Nebraska economy contracts sharply amid pandemic

· 4 min read

Nebraska economy contracts sharply amid pandemic
State should recover quickly, but economic activity will drop in 2020

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The COVID-19 pandemic has upended the outlook for Nebraska’s economy.

The state’s economy has contracted sharply this spring, with a spike in unemployment and revenue losses for businesses. While the state economy should recover rapidly, economic activity will drop in Nebraska for 2020 as a whole, according to the new three-year forecast from the University of Nebraska–Lincoln’s Bureau of Business Research and the Nebraska Business Forecast Council.

Nebraska employment is expected to drop 2.4% in 2020 compared to 2019, with non-farm personal income falling 0.8% and farm income declining 22.6%.

“The economic downturn has been especially severe in industries that require face-to-face interaction between customers and workers, or which serve travelers or customers who crowd together,” said Eric Thompson, an economist and director of the Bureau of Business Research.

Key examples include retail trade, air travel, leisure and hospitality, and personal services. Segments of the health care sector also have experienced significant job loss.

Assuming the spread of COVID-19 is brought under control, employment should bounce back quicker than after a typical recession as customers return to most industries and the business community adapts to changing consumer preferences. Nebraska employment is projected to grow 2% in 2021 and 1.4% in 2022.

The rate of job loss in Nebraska, while substantial, has not been as rapid as nationwide.

“Nebraska has a smaller share of employment in several hard-hit industries,” Thompson said.

Nebraska has less employment in travel and tourism than the nation and is not focused on motor vehicle or oil production. Nebraska also has a larger share of employment in the essential industries of food production and processing, and industries such as finance and insurance, where there is more potential to work from home.

Among individual industries, retail trade employment is expected to decline 3.9% in 2020, with employment bouncing back at a 2.4% pace in 2021. Retail employment is projected to fall 0.5% in 2022, continuing the industry’s long-run trend of job loss.

Services employment, which accounts for 40% of all Nebraska jobs, is expected to decline 3.6% in 2020, with most severe job loss occurring in restaurants, lodging and personal services. Service industry employment is projected to grow 3.1% in 2021 and another 2.5% in 2022, allowing the industry to regain its role as the engine of Nebraska job growth.

Impacts also will spread more broadly across the economy to industries such as finance, construction and information, as well as to state and local government. Employment in these industries and sectors is expected to fall about 1% in 2020.

The agriculture and manufacturing industries will be impacted by a global economic recession, which has reduced commodity prices and opportunities for export. Manufacturing industry employment is expected to fall between 2% and 3% in 2020. Losses will be broad-based. Further, the ethanol sector has contracted sharply, which represents lost manufacturing employment but also has implications for Nebraska agriculture.

Low commodity prices, challenges in the ethanol industry and the periodic shutdown of meat-processing facilities will pressure the agriculture sector in 2020. Government payments may account for 50% of farm income during the year.

Government payments also will support personal income in Nebraska in 2020. However, rapid growth in transfer payments, such as enhanced unemployment insurance and one-time payments to households, will not be sufficient to offset multiple sources of loss, including falling wages and salaries, proprietor income and income from dividends, interest and rent. These transfer payments also will disappear in 2021, potentially limiting income growth to just 2.2% in that year, despite a recovery in employment. Non-farm personal income is expected to grow 3.7% in 2022.

The Nebraska Business Forecast Council is composed of David Dearmont, Nebraska Department of Economic Development; Scott Hunzeker, Nebraska Department of Labor; Ken Lemke, Nebraska Public Power District; Scott Loseke, Nebraska Public Power District; Brad Lubben, Department of Agricultural Economics at Nebraska; David Rosenbaum, Department of Economics and Bureau of Business Research at Nebraska; Jim Schmidt, Department of Economics at Nebraska; Hoa Phu Tran, Nebraska Department of Revenue; Brian Williams, Nebraska Public Power District; and Thompson.