nebraska - Lincoln Bureau of Business Research seeks to track these core economic measures in Nebraska and in all U.S. states.

The State Entrepreneurship Index is one effort to track these core trends. Specifically, the index is used to track entrepreneurship in all 50 states. The index was initially developed by Eric C. Thompson and William B. Walstad in Entrepreneurship in Nebraska: Conditions, Attitudes, and Actions (Gallup Press, 2008). In the current study, we use the same methodology to and calculate the value of the state entrepreneurship index for 2010 and 2011.

The index is composed of 5 components that consider the income of entrepreneurs, business formation rates, technological innovation, and growth in the number of entrepreneurs.

The five components of the State Entrepreneurship Index are:

• Percent growth in employer establishments
• Percent growth in employer establishments per person
• Business formation rate (i.e, establishment births per person)
• Patents per thousand persons
• Average income per non-farm proprietor

A separate index value is calculated for each of the 5 components. Each component index reflects how much each state’s performance deviates from the median state. The state at the median gets a value of 1.0. A state with a value one standard deviation above the median gets a value of 2.0, while a state one standard deviation below the median gets a value of 0.0. The overall entrepreneurship index is calculated by taking a simple average of the five component index values for each state.

The data utilized to calculate values for each of the 5 index components are presented in Table A.1 through A.5 in the appendix. Data are present from 2005 through 2011. The analysis focused on the two most recent years, 2010 and 2011. Note that the 5 components of state entrepreneurship index are the same that have been used in previous years, with one exception. In particular, the current report utilizes income per non-farm proprietor (including sole proprietors and partners) as its measure of the size of entrepreneurial ventures in the states. In the last two index reports, gross receipts per partner or proprietor were used instead. While the gross receipts measure is preferred, the Internal Revenue Service is no longer calculating data on gross receipts for proprietorships and partnership by state1. This implies that values for the state entrepreneurship index in this report for 2008 and 2010 may differ somewhat from values presented in earlier reports. Values also may differ due to periodic revisions in the underlying data by the U.S. Department of Labor, the U.S. Department of Commerce, and the U.S. Patent and Trademark Office.

Table 1 illustrates component index values for all 50 states for the year 2011. The Table also shows the overall index value. Data on the number of employer establishments comes from the establishment counts in the Quarterly Census of Employment and Wages developed by the U.S. Bureau of Labor Statistics within the U.S. Department of Labor. The counts include all establishments that participate in their state unemployment insurance program. Data on the population of states, which is used in all person measures, is from the U.S. Census based on estimated population on July 1, 2011. Data on firm births is from the Business Employment Dynamics database, also developed by the U.S. Bureau of Labor Statistics. Data on patents is collected by the U.S. Patent and Trademark Office. Data on non-farm proprietor income and proprietor counts for each U.S. state is from the Regional Economic Information System of the Bureau of Economic Analysis, which is part of the United States Department of Commerce.

Table 1 shows the ranking for all 50 states both for the state entrepreneurship index overall and for each of the 5 index components. The highest ranked states in the 2011 State Entrepreneurship Index are concentrated in the northern parts of the country. The five highest ranked states are Massachusetts, North Dakota, California, New York, and Minnesota. We note that Oregon, New Jersey, New Hampshire, and Illinois are also among the Top 10.

STATE RANKS 2010 AND 2011

ESTABLISHMENT GROWTH

GROWTH IN ESTABLISHMENTS PER PERSON

THE BUSINESS FORMATION RATE 2010 AND 2011

PATENTS PER THOUSAND PERSONS 2010 AND 2011

INCOME PER NON-FARM PROPRIETOR 2010 AND 2011

Our Thanks …

The Bureau of Business Research is grateful to The Jim and Penny Krieger Family Foundation for sponsoring the original research allowing us to develop the State Entrepreneurship Index.

Copyright 2012 by Bureau of Business Research, University of Nebraska-Lincoln. Business in Nebraska is published in four issues per year by the Bureau of Business Research. Inquiries should be directed to Bureau of Business Research, 347 CBA, University of Nebraska–Lincoln 68588-0406. See the latest edition of Business in Nebraska at http://www.bbr.unl.edu

U.S. Macroeconomic Outlook

A lingering financial crisis, economic shocks, and economic policy have combined to derail the self-sustaining recovery in the United State economy. Growth has slowed to a crawl and the risk of another recession runs high. What has happened? To begin with, the Great Recession of 2008 and 2009 continues to impact the construction sector and state and local government employment. New housing construction remains depressed, causing construction employment to drift downward. With tax revenues below pre-recession levels, state and local government employment continues a steady decline. The market also continues to face unexpected shocks. The Japanese earthquake, in particular, helped to derail a rapidly growing manufacturing sector. Brinksmanship surrounding the U.S. debt ceiling and a potential U.S. federal government default also derailed confidence in the U.S. economy, providing another negative shock to businesses and households. Finally, long-run economic policy decisions continue to discourage growth. Europe may fall into a second recession because of the ongoing failure of European leaders to resolve the continent’s sovereign debt crisis. Failure by U.S. policy makers to identify and agree to a long-run strategy to reduce U.S. federal government debt also has been a major drag on business investment and consumer confidence. Finally, significant increases in regulation in the last two years on the health care, financial services, and industrial sectors have discouraged growth in the United States. As a result of all these factors, consumer spending and business investment are now growing at an anemic pace.

