2012 Economic Outlook - The City That Works

2012 ECONOMIC OUTLOOK

THE CITY THAT WORKS

2012 Economic Outlook Greater Omaha Chamber members, business leaders and local economists are more optimistic about local and regional growth prospects than they are about the outlook for the national economy, fitting for a city and region that works. The following pages contain results from our annual economic outlook member survey and commentary regarding national and local economic performance, commercial activity, labor market conditions and investment activity.

Greater Omaha and the state of Nebraska continue to garner national recognition. Recently, Kiplinger named Omaha number 1 on its “10 Best Value Cities for 2011.”

The Brookings Institution included Omaha in its 20 strongest performing metros list. Greater Omaha came in at number 3 on Yahoo! Finance’s “Places with Good Jobs and Cheap Housing” list. As for the state of Nebraska, Pollina Corporate Real Estate ranked Nebraska number 5 on its “Top Pro-Business States for 2011.” Business Facilities magazine ranked Nebraska number 2 on its “Employment Leaders” list. Finally, CNBC ranked Nebraska number 10 on its “Top States for Business” list.

Well known are the headwinds: weak housing sector; slow job growth; financial turmoil in Europe and increased regulatory costs. Still, the economy has grown for nine consecutive quarters at an average annual growth rate of 2.5 percent. Disappointing, yes, but we are in a recovery not a recession. Business and consumer spending continue to contribute to growth in the economy. Business expenditures on equipment and software have grown at a 13.1 percent average annual rate (inflation-adjusted) for the last nine quarters and have surpassed its pre-downturn peak; a more rapid depreciation schedule provides a tailwind, stimulating business expenditures like a tax cut.

Over the same time period, inflation-adjusted consumer spending has grown at a 2.5 percent average annual rate.

Business expenditures grew at a 16.3 percent rate in the third quarter and sales excluding inventories grew at a 3.6 percent rate. The combination of the drawdown in inventories and solid sales activity could lead to above consensus growth over the next few quarters. Finally, we should note that residential construction has made a positive, albeit modest, contribution to Gross Domestic Product growth during three of the past four quarters.

For other opinions, we asked five local economists to offer their comments on the economic outlook for 2012.

ECONOMIST VIEWS

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Christopher S. Decker While the end of 2010 and the start of 2011 showed some promising signs of sustained recovery, by the middle of the year it was clear that economic growth had slowed to a crawl nationally. There are several reasons for this.

First, despite some recent evidence indicating an increase

in existing home sales and historically low interest rates, the housing sector remains depressed. Construction starts are very low and home prices are still declining in many regions of the country. Second, government tax revenues are still below pre-recession levels placing increased pressure on state and local government budgets, prompting layoffs and hiring freezes. Third, the tsunami and earthquake in Japan in March created some substantial supply disruptions that likely impacted employment in the manufacturing and distribution sectors.

Fourth, while trending downward slowly, oil price volatility increases economic uncertainty on the part of consumers.

Fifth, the peculiar debt ceiling debate generated additional uncertainty regarding the overall consumer perception on the state of the economy. And sixth, concerns that the European debt crisis could deepen and spread, prompting a severe recession there and thus slowing U.S. exports has also caused some hesitancy on the part of consumers to spend and businesses to invest and hire workers. I suspect that for 2011 real GDP will grow a very modest 1 percent over 2010 levels.

That said, I anticipate modest improvement in 2012 for the U.S. economy for a few reasons. First, productivity remains quite high and I think if we have a particularly healthy holiday season this year that that momentum may prompt some limited acceleration in hiring. Second, the effects of the supply disruptions from Japan will dissipate. Mortgage rates are historically low and there are some “good deals” out there so I think ultimately we’ll see some improvement in housing, certainly in terms of sales of existing homes.

Third, increases in refinancing will have an impact on disposable income for many families, which will stimulate some spending. Finally, it’s possible we may get some infrastructure spending (albeit small) and some payroll tax relief (albeit temporary) that could have a marginal impact on growth.

Overall, then, I anticipate a modest 2 percent increase in real GDP in 2012. I suspect that unemployment will remain uncomfortably high, however. We might see the rate tick down to the 8.5 percent range by the end of 2012 but it’ll be slow-going here.

