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Nebraska’s economy appears to be positioned better than most states

Nebraska’s economy appears to be positioned better than most states


A new report from the Federal Reserve in Kansas City, Mo., said Nebraska’s economy has outperformed that of many states and the nation as a whole during the coronavirus pandemic.

The report was authored by Nathan Kauffman, vice president and economist and Omaha Branch executive, and John McCoy, assistant economist.

The report said that, despite the economic shock waves caused by the pandemic, “economic conditions in Nebraska have remained more stable throughout the crisis in a pattern that has resembled other recent recessions.”

While the pandemic shocked Nebraska’s economy, the two economists said some indicators “returned to pre-pandemic strength relatively quickly.”

Entering 2020, Nebraska’s unemployment rate was 3% and GDP was poised to continue a steady upward path. By April, at the worst of the pandemic, the state’s unemployment rate peaked at 7.4% alongside an 8.9% drop in real GDP from the previous quarter.

“Whereas national economic indicators have been slower to recover, unemployment in Nebraska has retreated toward 3%, and GDP was within 1.5% of its record high by the end of 2020,” the report stated.

During the pandemic, job losses in Nebraska were smaller than in many states, the report stated. By February 2021, the economists said, employment had nearly returned to that of the previous year while employment in most other states remained more than 5% less than a year earlier.

Kauffman and McCoy said one factor underlying Nebraska’s resilience has been the strength of its goods-producing industries.

“Nationally, employment declined only 4.6% from the beginning of the pandemic through February 2021,” they wrote. “Similar to the last recession, however, job losses in Nebraska’s goods-producing industries have been much less and, as of February, had been nearly recovered in total.”

Construction, manufacturing remain stable

The report said that employment in construction and manufacturing has remained significantly more stable in Nebraska during economic downturns.

Construction and manufacturing firms account for nearly a fifth of the state’s jobs, and employment in both industries has remained solid over the past year. During the last recession, job losses in the construction industry were about four times larger nationally than in Nebraska. In a similar pattern, and despite the severity of the pandemic, employment in construction was only 0.3% less in February 2021 than prior to the pandemic. Manufacturing sector job losses had been completely recovered.

The two economists said economic conditions among specific types of goods-producing businesses in Nebraska have differed significantly from the 2007-09 financial crisis and recession.

“From December 2007 to June 2009, for example, both residential and nonresidential building construction firms experienced sharp declines in employment,” they reported. “In contrast, businesses in those industries actually have added jobs over the past year despite the pandemic. While employment at manufacturers of motor vehicle parts has declined significantly from a year ago, most other types of manufacturing and construction firms currently have larger workforces than before the pandemic.”

While the COVID-19 pandemic has had a large impact on businesses of all types, Kauffman and McCoy said businesses providing a broad range of services in Nebraska have maintained employment levels better than the nation.

“As of February 2021, employment at service-oriented firms in Nebraska was about 3.4% less than before the pandemic,” they reported. “Unlike the relative stability among goods-producing firms during the pandemic, job losses in the services sector have been about twice as large as the past recession. Nebraska’s service-based firms, however, have weathered each of the past three recessions better than the nation in a pattern resembling the state’s economy more generally.”

Leisure and hospitality industry

But some segments of Nebraska’s service-based economy have continued to face “extreme headwinds alongside the pandemic in sharp contrast to past recessions,” the report said.

The biggest driver of job losses in the services sector has been in the leisure and hospitality industry, Kauffman and McCoy wrote.

That was true in Grand Island, as restrictions on gatherings of people during the pandemic caused job losses in the industry.

Overall, though, the two economists said that in Nebraska, “this industry accounts for a smaller share of total employment (7.8%) than the national average (9.2%), and the declines in employment also have been more modest. Most other service-based industries in the state also have experienced job losses due to the pandemic, but to a lesser degree overall.”

Although businesses gradually have reopened in recent months, job cuts at restaurants, specifically, have weighed heavily on the economy in Nebraska and the nation, the report stated.

“In Nebraska, restaurants account for most of the state’s leisure and hospitality industry, and 7.7% of the state’s employment,” Kauffman and McCoy wrote. “As of September 2020, employment at restaurants in the state was almost 14% less than before the pandemic and generally has remained weak in recent months. Underscoring ongoing weakness in the economy, employment services firms, which account for about 2% of the state’s employment, also remained under pressure.”

General business environment

Despite ongoing stress among some service-based firms, the two economists said that some measures indicate the general business environment has remained more stable than in the last recession.

The 2007-09 financial crisis and recession resulted in a significant increase in business bankruptcies and a sharp reduction in new businesses.

“Unlike that recession, bankruptcies in Nebraska have been relatively muted, mirroring the nation,” the report said. “In addition to fewer businesses closing or entering bankruptcy, new businesses have also continued to form, though to a lesser degree in Nebraska. The limited number of bankruptcies and uptick in new businesses has likely been due, at least in part, to significant fiscal and monetary policy support over the past year.”

The housing market also has continued to strengthen during the course of the pandemic, the two economists found. Kauffman and McCoy said home prices have continued to rise at a strong pace over the past year and housing starts also have edged higher. In Nebraska, home prices are up over 8% from a year ago, though this increase is slightly lower than the nation overall.

“At the start of 2021, Nebraska’s economy appeared to be positioned better than most other states,” the report said.

Kauffman and McCoy said that employment was at, or near, pre-pandemic strength in many industries.

“Conditions in rural parts of the state have been more stable than both metro areas and other rural areas nationwide,” they wrote.

Leading economic indicator

Recently, the Survey of Nebraska Business reported that the state’s leading economic indicator rose again during February, according to the most recent report from the University of Nebraska–Lincoln.

The leading indicator rose 1.05%, marking the fifth consecutive monthly increase.

“The consistent increase in the indicator suggests that economic growth will be solid in Nebraska through the summer of 2021,” said economist Eric Thompson, director of the Bureau of Business Research at the university.

Rising manufacturing activity and strong business expectations were the primary reasons for the improving indicator.

“There was a sharp increase in manufacturing hours worked in February, while respondents to the Survey of Nebraska Business reported plans to expand sales and employment,” Thomson said.

Airline passenger counts also rose modestly but remain far below pre-pandemic levels.

Among declining factors, there was an increase in the value of the U.S. dollar in February. A higher-valued dollar is challenging for agricultural producers, manufacturers and other Nebraska businesses that compete in international markets.

The Federal Reserve economist said that “stability has been a feature of Nebraska’s economy in recent recessions for a variety of possible reasons, including the composition of industries most prevalent in the state.”

“While significant business and economic challenges still remain, the stability of Nebraska’s economy is likely to position the state well for a return to steady growth in coming months,” Kauffman and McCoy concluded their report.

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