Such growth, of course, is essential to the continued expansion of the economy. As a result, there is a heightened risk that the economy will fall back into recession. At best, the U.S. economy is looking at a period of anemic economic growth at the end of 2011 and the beginning of 2012, with a return to moderate growth later in that year.

While the risk of recession is substantial, the latter scenario of continued anemic growth in the short-run and moderate growth in the long-run is the most likely scenario for the U.S. economy. What would this anemic growth scenario look like? The Council’s expectation is that real gross domestic product (GDP) growth will be just 1% nationwide this year, reflecting average growth of 1.5% in the last two quarters of 2011. Real GDP growth will hit 2% in 2012, with growth accelerating throughout the year. Real GDP growth of 3% is expected in 2013. Given job growth that has already occurred in 2011, U.S. job growth will reach 0.8% this year. Growth will reach 0.8% in 2012 and 1.2% in 2013. With baby-boomers beginning to retire and slow labor force growth, the unemployment rate should remain stable despite anemic job growth in late 2011 and 2012. Unemployment rates should decline later in 2012, falling to 8.5% by the end of the year. The consumer price index is expected to rise by 3.0% in 2011 and by 2.3% in 2012 before returning to the Federal Reserve Bank target rate of 2.0% in 2013.

Looking beyond this baseline scenario, a more pessimistic outcome is the most likely alternative. The Council puts the odds of another U.S. recession at one-in-three.

Nebraska Outlook

Employment

Construction and Mining

Manufacturing

Transportation and Utilities

Information

Wholesale Trade

Financial Services

Services

Retail Trade

Personal Income

Government

Nonfarm Personal Income

Farm Income

Net Taxable Retail Sales

Our Thanks …

The Bureau of Business Research is grateful for the help of the Nebraska Business Forecast Council. Serving this session were

• John Austin, Department of Economics, UNL;
• Chris Decker, Department of Economics, UNO;
• Tom Doering, Nebraska Department of Economic Development;
• Ernie Goss, Department of Economics, Creighton University;
• Bruce Johnson, Department of Agricultural Economics, UNL;
• Ken Lemke, Nebraska Public Power District;
• Phil Baker, Nebraska Department of Labor;
• Franz Schwarz, Nebraska Department of Revenue;
• Scott Strain, Greater Omaha Chamber of Commerce;
• Eric Thompson, Department of Economics and Bureau of Business Research, UNL;

Introduction

Nebraska is a growing state, but it is a slowly growing state. Over the last decade, population growth in Nebraska, at 0.6% per year, has lagged the national average rate of 1.0%. This gap in growth rates is large in real terms. Given a current population of approximately 1.8 million persons, Nebraska would grow by approximately 18,000 persons per year if it grew at the national growth rate of 1.0% per year. Instead, the state only adds about 11,000 persons per year. A lower growth rate results in a loss of 7,000 persons per year in population growth in Nebraska.

There are many reasons for this slower growth. Net migration is among the most important of these reasons. Each year more people move out of Nebraska to live in another state, than move from another state to Nebraska. Thus, while the state receives many new international migrants, the net migration of domestic residents is negative. For example, from 1995 to 2000, approximately 3,000 more domestic residents moved out of Nebraska each year than moved in.

Net migration also has created concerns about “brain drain” because migration is most common among younger residents. Brain drain is partly an issue of out-migration alone: the notion that too many young people leave the state. This is an unhappy outcome for the friends and extended families of the young out-migrants who will bear a higher cost when visiting them. But, it is different than the issue net migration, which reflects both outmigration and inmigration.

Negative net migration (or net outmigration) could represent even larger challenges. In particular, net out-migration of younger people could change the age distribution in Nebraska – leaving relatively few working age people to provide services to a relatively large number of retirees. This issue is one of both inmigration and outmigration – that is, the net change in the number of young people over time due to the rate of both in-migration and out-migration.

In this report, we will examine the trends in net migration in Nebraska, focusing on migration among different age groups and comparing Nebraska with neighboring states. We also will examine the rate of net out-migration in select Nebraska communities, including Omaha.

Statewide Trends

Omaha Metropolitan Area

Smaller Area Comparisons

Conclusion

References

About the Authors

Bureau of Business Research [BBR]

Specializes in …

• Studies of economic competitiveness
• Economic modeling and forecasting
• Labor market analysis
• Fiscal analysis
• Policy analysis

U.S. Macroeconomic Outlook

Recent consumer spending, home and retail sales, and industrial production reports suggest that the economy may be nearing a turning point, and that the recession will end later this year. But, even if this happens, the U.S. economy will still face major challenges. The economy has dug itself a deep hole, with very high levels of unemployment. Further, there are reasons to expect an anemic and perhaps even unsteady recovery, rather than rapid expansion that often occurs at the end of a recession. First, consumption is not likely to return to pre-recession levels in the near future. This is because consumers have experienced a rapid decline in their wealth, through falling stock values, and in some parts of the country, a steep decline in home values of between 30% and 50%. With less wealth, consumers will save more and spend less. Second, the U.S. economy still faces major imbalances in several key markets. The already weak financial sector will face rising home foreclosures and bankruptcies in commercial properties. These same forces will prevent a robust recovery in the housing and auto sectors. Home prices will not begin to recover until 2010, and construction and automobile production will remain well below normal levels next year.

As a result, when the recession ends we do not expect a period of rapid growth, typical of most recoveries, where the economy quickly returns to pre-recession levels. The economy is much more likely to “reset” to current levels of output and employment and enter a period of slow expansion.