Inflation may be a concern going forward. Commodity and oil prices, and Fed policies designed to hold longterm interest rates down tend to build inflation into the economy. However, slow, steady growth, with only modest job gains, will keep prices in check. I expect inflation to average about 3 percent in 2012.

Nebraska’s economy has performed reasonably well.

Farm incomes are at historic highs, prompted by strong commodity prices and increased land values. While the state’s unemployment rate remains relatively high (averaging 4.7 percent in 2010, up from 3.0 percent in 2008), it is showing signs of decline. For the first

eight months of 2011, the state’s unemployment rate is averaging 4.3 percent, with steady declines posted each month. Employment has been relatively strong this year in transportation and utilities (4.1 percent growth in 2011) and durable goods manufacturing (4 percent). Much of this is linked to growth in the state’s agricultural economy.

Overall, nonfarm employment growth in the state will be about 1.2 percent in 2012, led by transportation and utilities, durable goods, and services.

The city of Omaha also appears to be faring reasonably well. Omaha benefits from a stable labor force and a diversified economy comprised of many sectors, such as health services and education, which tend to be less cyclical. As a result, the city tends to weather economic recessions reasonably well. The city’s unemployment rate averaged 5.2 percent in 2010, up from the pre-recession level of 3.3 percent in 2008. Currently, the average unemployment rate for the first eight months of 2011 is 5.0 percent. Indeed, the employment situation is looking fairly good this year. In 2010, according to the Bureau of Labor Statistics, the Omaha MSA lost about 2,800 jobs. So far, with data through August 2011, Omaha has added 8,450 since August 2010. I expect the city to continue to add jobs through the end of the year.

Ernie P. Goss It is clear from our three monthly surveys conducted at Creighton University that the economies of mid-America, Mountain States and rural Main Street are growing at a pace significantly above that of the nation. As a result

of very healthy farm income, a robust energy sector and relatively stable housing markets, states that we survey each month, Colorado, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, Oklahoma, South Dakota, Utah and Wyoming are adding jobs at a pace significantly above that of the rest of the nation. However, leading economic indicators from our surveys indicate that the gap between the agriculturally and energy dominant areas and the rest of the nation will narrow as farm and energy commodity prices are restrained by a somewhat stronger dollar and slower global economic growth. Assuming a Greek sovereign debt default, which I expect to happen before the end of 2011, the value of the dollar will rise and global economic growth will slow pushing farm and energy commodity prices lower. While it will not be a recession, it will slow growth in Creighton’s survey states and the overall national economy for the first half of 2012. I anticipate annualized gross domestic product growth for the nation and the Creighton regions to be between 1.0 percent and 1.5 percent, or less than half of what is needed to lower unemployment rates below 8.5 percent and put the economy on a sustained expansion path.

Jason R. Henderson After tepid growth in the first half of 2011, U.S. economic gains strengthened heading into 2012. Federal Reserve projections point to stronger economic gains reaching more than 3 percent annually in the coming year. U.S. consumers will continue to shape the economic recovery.

In 2011, another soft spot in the U.S. economy emerged as higher food and fuel prices clipped consumer spending,

ECONOMIST CONTRIBUTORS

The 2012 Economic Outlook publication is sponsored by: It was distributed at the 2011 Economic Outlook Luncheon that featured Joel Kotkin, author and internationally-recognized authority on global, economic, political and social trends. The luncheon was sponsored by:

Christopher S. Decker, Ph.D., Lucas Diamond associate professor, Department of Economics and Real Estate, University of Nebraska at Omaha Jerry Deichert, director and senior research associate, Center for Public Affairs Research, University of Nebraska at Omaha Ernie P. Goss, Ph.D., Jack A. MacAllister Chair in Regional Economics, professor of economics, Creighton University Jason R. Henderson, Ph.D., vice president and Omaha Branch Executive, Federal Reserve Bank of Kansas City Ken Lemke, Ph.D., economist, Nebraska Public Power District Scott Strain, senior director – research, Greater Omaha Chamber Eric Thompson, Ph.D., director, Bureau of Business Research, University of Nebraska – Lincoln

BUSINESS LEADER CONTRIBUTORS

Cover photo: TD Ameritrade headquarters near 114th Street and West Dodge Road.

