Nebraska economic indicator new to forecasting game

By Madalyn Gotschall, NewsNetNebraska

In what seems like endless economic news, Eric Thompson, an economist from the University of Nebraska-Lincoln said Nebraska is fairing pretty well.

Thompson, Director of UNL’s Bureau of Business Research, relies on the Nebraska Leading Economic Indicator, a new measure developed by the BBR to compare growth between the state and nation.

“Nebraska is not growing faster than the nation right now, but it is easier to live with slower growth in Nebraska,” Thompson said.

The BBR report is released monthly and forecasts change in the Nebraska economy over the next six months. The forecast?  Growth, if the drought ends. And drought, according to the indicator, has been what’s slowed Nebraska’s job growth down lately.

Nationally, unemployment has remained a factor to be watched.  After rising to 10 percent in 2010, the Bureau of Labor Statistics reported national unemployment hovering at 7.9 percent.

Thompson said recovery has been faster nationally because Nebraska did not have to bounce back as much.

There are six indicators that the BBR and Thompson look into when making their forecasts: single family building permits, airline passenger counts, manufacturing hours, initial unemployment claims, value of the U.S. dollar, and a survey of 500 Nebraska businesses.

There are a number of factors the indicator measures to determine what the next six months will hold.

There are a number of factors the indicator measures to determine what the next six months will hold.

The BBR indicator is relatively new to the Nebraska economic scene however — only being 16 months old. The indicator isn’t used by the Legislature to predict what kind of budget they’ll have to balance yet, but the Legislature’s economic forecaster said they’re keeping an eye on it.

Michael Calvert, Director of the Legislative Fiscal Office, said while the Nebraska indicator could be incorporated in his overall report, it does not contain the two indicators he bases much of his analysis on: percent changes in personal income and salaries over time.

“Legislature is required to do two things,” Calvert said. “They are required to meet and required to pass a budget. The forecast is directly instrumental to the second.”

Sen. Paul Schumacher of Columbus, Vice Chair of the Legislature’s Revenue Committee, said with federal budget cuts looming and predictions of economic slowdowns building, said Nebraska’s economic future isn’t clear.

“We are a long way from the end of the economic crisis,” Schumacher said.

One of the factor in UNL’s indicator — a survey of 500 businesses in Nebraska — predicts a downturn in the near future.

“In the last five months, businesses are mostly negative, planning to contract instead of grow,” Thompson said.

That surprised Thompson because there is nothing in the data to indicate the next five months will hold anything negative, just moderate growth. Thompson said the opinion on outlooks of the businesses surveyed and real world data has made the indicator more accurate.

As for Thompson’s take on the economy, he said it’s hard to know what will happen at this point.

“The U.S. economy needs to renovate itself, and find it’s new engine of growth,” Thompson said.

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