When the recession ends, the economy will grow again from these new, lower levels, but growth will only reach trend rates of 2% to 3%. Under this “reset” scenario, it will take several years for consumption and gross domestic product to return to late 2007 levels. The recession may end but it will take several years for the national economy to approach more normal rates of capacity utilization and unemployment.

As the preceding suggests, the Nebraska Business Forecast Council is pessimistic about the national economic outlook. In fact, we are now slightly more pessimistic than in our previous outlook released in January 2009. We continue to believe that the national economy will return to GDP growth before the end of 2009. But, we are now more pessimistic about the strength of the ensuing economic recovery, particularly in 2010. This is because the housing and auto sectors have been even weaker than we anticipated. We now expect the U.S. GDP will decline by 3% in 2009, before growing just 2.5% in 2010, and 3% in 2011. U.S. non-farm employment is expected to decline by 3.5% in 2009, and fall 0.5% in 2010 before growing by just 1.1% in 2011. U.S. unemployment will reach 10%. Signs of inflation will only appear in late 2011.

Given this national outlook we must be concerned for those Nebraska workers and businesses dislocated by the current recession. But, overall, the economic situation will not be as dire in Nebraska as nationwide. The decline in property wealth and the increase in unemployment have not been as severe here. As a result, the recession will not be as deep in Nebraska.

Nebraska Outlook

Employment

Construction and Mining

Manufacturing

Transportation and Utilities

Wholesale Trade

Retail Trade

Information

Financial Services

Services

Government

Personal Income

Nonfarm Personal Income

Farm Income

Net Taxable Retail Sales

Our Thanks …

The Bureau of Business Research is grateful for the help of the Nebraska Business Forecast Council. Serving this session were

• John Austin, Department of Economics, UNL;
• Chris Decker, Department of Economics, UNO;
• Tom Doering, Nebraska Department of Economic Development;
• Bruce Johnson, Department of Agricultural Economics, UNL;
• Ken Lemke, Nebraska Public Power District;
• Shannon Ramaeker, Nebraska Department of Labor;
• Franz Schwarz, Nebraska Department of Revenue;
• Scott Strain, Greater Omaha Chamber of Commerce;
• Eric Thompson, Bureau of Business Research, UNL;
• Keith Turner, Department of Economics, UNO (emeritus)

Introduction

In response to economic shocks, such as the Great Recession, people seek out opportunities to return to normalcy. One way is to relocate to a new area. This study examines the people who move from one state to another, seeking better opportunities, and in the process, aiding to rebuild the U.S. economy.

This study does not simply count the number of mi-grants, it also examines the attributes of migrants to determine the human capital, or productive skills, they possess and are willing to provide to the market. Each person, due to characteristics such as education and work experience, has a different level of skill. While there is no way to identify exactly how much human capital a person possesses since no person is the same as another, these characteristics heavily influence the human capital stock of individuals. To develop a comprehensive measure of human capital stock, this study considers an array of characteristics which influence human capital stocks, including education attainment, work experience, health, and other variables such as marital status which can influence the opportunity and pres-sure individuals face to accumulate human capital.

The next section describes the Model and Data Sources for the study. The third section provides Results. The Results section is separated into Regional Comparison, to examine the U.S. as a whole, and States Surrounding Nebraska, for a more local perspective. The fourth and last section is the Conclusion.

Model and Data
Model
In 1974, Economist Jacob Mincer formulated an equation linking human capital and wages. In that equation, the hourly wage rate was modeled as the returns to human capital. Specifically, the natural logarithm of hourly wages was a function of individual characteristics that determine human capital as in the equation below:

lhourlywage = β₀ + β₁Edu + β₂Exp + β₃Sex + β₄Race + β₅Mar + β₆Union + β₇Dis + ε.

In the equation, lhourlywage is natural logarithm of an individual’s hourly wage, Edu is level of eduction attainment, Exp is work experience, Sex is gender, Race is ethnicity, Mar is marital status, Union is union affiliation, Dis is disability status, and ε is the error term. The intercept term, β₀, shows the ex-tent to which hourly wages resulted from the characteristic of their local economy, such as the amount of machinery and equipment per worker, or the amount of roads or other public capital per worker. Other coefficients (β₁-β₇) show the influence of human capital characteristics on hourly wages.

In this study, we estimate the above equation and use the results to predict the human capital of state-to-state migrants. More precisely, estimation results are used to determine the hourly returns to each mi-grant’s human capital. These hourly returns are converted to “full time equivalent” annual returns based on a 2,000 hour work year. Each migrant’s current returns to human capital are assumed to persist in real (inflation adjusted) terms. Annual returns are then used to calculate the lifetime value of each migrant’s human capital stock. This is done in the same way that annual profits are used to estimate the value of a company’s stock. In particular, the the present discounted value of future annual returns to human capital are used to estimate the mi-grant’s human capital stock.

Data Sources

Results

Regional Comparison

Nebraska and Michigan

States Surrounding Nebraska

Conclusion

The U.S. economy is persevering in its transition to a self-sustaining recovery fueled by private consumer spending and business investment. But, that transition is tenuous, with factors both encouraging and discouraging growth. Among factors encouraging growth, consumer spending and business investment continue to expand, supported by rising wage income and profits. As is typical in an economic recovery, profits have rebounded as businesses which cut costs during the recession are benefiting from rising revenue. The labor market also has begun to recover. While gains have been limited, the U.S. economy has added private sector jobs over the first six months of 2010. Further, the average hours worked per week has grown modestly, buttressing these modest employment gains. The net impact has been growth in total hours worked in the private sector. This underpins growth in income, and ultimately, consumption. These positive trends in profits and wage income should be enough to sustain the economic recovery, especially as Federal Reserve policy continues to accommodate economic growth.

