Date of this Version
Business in Nebraska, January 2010, (64)696: 8 pages
U.S. Macroeconomic Outlook
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 3rd quarter. But, growth was much more rapid in the 4th 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.
Construction and Mining
Transportation and Utilities
Nonfarm Personal 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)