The Nebraska economy recovered quickly in 2021, but steadied through early 2022 as risks to the outlook intensified. Economic output in the state expanded robustly in 2021 alongside broad strength across many sectors and particularly strong conditions in the agricultural economy. Incomes for Nebraskans also increased in the past year and employment throughout the state continued to grow steadily in recent months. The unemployment rate reached an all-time low in May and labor markets have tightened further, boosting wages. Underlying conditions for Nebraska households and businesses were strong through the first part of 2022 and economic activity remained firm, but persistently high inflation continued to pressure the economy and remained a key risk to the outlook.

A Strong Foundation in Early 2022

Economic growth in Nebraska rebounded in 2021 following a downturn in 2020. The gross domestic product (GDP) of Nebraska grew at the fastest pace in 10 years during 2021 and recovered from a decline following pandemic related disruptions in 2020 (Chart 1). Output stabilized through the first quarter of 2022, but remained about 4% above 2020, which is an average annual growth rate of about 2%.

Chart 1: Real Gross Domestic Product–is a line graph showing the annual real gross domestic product (GPD) for Nebraska and the U.S. from 2015 to 2022* in billion dollars and trillion dollars, respectively.   *2022 is as of Q1 2022. All other years are annual averages.  Sources: Bureau of Economic Analysis and Haver Analytics.

The growth in activity in 2021 was driven by expansion in many industries and notable strength in agriculture. Alongside broad strength in the U.S. farm economy, the agricultural sector accounted for half the overall increase in Nebraska GDP during 2021 (Chart 2). Output also increased across all major industries last year except trade, transportation and utilities. Expansion in manufacturing was notable over the prior year, but pulled back slightly along with financial activities and leisure and hospitality in the first quarter of 2022.

Chart 2: Contributions to Percent Change in Nebraska Real GDP– is a clustered column chart showing the percentage point contribution to the change in GPD for various industries (Agriculture, Manufacturing and Goods Producing, Professional and Business Service, Financial Activities, Education and Health Services, Leisure and Hospitality, Government and Government Enterprises, Information and Other Services and Trade, Transportation and Utilities) with bars for 2019, 2020, 2021 and Q1 2022*.  *Change from prior quarter. All others are annual changes.  Note: Number is parenthesis indicate share of 2020 GDP attributed to each industry. May not add to 100 due to rounding.  Sources: Bureau of Economic Analysis and Haver Analytics.

The strength in the agricultural economy was driven by a sharp increase in commodity prices that supported farm incomes. Agricultural prices surged in 2021 alongside robust global and domestic demand for farm-related products, increasing nearly 20% from the prior year and remaining elevated into 2022 (Chart 3). Domestic consumption of farm products remained strong alongside gains in the U.S. economy and U.S. agricultural exports increased notably. In addition to high prices, production of key commodities in the state also was strong, further boosting revenues for producers and supporting farm incomes.

Chart 3: Nebraska Farm Income and Agricultural Commodity Prices– is a line graph showing annual Nebraska Farm Income and an Index of U.S. Agricultural Commodity Prices from 2010 to 2022* in billion dollars and index (2010=100), respectively.   *As Q1 2022. All other years are annual averages.  Note: Nebraska Farm Income: Proprietor’s Farm Income. Index of Agricultural Commodity Prices: Includes prices estimates for 48 individual commodities.    Sources: Bureau of Economic Analysis, USDA and Haver Analytics.

Export demand for Nebraska manufacturing goods, particularly food products, also supported economic activity. After declining at the onset of the pandemic and remaining subdued throughout 2020, exports of goods manufactured in the state rebounded notably in 2021 and remained strong through early 2022 (Chart 4, left panel). A substantial portion of the growth in activity was driven by an increase in food and beverage products, as well as machinery and equipment, which both rose by about 20% in 2021 (Chart 4, right panel). Exports of nearly all other major products also increased during the last year, with the exception of chemicals.

Chart 4: Nebraska Manufacturing Exports– includes two individual panels. Left, Exports of All Manufactured Goods- is a line graph showing an index of Nebraska manufacturing exports in each quarter from Q1 2019 to Q1 2022. Right, Change in Exports by Product- is a clustered column chart showing the change from a year ago for various products (Food & Beverage, Machinery & Transportation Equipment, All Others and Chemicals) in billion dollars with bars for 2020, 2021 and Q1 2022.  Sources: U.S. Census Bureau and Haver Analytics.

Alongside sound economic conditions in the state, personal income in Nebraska grew substantially. Incomes of those working in both the goods and services sectors increased nearly 10% and 6%, respectively, in 2021 and remained high in the first quarter of 2022 (Chart 5). Income growth was supported by strength in broad economic conditions throughout the state, but supplemental income support through fixed federal enhancements to unemployment insurance boosted incomes in 2020 and 2021. In addition, income growth in Nebraska’s regional hubs has been particularly robust alongside ties to agriculture in surrounding rural areas.