But, the U.S. economy also faces many challenges. These challenges imply that the recovery will be moderate rather than sharp and that the potential exists for a second recession. To begin with, the economy continues to face challenges from the housing and commercial real estate markets. Continued foreclosures and a large inventory of unsold homes and unused commercial properties continue to limit new construction and price growth. As a result, the construction industry, which typically fuels growth during an economic recovery, is continuing to shed jobs.

The U.S. economy also faces the effects of debt contagion in Europe. Heightened risk of sovereign and bank default will slow European growth, and lower corporate earnings and the appetite for risky investment worldwide. All three factors have limited growth in the U.S. over the last few months and will continue to do so. Finally, the U.S. economy continues to face headwinds due to public policy. Many new regulations have been introduced into the economy during the last two years. Further, over the past decade, the federal government has rapidly increased spending, and significantly expanded health care entitlements. These trends have continued in the last two years. Such spending increases imply higher future tax rates, which discourage investment, work and economic growth. The first such tax increases are likely to occur in the next year. As noted earlier, these challenges imply a modest expansion, and potential for a second recession.

Facing these headwinds we expect modest growth in the U.S. economy over the next 3 years. Real GDP will grow by 3.0% in 2010, by 2.8% in 2011, and by 2.5% in 2012. Employment growth will be tepid and unemployment rates will drop slowly. The consumer price index is expected to rise by 1.5% in 2010, 1.7% in 2011, and 2.5% by 2012. As in recent years, economic conditions will be relatively strong in Nebraska. Nebraska continues to have a favorable industry mix, with strength in agriculture and insurance. Nebraska consumers also face fewer problems from unemployment and falling home prices.

Nebraska Outlook

Employment

Construction and Mining

Manufacturing

Transportation and Utilities

Wholesale Trade

Retail Trade

Information

Financial Services

Services

Government

Personal Income

Nonfarm Personal Income

Farm Income

Our Thanks...

The Bureau of Business Research is grateful for the help of the Nebraska Business Forecast Council. Serving this session were

• John Austin, Department of Economics, UNL;
• Chris Decker, Department of Economics, UNO;
• Tom Doering, Nebraska Department of Economic Development;
• Ernie Goss, Department of Economics, Creighton University;
• Bruce Johnson, Department of Agricultural Economics, UNL;
• Ken Lemke, Nebraska Public Power District;
• Phil Baker, Nebraska Department of Labor;
• Franz Schwarz, Nebraska Department of Revenue;
• Scott Strain, Greater Omaha Chamber of Commerce;
• Eric Thompson, Bureau of Business Research, UNL;
• Keith Turner, Department of Economics, UNO (emeritus)

After 18 months of decline, the United States economy returned to growth in mid-2009. Growth was tepid at first, with U.S. gross domestic product rising by just 2.2% in the 3^rd quarter. But, growth was much more rapid in the 4^th quarter, portending a solid recovery in 2010 and 2011. Economic expansion will be broad-based, with both household consumption and business investment rising, and employment increasing in most industries. The reasons for recovery are typical of other recoveries. Initially, the recovery is powered pent-up consumer demand among households who have retained spending power. Later, there is a rebound in business investment and hiring. This leads to rising employment and income which underpins sustained growth in consumption.

But, this recovery, like the recession which proceeded it, will not be entirely typical. Gross domestic product and employment will not be able to quickly rebound to pre-recession levels. Specifically, several factors will limit the recovery. First, weakness will persist in key sectors such as construction, housing, commercial real estate and banking. In many parts of the United States, the housing sector will be hit by another wave of foreclosures in 2010, which will limit price growth and new construction. An excess supply of commercial real estate will also impact the banking industry and limit construction employment. Recovery in these sectors will be halting during 2010.

Second, pre-recession levels of economic activity, fueled in part by cheap credit and a negative savings rate, were not sustainable. The economy will need time for the underlying productive capacity of labor, capital and technology to expand to support these higher levels of spending. In 2010 then, there can only be a partial recovery to pre-recession levels of gross domestic product and employment.

We expect the U.S. GDP will grow by 3.5% year-over-year in 2010 and by 4.0% in 2011. As indicated above, these rates exceed trend growth rates, as is expected in recovery. But, the rate of growth will not be high enough to snap back to pre-recession levels in 2010. U.S. gross domestic product may only reach pre-recession levels during 2011, and employment may not fully recover until at least 2012. The consumer price index is expected to rise by 2% in 2010 and to 2.5% by 2011. The Federal Reserve will begin raising interest rates later in 2010 and in 2011 in order to combat future increases in inflation rates. The Fed has already begun to phase out emergency measures taken to aid the economy during the financial crisis. The unemployment rate will fall below 9% by late 2010, and to 7% by late 2011.

As in recent years, economic conditions will be relatively strong in Nebraska, since the state begins the year in better shape. Unemployment rates will remain about half the national average, and fall in step with national rates. Nebraska will experience solid job and income growth in 2010, and strong growth in 2011.

