jason henderson vice president and branch executive ...(percent change 2011:q1 to 2012:q1) source:...

Jason Henderson Vice President and Branch Executive Federal Reserve Bank of Kansas City – Omaha Branch www.kansascityfed.org/omaha September 2012

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

Federal Reserve Bank of Kansas City – Omaha Branch Regional, Public, Community Affairs Division www.kansascityfed.org/omaha

Rank State Growth

1 North Dakota 9.64

2 Montana 4.79

3 Washington 4.36

4 Utah 4.35

5 Alaska 4.34

6 Oklahoma 4.31

7 Nebraska 4.30

8 Texas 4.29

9 Indiana 4.22

10 Michigan 4.09

United States 3.29

State Personal Income Growth (Percent change 2011:Q1 to 2012:Q1)

Source: Bureau of Economic Analysis

Source: Bureau of Labor Statistics

Unemployment Rates by County (August 2011 – July 2012 Average)

Second Lowest Unemployment Rate 4.0%

Second Fastest Income Growth from 2011:Q4 to 2012:Q2 at 3.61%


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1970 1980 1990 2000 2010

U.S. (Left Scale)

Nebraska (Right Scale)

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1977 1987 1997 2007

Nonirrigated Cropland

Irrigated Cropland

U.S. and Nebraska Farm Incomes

Billions (Constant 2005 dollars)

Calculations based on USDA and BEA data Source: Federal Reserve Bank of Kansas City

Nebraska Farmland Value Gains

Percent change from year ago


Nebraska’s Manufacturers Tap Global Markets.

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2008:Q1 2009:Q1 2010:Q1 2011:Q1 2012:Q1

Non-durables

Durables

Source: WISERTrade

Billion Dollars

Nebraska Manufactured Exports

Fueled by durable goods, primarily machinery.

Nebraska Manufacturing Growth Annual job growth 2011: 1.4 percent

2012 YTD: 0.8 percent

Annual wage growth 2011: 3.9 percent

2012 YTD: 0.2 percent

Source: BEA and BLS


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80 Single-family building permits (Left Scale)

Home Price Index (Right Scale)

Source: Census Bureau and FHFA


Nebraska Residential Real Estate

During 2012:Q1, mild winter weather sparked a

construction rebound.

2012 Construction Growth Annual earnings growth

Q2: 6.4 percent

Annual job growth Q2: 7.7 percent Q3: 10.8 percent

Source: BEA and BLS Note: Industry employment data from BLS based on mining and construction, where construction jobs account for most of the sectors jobs.


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2010 2011 2012:Q1 2012:Q2

Compensation

Jobs

Solid job and income gains in … •Retail trade •Leisure and hospitality services •Health services •Education services •Personal services •Professional and business services •Wholesale trade

After a strong 2011, job contractions in … •Information and financial services •Transportation and warehousing

Annual percent change

Source: Bureau of Economic Analysis and Bureau of Labor Statistics

Nebraska Private Service-Producing Growth


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Total Federal State Local

U.S.

NE


Source: Bureau of Labor Statistics Note: Year-to-Date data through August

Government Job Growth, 2012

Government: 20% of Nebraska’s

total compensation

17% of Nebraska’s nonfarm jobs.


Calculations based on quarterly BEA data

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Recessions First 6 Months

First Year First 2 Years

U.S.

Nebraska

Average annual percent change

U.S. and Nebraska Real Per Capita Income Growth (1949 to 2012) Since World War II,

Nebraska’s economy …

1) Holds up better during recessions

2) Expands quicker in the recovery

3) Lags as the expansion matures

Expansions

Since the 1970s Lincoln’s economy held up better

during recessions than other U.S. metro areas.


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1970 1975 1980 1985 1990 1995 2000 2005 2010

Real Net Farm Income (Left Scale)

Real 1-year Treasury Yield (Right Scale)

Source: USDA and Federal Reserve

Billions (2005 constant dollars) Real interest rate

Real Net Farm Income and Interest Rates •Commodity prices are not as sticky and monetary policy has quicker impacts. (Source: Saghaian et. al 2002)

•Lower interest rates are correlated with higher farm incomes.

•Lower interest rates place downward pressure on the dollar.

•A weaker dollar stimulates exports.