Photo by Scott Drickey, Minorwhite Studios

Harlan O. Falk, senior vice president, Great Western Bank W. Gary Gates, president and CEO, Omaha Public Power District Kirk L. Kellner, regional president, Wells Fargo Kansas-Nebraska Region Jim Krieger, vice chairman and CFO, Gallup Steve Martin, president and CEO, Blue Cross and Blue Shield of Nebraska Harold M. Maurer, M.D., chancellor, University of Nebraska Medical Center Dan Neary, chairman and CEO, Mutual of Omaha James R. Young, chairman, president and CEO, Union Pacific Corporation 3

and U.S. housing markets languished with a large supply of homes on the market, lower home prices, and anemic building activity. By the end of the year, U.S. consumers fought through higher prices, and modest income gains energized additional spending on big-ticket items such as automobiles. With rising input costs, firms limited new hires and instead searched for additional productivity gains by boosting investments in equipment. Stronger global economic gains underpinned U.S. export and manufacturing activity. Still, sovereign debt concerns remain a lingering issue, and federal, state and local governments struggled to deal with mounting debt obligations. Persistently high unemployment rates could restrain future economic gains, but potentially curb future wage increases and dampen inflationary pressures.

The Nebraska economy could leverage elevated commodity prices into another year of robust economic gains. Fueled by rising commodity prices, the agricultural sector enjoyed another banner year, and booming farm incomes quickly translated into surging farmland values, major investments in farm equipment and machinery and robust retail spending on Main Street. Nebraska’s manufacturers tapped global markets and boosted exports 20 percent above year-ago levels heading into 2012, led by processed food and machinery exports. Stronger job gains in the manufacturing and service sectors kept Nebraska’s unemployment rate near national lows and could promote additional income gains and bolster consumer spending during the next year. Still, Nebraska’s housing markets remain sluggish and commercial real estate activity has slowed as a series of public construction projects were completed.

Ken Lemke During the first nine months of 2011, growth of the U.S. economy was restrained by: • supply chain disruptions due to the massive destruction caused by the earthquake and tsunami in Japan • rapid increases in oil prices caused by political unrest in Africa and the Middle East • turmoil in the financial markets because of concern about possible default by one or more eurozone governments • a downgrade of the credit rating of U.S. government securities by Standard & Poor’s following protracted efforts to increase the debt ceiling.

U.S. political gridlock and turmoil in the eurozone are likely to continue throughout much of 2012, but with lessening impacts on the U.S. economy. Manufacturing, especially automobile manufacturing, continues to do surprisingly well and natural resource based industries such as energy and agriculture continue to be strong performers. Slow growth in the construction and housing industries will continue to be drags on the economy throughout 2012.

Growth in GDP will likely exceed 3 percent by the third quarter of 2012.

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The economic outlook for Nebraska and the region remains positive. However, farm income is very likely to see a drop off from the record level posted in 2011. The expected loss of a major ethanol subsidy at the end of 2012 and lower oil prices make it unlikely crop producers will be able to sustain the record income levels of 2011. Increasing demand for commodities from Asia should offset much of the negative impacts from lower ethanol subsidies and help keep farm income at higher than average levels. The non-agriculture based sectors of the region’s economy will benefit from a strengthening recovery in the national economy.

Eric Thompson At least in a relative sense, Omaha has been on a roll.

The city entered the recent recession late, exited on time, and has experienced faster economic growth since the recession ended. Employment is beginning to approach its pre-recession peak. These secular trends will continue for at least the next two years as the city retains a number of advantages over its peers throughout the country.

While the housing market is weak, price declines have been much more modest in Omaha. Omaha also has a much lower unemployment rate than most cities of its size. Both of these conditions suggest that the finances of residents’ households will be relatively strong, and that their consumer spending can grow solidly. Apart from this, several major Omaha industries, such as insurance, fared better in the recession than most industries. The metro area also benefits from Nebraska’s robust agricultural sector. All of these factors ensure that economic growth will be solid in Omaha over the next few years even as it is anemic nationwide.

Around the nation, consumption growth is limited by falling housing prices and high unemployment rates. The sovereign debt crises and bank mismanagement in Europe has created a threat to that continent’s growth, which will ultimately impact our own economy by hurting net exports.

Our economy also will be hindered by a number of our own policy decisions, such as rapid growth in regulation in recent years, and rapid increases in public spending over the last decade. The housing sector remains mired in a deep recession. All of this places our national economy in something of a race involving manufacturing and housing.