Nebraska Outlook

Construction and Mining

Manufacturing

Employment

Transportation and Utilities

Information

Wholesale Trade

Financial Services

Retail Trade

Services

Personal Income

Government

Nonfarm Personal Income

Farm Income

Net Taxable Retail Sales

Our Thanks …

• John Austin, Department of Economics, UNL;
• Chris Decker, Department of Economics, UNO;
• Tom Doering, Nebraska Department of Economic Development;
• Ernie Goss, Department of Economics, Creighton University;
• Bruce Johnson, Department of Agricultural Economics, UNL;
• Ken Lemke, Nebraska Public Power District;
• Bill Lock, Nebraska Legislative Council;
• Shannon Ramaeker, Nebraska Department of Labor;
• Franz Schwarz, Nebraska Department of Revenue;
• Scott Strain, Greater Omaha Chamber of Commerce;
• Eric Thompson, Bureau of Business Research, UNL;
• Keith Turner, Department of Economics, UNO (emeritus)

Like clockwork, just a few weeks after the November Presidential election, the National Bureau of Economic Indicators declared the U.S. economy in recession. This was not news, of course. It had been evident by that time that the U.S. economy had entered recession. Instead, the major news of the last 6 months is that the U.S. recession has entered a second, and more menacing, phase. This “second act” of the recession began in September, with the upheaval on Wall Street and the freezing of global credit markets. At that time, our national housing recession morphed into a global recession precipitated by a credit crunch.

We of course had all hoped that this would be a “one act” recession, particularly in Nebraska. Our state had fared well in the first act of the national recession that ran from December 2007 through August 2008. The Nebraska economy appeared to grow during this period. Several factors worked to Nebraska’s advantage. Nationally, there had been a significant decline in home values, causing a significant contraction in the wealth of households, and anemic consumer spending. The manufacturing industry also declined sharply in the industrial Midwest. By contrast, in Nebraska home value were flat or declined only modestly, and the value of agricultural land was soaring. More generally, the key agricultural sector was booming in Nebraska during the first half of 2008, and much of our manufacturing sector is tied to agriculture. The factors that were dragging down the national economy had only a modest impact in Nebraska.

This will not be true in the second act of the recession. In the second act, household wealth is declining for a new reason – a 40% decline in the value of stock market indexes. This loss of wealth will impact Nebraska as much as it will affect other parts of the nation. Further, 2009 will be only an average year for agriculture. Agriculture will not be a wind at the back of the Nebraska economy. And, Nebraska manufacturing will weaken as a result.

For all of these reasons, the Nebraska economy will likely participate in the second act of the national recession. Employment declined in Nebraska in late 2008, and will decline in 2009. However, the recession will not be as severe in Nebraska as nationwide, and the Nebraska economy should pull out of recession at around the same time as the national economy.

The specific outlook for the national economy is that it will return to GDP growth near the end of calendar year 2009, either the late third quarter or the fourth quarter. The incoming President’s stimulus proposal could affect confidence in the economy, and may be of modest benefit. But, a recovery or at least stabilization of the housing market will be the key factor in the recovery. As in most recessions, the labor market will lag the overall economy. Employment will only begin to recover in 2010. U.S. GDP will decline by 1% in 2008 and by 3% in 2009, before growing 3% in 2010. Non-farm employment is expected to decline by 2% in 2008 and 1.5% in 2009, but should grow by 1.5% in 2010. U.S. unemployment should peak in late 2009 at near 8.5% Inflation will slow in 2009 and 2010.

Nebraska Outlook

Employment

Construction and Mining

Manufacturing

Transportation and Utilities

Wholesale Trade

Retail Trade

Information

Financial Services

Services

Government

Personal Income

Nonfarm Personal Income

Farm Income

Net Taxable Retail Sales

Our Thanks …

The Bureau of Business Research is grateful for the help of the Nebraska Business Forecast Council. Serving this session were

• John Austin, Department of Economics, UNL;
• Iksoo Cho, Nebraska Department of Revenue;
• Chris Decker, Department of Economics, UNO;
• Tom Doering, Nebraska Department of Economic Development;
• Bruce Johnson, Department of Agricultural Economics, UNL;
• Lisa Johnson, Lincoln Partnership for Economic Development;
• Ken Lemke, Nebraska Public Power District;
• Shannon Ramaeker, Nebraska Department of Labor;
• Scott Strain, Greater Omaha Chamber of Commerce;
• Eric Thompson, Bureau of Business Research, UNL;
• Hoa Phu Tran, Nebraska Department of Revenue

he U.S. economy remains on a path of sustained, moderate economic recovery. Growth persists despite a stalled U.S. housing sector, recession in Europe and slowing growth in China and much of the developing world. These factors undoubtedly have slowed growth in the U.S. economy, and are a continuing source of uncertainty, but U.S. economic growth has continued just the same. The credit must go to a flexible and agile U.S. private sector. Since the financial crisis began, businesses have continued to improve their balance sheets, invest in productivity, and seek out opportunities in growing sectors of the economy. Households have worked to lower debt. The result is that U.S. households are in position to expand spending, and businesses are in position to expand hiring as demand grows. The result is that the U.S. is now better able to return to its traditional role as an engine of the global economy, meaning that the economy can expand, albeit modestly, despite weakness in Europe and Asia. But, it would be better to have help from Europe and Asia. For example, the declining value of the Euro, and the rising value of a dollar as a safe investment, are hurting U.S. exports. Slower growth in the developing world is also harming U.S. exports. These factors are particularly important for selected regions of the country, like Nebraska, which are dependent on export activity. The net result is that while growth is anticipated for the U.S. economy in 2012, growth may be uneven. Growth may slow in early 2012 as Europe continues to address its debt crisis, and as Asian economies work to accelerate growth. More robust growth will return later in the year.

