Bureau of Business Research
Date of this Version
11-2004
Abstract
National Macroeconomic conditions are favorable for future expansion of income, employment, and revenue in Nebraska. In particular, the U.S. economy is now in the heart of an expansion expected to persist over the three year forecast period. The principal engine of growth will be a sustained expansion in private sector investment and consumption demand.
However, the rate of growth in the national economy likely will be moderate rather than rapid. At least three factors will act to moderate growth. The first is higher energy prices. Rapid growth in global demand is expected to keep prices for oil and natural gas high at least into 2005. These higher energy prices will reduce the rate of growth in gross domestic product, and create a higher than normal risk that the economy could fall back into recession. However, the most likely outcome is that the economy will continue to expand at a moderate rate in 2005, and beyond.
Federal policy trends also will moderate growth. Over the outlook period, Federal Reserve interest rate policy will gradually shift from pro-growth to neutral as the Fed raises interest rates over the next two years. The Federal Funds rate currently stands at 1.75 basis points and a neutral rate is typically in the range of 3 to 4 basis points.
The third factor will be a marked decline in the rate of growth in federal spending. Federal spending growth averaged 9 percent annually from 2002 through 2004. Spending growth should decline substantially beginning in 2005 as part of efforts to reduce large annual federal budget deficits.
Comments
Published in Business in Nebraska, Volume 60, No. 678, November 2004. Presented by the UNL Bureau of Business Research. Used by permission.