Bureau of Business Research

 

Date of this Version

2-2011

Citation

Business in Nebraska, FEBRUARY 2011, (65)699: 8 pages.

Comments

Copyright 2011 by Bureau of Business Research

Abstract

U.S. Macroeconomic Outlook

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

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