•Strong exports boost farm incomes. (Source: Chambers and Just, 1982)

•Rising farmland values create a major wealth effect in Nebraska.


How Sustainable is the Farm Boom?


Will world populations and income rise as expected?

Will global farm demand create its own supply?

What is the future path of interest rates and cap rates?

Can Agriculture Feed and Fuel the World?

Are the necessary resources available?

How high will production costs rise?


“If the reason that the price

is high today is only

because investors believe

that the selling price will be

high tomorrow –

when “fundamental”

factors do not seem to

justify such a price – then a

bubble exists.”

(Stiglitz)

Source: Gloy (2012)

Definition of a “Bubble”


A 1980s income shock would require Crop revenue to fall by 21.4%

Value of farm production to fall 15.7%

Prices would need to drop to … Corn - $3.49 per bushel

Wheat – $3.96 per bushel

Soybeans - $9.00 per bushel

A 1980s scenario: a low probability event that has a really bad outcome

Source: Featherstone (2012)


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Debt to Asset Ratio Range (%)

1979 2010

Kansas Farmer Debt Levels

Percent of farmers

Source: Featherstone (2012)

KS Farm Management Farms: Average Debt-to-Asset Ratio

1979 – 24.6%

2010 – 26.8%

Debt-to-Asset Ratio >40%

1979 – 19.4%

2010 – 25.6%

Debt-to-Asset Ratio >70%

1979 – 1.3%

2010 – 5.9%


Can rural Nebraska build new sources of growth?


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57.6

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Lancaster County, NE Dane County, WI

Net migration

Natural Increase

Components of Population Change 2000 to 2009

Percent of population change

Source: Census Bureau

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450

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600

15 to 19 20 to 24 25 to 29 30 to 34 35 to 39 40 to 44

Late boomers born from 1960 to 1964

Gen X born from 1965 to 1969

Gen X born from 1970 to 1974

Thousands

Population in Rural Counties of Tenth Federal Reserve District

Age Source: Henderson (2009)

Leave

Learn

Return

How do rural communities get their kids to come home?

How does Lincoln get college students to stay after graduation?


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55-64 year-olds 25-34 year-olds

U.S.

S. Korea

Educational Attainment by Age Group

Percent of population in 2007

Source: OECD, Brookings Institution

Secondary Education

The educational advantage over global competition has disappeared.

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2005 2006 2007 2008 2009 2010

Nebraska High School Educational Attainment

Percent of population

45 to 64 years of age



Source: Census Bureau

CAUTION

Nebraska has stronger educational attainment of AA degrees or higher.

Why are Nebraska’s children struggling to graduate?

CAUTION


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1985-1990 1980-1990 1970-1990

Marginal impacts on employment growth 1991 to 2001

Impacts of Proprietor Growth on

Employment Growth

Calculations based on Henderson and Weiler (2010), “Entrepreneurs and Job Growth:

Probing the Boundaries of Time and Space,” Economic Development Quarterly

The Benefits of Entrepreneurship Grow Over Time

•Communities, states, and nations with more entrepreneurial activity have stronger economic growth.

•The benefits of entrepreneurship grow over time.

•Entrepreneurship is creative destruction – the reallocation of resources to their highest and best use.


Fundamental Questions Who will be the champions for change?

Who will facilitate innovation in key institutions? What constituencies will support innovative leaders and institutions?

Rural Development Strategy Typologies

Traditional Nontraditional

Industrial recruitment Small Business Entrepreneurship

Regional Center Cluster-based

Bedroom Community Innovation and Knowledge

Amenity-based Creative Class

Source: Pender, Marre, and Reeder. (2012) “Rural Wealth Creation: Concepts, Strategies, and Measures. Economic Research Service, USDA. http://www.ers.usda.gov/Publications/ERR131/ERR131.pdf

Economic development strategies are shifting in the 21st century. CAUTION CAUTION


Agriculture, manufacturing, and construction are leading stronger economic gains in Nebraska.

Historically, as economic recoveries strengthen, Nebraska’s economy losses some steam.

How sustainable is the farm boom?

If farm fortunes turn, what are the engines of growth?

How will Nebraska attract and retain the people needed to start new businesses, fill new jobs, and

create a new vision for the Nebraska economy?

jason henderson vice president and branch executive ...(percent change 2011:q1 to 2012:q1) source:...

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