Chart 5: Non-Farm Personal Income – is a clustered column chart showing the percent change in personal income from a year ago by major sector (Total, Goods Producing and Services Providing) with bars for 2019, 2020, 2021 and Q1 2022*.  *Change from prior quarter. All others are annual changes.  Sources: Bureau of Economic Analysis and Haver Analytics.

Employment and Wages

Employment in the state grew alongside economic activity in 2021, and also continued to increase at a steady pace into early 2022. Non-farm employment in the state grew at an average pace of about 2% in 2021 and continued to increase at a similar rate through May (Chart 6, left panel). The pace of growth in additional jobs was lower than the nation, but job losses in 2020 were also less pronounced in Nebraska. Compared with the months before the pandemic there were only about 7,000 fewer jobs in the state and all of those jobs were concentrated in the services sector, which has been more substantially impacted by conditions during the pandemic (Chart 6, right panel).

Chart 6: Nebraska Employment– includes two individual panels. Left, Non-Farm Employment Growth- is a line graph showing the percent change from a year ago (seasonally adjusted) in non-farm employment for Nebraska and the U.S. in every month from 2020 to May 2022. Right, Change in Jobs by Sector Since January 2020- is a clustered column chart showing the change in jobs in thousands of jobs from January 2020 for each major sector (Total, Goods Producing and Services Providing) in Nebraska as of May 2020, May 2021 and May 2022.  Sources: Bureau of Labor Statistics and Haver Analytics.

With consistent job growth, the prevalence of unemployment fell to a historic low in recent months. The unemployment rate in Nebraska fully rebounded following a drastic spike during the pandemic and reached an all-time low in May (Chart 7, left panel). The quick recovery was driven by both gains in new jobs and a slight reduction in labor force participation compared with the months prior to the pandemic (Chart 7, right panel). The rate of unemployment in Nebraska continued to be lower than the national average, but participation in the labor force remained less than before the pandemic and has rebounded more gradually in Nebraska than the nation.

Chart 7: Unemployment and Labor Force Participation– includes two individual panels. Left, Unemployment Rate- is a line graph showing the unemployment rate in percent for Nebraska and the U.S. in every month from May 2015 to May 2022. Right, Labor Force Participation Rate- is a line graph showing the labor force participation rate in percent for Nebraska and the U.S. in every month from May 2015 to May 2022.  Sources: Bureau of Labor Statistics and Haver Analytics.

The combination of low unemployment and reduced labor force participation continued to limit workforce availability. The average number of job openings in Nebraska during the first quarter of 2022 was about 40% higher than the same time a year ago, while the number of separations and quits grew only 10% (Chart 8). Despite rapid growth in openings, the increase in the number of hires remained limited.

Chart 8: Nebraska Labor Markets – is a line graph showing the number job openings, hires, separations and quits in thousands of jobs (3-month moving average) for Nebraska during every month from April 2015 to April 2022.  Sources: Bureau of Labor Statistics and Haver Analytics.

Strong competition for labor drove an increase in workers’ wages. Average hourly earnings have grown notably in recent months, increasing by an average of about 9% during the first quarter of the year, slightly faster than the nation (Chart 9, left panel). The increase in wages was consistent across both the goods and services sectors and, as of May, Nebraskans were earning over $3 more per hour than the months prior to the pandemic (Chart 9, right panel).

Chart 9: Nebraska Wages and Earnings – includes two individual panels. Left, Average Hourly Earnings- is a line graph showing the percent change in average hourly earnings from a year ago for Nebraska and the U.S. in every month from January 2020 to May 2022. Right, Change in Average Hourly Earnings Since January 2020- is a clustered column chart showing the change in average hourly earnings from January 2020 in dollars per hour for each major sector (Total, Goods Producing and Services Providing) in Nebraska as of May 2020, May 2021 and May 2022.  Sources: Bureau of Economic Analysis and Haver Analytics.

Intensifying Headwinds

Persistently high inflation has been one of the most significant economic headwinds in recent months. After beginning to rise sharply in mid-2021, the overall consumer price index continued to surge in 2022, increasing by 8.6% from a year ago in May (Chart 10, left panel). As higher inflation has lingered, sentiment related to current and future economic conditions has weakened considerably (Chart 10, right panel). The continuation of broad inflationary pressures has strained household budgets, particularly the lowest income households that have less disposable income and typically spend a higher share of overall income on staple items such as food and energy.