Of course, another concern is that problems in Europe will do more than simply limit growth. The potential remains that the European debt crisis could lead to another severe recession in Europe, with potential to cause a global recession. This could occur if there is a severe event, such as a default by a large country such as Italy and Spain, or the collapse of a major European bank. The European Central Bank and political leaders in Europe have taken steps to avoid these outcomes, but these steps have been cautious rather than overwhelming and run the risk of proving ineffective.

While the risk of recession remains at heightened levels (at around one in four), the scenario of sustained, moderate growth remains the most likely. What would this scenario look like? The Council’s expectation is that real gross domestic product (GDP) growth will rise from just 2.0% in 2011 to 3.0% in 2012. This growth rate is at trend levels but is below the rapid increases that often occur during the first years of an economic recovery. On a positive note, real GDP is expected to reach a strong growth rate of 3.5% in 2013. Similar patterns are expected for employment. Employment expanded at around a 1% rate in 2011. The rate of growth is expected to expand to 1.2% in 2012 and 1.4% in 2013. With baby-boomers beginning to retire and slow labor force growth, these rates of employment growth should be sufficient to slowly reduce the unemployment rate 2012 and 2013. However, it will take several more years for U.S. employment levels to reach pre-recession levels, or for the unemployment rate to return to its natural rate. With a modest economic recovery, inflation should cool over the next few years, falling from 3.1% in 2011 to 2.3% in 2012 and 2.0% in 2013.

Nebraska Outlook

Employment

Construction and Mining

Employment

Transportation and Utilities

Wholesale Trade

Retail Trade

Information

Financial Services

Services

Government

Personal Income

Nonfarm Personal Income

Farm Income

Net Taxable Retail Sales

Our Thanks …

The Bureau of Business Research is grateful for the help of the Nebraska Business Forecast Council. Serving this session were

• Chris Decker, Department of Economics, UNO;
• Tom Doering, Nebraska Department of Economic Development;
• Jason Henderson, Federal Reserve Bank of Kansas City, Omaha Branch;
• Bruce Johnson, Department of Agricultural Economics, UNL;
• Ken Lemke, Nebraska Public Power District;
• Scott Loseke, Nebraska Public Power District;
• Phil Baker, Nebraska Department of Labor;
• Franz Schwarz, Nebraska Department of Revenue;
• Scott Strain, Greater Omaha Chamber of Commerce;
• Eric Thompson, Department of Economics and Bureau of Business Research, UNL

The U.S. economy has transitioned to a self-sustaining recovery fueled by the private sector. Steady improvement in consumer spending and strong increases in business investment has fueled solid growth in gross domestic product and rapid growth in industrial output. Such a strong industrial economy is typically a bellwether for solid, sustained economic growth. Another reason for optimism is that much of the excess has been wrung out of the U.S. economy. Household spending is now better in-line within income, home prices are at sustainable rather than elevated levels, and balance sheets have improved for many businesses. In a typical business cycle, it would be time to declare victory and look forward to years of solid growth.

But, this has been far from a typical recession, and a number of substantial risks remain unresolved. The construction and real estate markets are not yet growing, with housing starts and home sales stuck at historically low levels. Home prices, if anything, are likely to fall further during the year. The housing sector must heal further, working off a large inventory and coming new foreclosures before it can grow. A recovering housing is often an important component of an economic expansion, but will not be in the current recovery, at least for the next year. There are also risks from oversees. Europe continues to face debt problems. Growth in booming developing economies such as China, India, and Brazil also may begin to slow. These countries have growing problems with inflation and may need to act to cool their own economic growth. China, in particular, has problems with its own real estate bubble, and is currently working to achieve a “soft landing.” As the United States has learned, such bubbles can be difficult to deflate without economic consequences. U.S. economic growth may slow as growth slows in these economies.

Domestic economic policy also may create headwinds for growth. New regulations introduced over the last two years will have a negative impact on growth. And, fiscal policy remains an ongoing concern. Federal spending has risen rapidly over the last decade. This has created legitimate concerns that the tax burden may rise in the future to match these spending increases. With annual deficits reaching record levels, businesses and households are counting on the federal government to reduce spending and future deficits. Confidence, investment, and spending may suffer if efforts to cut the deficit lag expectations. The risk is that deficit reduction efforts will be too limited to encourage private sector activity.

These economic risks could significantly slow economic growth, though the mostly likely outcome is a continued recovery. Our expectation is that real gross domestic product growth will reach 3.5’% nationwide in both 2011 and 2012. This is above trend growth will help the economy employ displaced workers and unutilized machinery over the next few years. Employment growth will be tepid and unemployment rates will drop slowly. U.S. employment should grow by 1.1% in 2011 and 1.3% in 2012. The consumer price index is expected to rise by 2.1% in 2011 and 2.2% by 2012, though the prices of energy and food may grow more rapidly.

