Date of this Version
Business in Nebraska, January 2009, (63)693: 8 pages
U.S. Macroeconomic Outlook
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.
Construction and Mining
Transportation and Utilities
Nonfarm Personal 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