Chart 10: U.S. Inflation and Consumer Expectations– includes two individual panels. Left, U.S. Consumer Price Index - is a line graph showing the percent change in Food, Energy and All Other items from the U.S. consumer price index in every month from January 2010 to May 2022. Right, U.S. Consumer Sentiment Index- is a line graph showing the index of consumer sentiment in every month from January 2010 to May 2022. Sources: Bureau of Labor Statistics, University of Michigan and Haver Analytics.

Although household debt repayment improved alongside strong incomes in 2021, increases in some types of debt could also strain household finances if the recent trend continues. Delinquency rates on all major types of debt declined in 2021, with mortgage delinquencies reaching an all-time low (Chart 11, left panel). Credit card debt per household remained at a 5-year low over that time, but mortgage and auto debt increased to record highs and increased overall expenses for many Nebraskans (Chart 11, right panel). A key factor contributing to higher debt balances was a surge in home prices amid strong demand and limited supplies, and the cost of automobiles also increased sharply in 2021. Higher home prices may be beneficial for current homeowners, but the rapid increase in prices has intensified challenges of affordability for many low-income communities.

Chart 11: Nebraska Household Debt. Left, Household Debt Delinquency Rates* - is a line graph showing the percent of delinquent Auto, Credit and Mortgage Loans in Nebraska during every year from 2010 to 2021. Right, Household Debt Per Capita- - is a line graph showing the amount of Auto, Credit and Mortgage debt per person in thousands of dollars in Nebraska during every year from 2010 to 2021 *Percent of debt balances 90 days or more past due Sources: Federal Reserve Bank of New York and Haver Analytics.

The agricultural sector remained strong and continued to support the Nebraska economy, but could face pressures from rising production costs and drought. Higher agricultural commodity prices continued to support farm revenues, but input costs also have increased sharply in recent months and could limit producer profits going forward (Chart 12, left panel). In addition, more than 40% of Nebraska land area was in severe drought, which could hinder incomes for producers most directly impacted (Chart 12, right panel).

Chart 12: Agricultural Input Costs and Drought– includes two individual panels. Left, U.S. Agricultural Input Costs- is a line graph showing an index (Jan. 2010=100) or agricultural inputs costs during every month from January 2010 to April 2022. Right, Share of Nebraska Land Area in Drought, Sever or Worse - is a clustered column chart showing the percent of Nebraska land in sever drought or worse with columns for 2017-2021 Average, June 2021 and June 2022.  Note: U.S. Agricultural Input Costs: Prices paid by farmers for items used in production (chemicals, fertilizer, farm machinery, feeds, fuels, and retail seed.). Sources: USDA, Haver Analytics, National Drought Mitigation Center - University of Nebraska- Lincoln and staff calculations.

Despite broad inflationary pressures and intensifying headwinds, economic activity and consumer spending in Nebraska remained firm through the first half of 2022. Key economic indicators in the state were strong through May, with broad measures of activity remaining well above pre-pandemic levels and the nation (Chart 13, left panel). Consumer spending also continued to support economic conditions, with total spending in the state about 12% higher than in early 2020 (Chart 13, right panel).

Chart 13: Business Activity and Consumer Spending– includes two individual panels. Left, Coincident Economic Index*- is a line graph showing the coincident economic index (Jan. 2020=100) for Nebraska and the U.S. in every month from January 2020 to May 2022. Right, Change in Consumer Spending Since January 2020- is a line graph showing the percent change (7-day moving average) in credit card spending compared with January 2020 for Nebraska and the U.S. on every day from January 2020 to May 2022.  *Composition of key economic indicators: nonfarm payroll employment, average hours worked in manufacturing by production workers, the unemployment rate, and wage and salary disbursements deflated by the consumer price index Sources: Federal Reserve Bank of Philadelphia, Opportunity Insights Economic Tracker, Affinity Solutions and Haver Analytics.

Conclusion

High and far-reaching inflation has directly impacted households and businesses in recent months, resulting in pessimistic expectations about economic prospects in the year ahead. Despite the headwinds, Nebraska businesses continued to seek new employees at a record pace, while consumer spending and overall economic activity remained strong. Though some risks may have intensified, Nebraska’s economy has appeared to be well-positioned through mid-2022 as it faces uncertain growth prospects in the second half of the year.

The views expressed are those of the authors and do not necessarily reflect the positions of the Federal Reserve Bank of Kansas City or the Federal Reserve System.

Authors

Nate Kauffman

Vice President, Economist and Omaha Branch Executive

Nate Kauffman is vice president and Omaha Branch executive with the Federal Reserve Bank of Kansas City. In his role as the Bank’s lead economist and representative in the state …

Ty Kreitman

Assistant Economist

Ty Kreitman is an assistant economist in the Regional Affairs Department at the Omaha Branch of the Federal Reserve Bank of Kansas City. In this role, he primarily supports the F…