Nebraska Outlook

Employment

Construction and Mining

Manufacturing

Transportation and Utilities

Wholesale Trade

Retail Trade

Information

Financial Services

Services

Government

Personal Income

Nonfarm Personal Income

Farm Income

Net Taxable Retail Sales

Our Thanks …

The Bureau of Business Research is grateful for the help of the Nebraska Business Forecast Council. Serving this session were

• John Austin, Department of Economics, UNL
• Chris Decker, Department of Economics, UNO;
• Tom Doering, Nebraska Department of Economic Development;
• Ernie Goss, Department of Economics, Creighton University;
• Bruce Johnson, Department of Agricultural Economics, UNL
• Ken Lemke, Nebraska Public Power District;
• Phil Baker, Nebraska Department of Labor
• Franz Schwarz, Nebraska Department of Revenue
• Scott Strain, Greater Omaha Chamber of Commerce
• Eric Thompson, Department of Economics and Bureau of Business Research, UNL

Entrepreneurship can be an important process in stimulating economic growth. While it is not the sole determinant of economic prosperity, it can be a way for a state such as Nebraska to outperform other states. In Entrepreneurship in Nebraska: Conditions, Attitudes, and Actions, Eric C. Thompson and William B. Walstad developed an entrepreneurship index that acts as a benchmark to compare Nebraska with the other forty-nine states. The index in their publication was constructed using 2005 data. The latest data available needed to calculate this index now exists for 2008. In this report, we use the method developed by Thompson and Walstad to calculate a 2008 index and compare it to the 2005 index. This comparison will allow us to see how states fluctuate in entrepreneurship rankings in a recession year versus a year like 2005 when the economy was strong.

We discuss further the components of the index and substitute a newly available component that we feel may better capture entrepreneurship in states. In particular, we create an enhanced index that substitutes gross receipts of proprietors and partnerships for the personal income of proprietors, a component in the original index. This new component may lead to a more accurate assessment of entrepreneurship because it avoids an upward bias of income in high cost-of-living states. Lastly, we will compare the index created with new components to the index created with the original components.

Index Components

Index Revision

Conclusion

We compared entrepreneurship indexes for 2005 and 2008 and found that some states handled the recession better than others, while some states maintained a similar ranking. Nebraska is one state that kept a steady ranking, while remaining in the middle of the pack with its border states. We also proposed improvements to the entrepreneurship index and compared a new index to the old one. We look forward to tracking the new index in the future, and plan to release the index on an annual basis each spring. The BBR will continue to look for alternative components for the index in an attempt to further its development.

Our Thanks …

The Bureau of Business Research is grateful for the help of The Jim and Penny Krieger Family Foundation

Producer services providers are firms that sell services primarily to the business community rather than to individuals and households. Accounting firms, consultants, and computer design services are prominent examples of producer services businesses. Given their importance as suppliers to the broader business community, producer services are a critical segment of the economy. Many producer services industries also are a rapidly growing and pay high wages. The producer services sectors in fact are the principal source of high wage job growth in our evolving service economy.

For all of these reasons, this article highlights the performance of the producer services sector in Nebraska. In particular, we examine the growth in producer services in the nation and in Nebraska in the last decade, and explore whether or not the state of Nebraska has captured a significant share of employment in producer services.

Nationwide Growth

Producer Services in Nebraska

Summary and Discussion

Our Thanks …

Bureau of Business Research [BBR] Specializes in …

• Studies of economic competitiveness
• Economic modeling and forecasting
• Labor market analysis
• Fiscal analysis
• Policy analysis

Nebraska moved up from fourth to third place among the seven states in the West North Central region in dollar volume of agricultural exports in fiscal 1968 and retained its position as ninth ranking state in the nation, according to recent data from the U.S. Department of Agriculture. Sales amounting to $229.5 million of Nebraska farm products constituted 14.5% of the regional total, exceeded only by Iowa, which accounted for almost one -fourth of the total, and by Kansas, which was second with almost 19%. The West North Central region was again the leading export region, accounting for 25% of the nation's total last year with $1,578.9 billion in volume of sales.

Business Summary (R. L. Busboom)

Generally, the State's business activity in March was well above that of last year. A 13 percent rise in physical volume combined with the well - known rise in level of prices to effect an overall dollar volume increase of 30 percent. A large increase in construction activity was the major factor in the overall, year -to -year gain. Employment levels were notably higher in 1969 than in 1968. Manufacturing employment was nearly 5 percent higher and other employment showed a gain of 4 percent.

Revised Population Estimates (E. S. Wallace)

In making 1968 county and city population estimates it was necessary to change slightly the methodology used, since the head tax has been repealed and is no longer available as one of the indicators. In connection with publication of 1968 estimates in our April issue it was stated that some previous estimates would be recalculated using the new method and that if substantial differences were indicated previous estimates would be revised.

Reviews

How many Nebraskans are employed in export-related jobs? What percentage of the state's total private employment is auributable to export business ?

These questions are raised frequently, but until recently no answers could be based on more up- to - date data than 1960 figures. Estimates of employment related to exports of goods, by state, based on data from a 1965 survey of the origins of exports, have now been provided, however, by the Bureau of Labor Statistics of the U.S. Department of Labor. Although unfortunately these estimates do not reflect the dramatic increases in Nebraska export business which have occurred in the past three years, they are of interest not only because they are the most recent available but also because they show Nebraska's relative position with respect to other states in the West North Central Region and in the nation in each of the various categories of export - related employment. Even though the state's export business has shown marked gains recently, it is doubtful that the increases have been sufficient to effect any sharp change in distribution of employment by categories, or in the state's rank in the region and nation.

Geographical Distribution of Federal Taxes (E. S. Wallace)

Allocation of Federal taxes among the states has recently been calculated by the Chamber of Commerce of the United States, and the figures were published in the April issue of Nation's Business. The methods of allocation used for the different taxes appear reasonable, and the tabulation seems to give a fairly realistic picture of the geographical distribution of the Federal tax burden.

The Nebraska Water Resources Institute (Warren Viessman, Jr.)

The Water Resources Research Institute is one of the 51 centers established in part by the Water Resources Research Act of 1964. These Institutes were conceived as cooperative ventures between the Federal and state governments and were assigned the primary mission of promoting a more adequate national program of water research.

Business Summary (R. L. Busboom)

Nebraska and U.S. physical and dollar volume indexes for February, 1969, reflect marked increases in the general level of business activity, both from February, 1968, and from January to February, 1969. Compared to their level, of the same month last year, the State's February dollar volume index rose notably more than did that for the U.S. Likewise, both the Nation's and the State's physical volume indexes moved up over last year and over last month. Again, the State's index rose more than that of the U.S. The well - known rising level of prices continued to effect a greater rise in the dollar volume indexes. The increase in the State over last year is in large part due to major increase in construction and electricity produced.

Concern has been expressed in many quarters over the apparent increase in the number of nonfarm corporations that are buying land and initiating new farming enterprises in Nebraska. It has become important, therefore, to know the facts about the number of these corporations and the amount of farm land they are operating in the state. This information has recently been made available because Nebraska is one of 22 states included in a preliminary report summarizing a survey of corporate farming.

Reprints

State and Local Taxes in Nebraska (E. S. Wallace)

According to figures recently released Nebrdska ranked 32nd among the 50 states in state and local taxes per resident in 1907. Of the 18 states below Nebraska, 11 were in the Southeast Region. In the Plains Region only Missouri and North Dakota were lower.

Review

Business Summary (R. L. Busboom)

Both Physical Volume and Dollar Volume indexes indicate Nebraska's general level of business activity in December, 1968, was that above that of the same month last year. Both indexes also indicate that the November, 1968, general level of business appears to have been maintained through December. Both the Nebraska indexes were, however, at levels approximately 4% lower than those of the U.S. On a month-to-month bases, however, Nebraska's changes were nearly equal to those of the U.S.

Business Summary (R. L. Busboom)

Both Physical Volume and Dollar Volume indexes indicate that Nebraska's November, 1968, level of business activity was notably above that of the same month last year. For both indicators, Nebraska's changes were at nearly the same rates as those of the U. S. On a month-to-month basis, however, Nebraska as well as the U. S. experienced Dollar and Physical Volume declines, from October, 1968, to November, 1968, that were more than seasonally expectable. Also, Nebraska's drop-off was more than that of the U.S.

The regional concept of economic planning and development discussed in the December issue of Business in Nebraska was the subject also of a workshop conference on "Changing Patterns of People and Communities in the Midwest," held in Omaha last month. It is deemed appropriate to report here the most significant highlight of the conference because the panel presentations and subsequent discussions further developed several important apects of regional growth.

Business Summary (R. L. Busboom)

Both Physical Volume and Dollar Volume Indexes for Nebraska indicate that the October, 1968 level of business activity was above that of October, 1967. For the U.S. these indexes increased over the same period at a rate slightly more than Nebraska's. From September, 1968, to October, 1968, Nebraska's dollar and physical volumes fell, being down about 1.6 percent. The indexes for the U.S. show some increase, with physical volume up 2.1% and dollar volume up 3.4%.

Reviews

Because the exodus from farm to city is continuing in Nebraska, it is necessary that industrial development to accelerated to provide employment for displaced agricultural workers who will have to migrate to other states unless suitable work can be provided for them here. From time to time Business in Nebraska has called attention to the state's homegrown industries that provide employment opportunities for significant numbers of workers. These articles have invariably elicited much interest and evoked requests for other success stories about innovative Nebraska enterprises.

Business Summary (R. L. Busboom)

Nebraska's retail sales are up 3.7% for the state as a whole for September, 1968, in relation to September, 1967. Hard goods increased 5.5%; soft goods, 1.7%. The September, 1968, state total is, however, down 4.2% from August, 1968. Although the September, 1968, state total is up from September, 1967, only ten of the twenty-two reporting cities showed increases over a year ago. Changes of retail sales reported for these twenty-two cities vary from a +12 .7% for Fairbury, to a -17.3% for South Sioux City.

Review

As a basis for considering possible abandonment of the state income tax, Nebraskans ought to inform themselves as to the role it, along with the retail sales tax, is playing. Our State Tax Commissioner, in his 1967 Annual Report, has undertaken to supply this information. Unfortunately, too few people have access to this report; therefore, some of the facts taken from it are presented herein in somewhat condensed and modified form.

Business Summary (E. L. Burgess)

Nebraska's July, 1968, dollar volume of business was up 12.5% from July, 1967, accompanied by a 7.6% increase in the physical volume of business. The U.S. followed this same pattern, with dollar volume rising 10.5% from July, 1967, and physical volume rising 5.7% in the same period. Construction activity, which rose in Nebraska by 3.6% from July, 1967, to July, 1968, fell in the U.S. by 5.7%.

New Bureau of Business Research Publications (Dorothy Switzer)

Reorganization of the College (C. S. Miller)

Area Studies Numbers Two and Three (E. S. Wallace)