If manufacturing can keep growing until housing finally begins to recover, we can sustain our modest economic recovery. However, if manufacturing growth stalls first, we’ll face the probability of a new recession.

BUSINESS LEADER VIEWS Greater Omaha’s business leaders see stronger growth for Greater Omaha and the state of Nebraska than the U.S. economy in 2012. Economic diversity, a strong agricultural economy and low unemployment were among the reasons the business leaders mentioned when assessing Omaha’s growth prospects compared with the nation. The leaders cited uncertainty regarding the future costs of doing

business, increasing regulations, leadership in Washington and the European debt crisis as factors that will likely have a dampening affect on economic growth at the national level.

Dan Neary, chairman and CEO, Mutual of Omaha, states, “While uncertainty over the economy between both consumers and business will constrain growth on the national level in 2012, Omaha continues to defy the national trend with positive growth and good levels of capital investment. Omaha’s well-diversified economy, along with its reliable, educated workforce and responsible corporate leadership helped mitigate the impact of national economic trends and create an environment for continued stable economic growth.”

W. Gary Gates, president and CEO, Omaha Public Power District, said, “Uncertainty in the future costs of doing business, due to health care reform, increasing regulation and murky consumer confidence, has kept many firms from adding new facilities and new employees. Currently, many corporations, while reporting healthy earnings and profits, continue to ‘sit on a pile of cash.’ Growth on the national level will be nearly flat at best. Nebraska will fare slightly better, due to a very healthy agricultural economy and an unemployment rate that is the envy of most other states.”

Kirk L. Kellner, regional president, Wells Fargo KansasNebraska Region, offers the following, “As a country, we seem to be stuck in the middle right now – neither recession nor boom. The outlook is for moderate growth fueled by a lot of little gains in such areas as consumer spending and equipment and software spending. The good news for Omaha is that we seem to be a lot better off than the rest of the country. Our unemployment rate is roughly half that of the national rate. While businesses and consumers are cautious, the local economy remains strong relative to the rest of the country.”

James R. Young, chairman, president and CEO, Union Pacific Corporation, said, “Consumption is the life blood of the U.S. economy and it has been slow to recover.

According to Global Insight’s September 2011 forecast, the outlook for 2012 is actually slower growth in consumption than we have seen this year, and the reason is persistently high unemployment — projected to increase from 9.1 percent this year to 9.2 percent in 2012. This is reflected in the fact that GDP growth looks to be less than 2 percent for the second year in a row, and industrial production could actually be down.”

Young adds, “Our business outlook also suggests continued slow economic growth, especially in those segments that are clearly driven by consumption – intermodal imports, automobile sales, and housing. There are, however, some positive signs that suggest consumption may be strengthening as we look to the end of 2012 and beyond.

Consumer sentiment appears to be improving, albeit still well below pre-recession levels.”

Steve Martin, president and CEO, Blue Cross and Blue Shield of Nebraska, remains optimistic about the regional economy, noting, “I believe we will see economic conditions that are a relative mirror to 2011. The low housing debt burden, a stable housing market, along with a strong mix of agriculture production, insurance and financial services, specialty engineering, architecture, construction and manufacturing sectors will favor our area markets.”

Martin is not as sanguine about the national economy and the potential for slower national growth to impact Omaha.

Martin said, “I am much less optimistic regarding the national and global economic conditions. The uncertainty stemming from conflicted national leadership and the growing debt crisis in European markets are beginning to drag on our more robust local economy. I am concerned that we will begin to feel this drag more significantly in our local markets as we approach the November 2012 elections.”

Likewise, Harlan O. Falk, senior vice president, Great Western Bank expressed the following concerns, “The people have a lack of confidence in our policy makers, and it is up to the leadership of the United States to get together on a plan. Unfortunately, it is the global economy that is having a critical affect on the turn around.”

Falk is more upbeat regarding the local economy, saying, “The local economy should continue to be stable. We do not have the unemployment and housing crisis that other cities and parts of the country have. We are fortunate to have a diverse economy consisting of agriculture, manufacturing, financial, insurance, etc. The Greater Omaha area should continue to see new relocation interest from around the country because of incentives, work ethic, location and the aggressiveness of the Greater Omaha Chamber and business leaders in the area.”

MEMBERSHIP VIEW

What are your expectations of the economic performance for 2012 compared to 2011 for the national, state and local economies? [respondents: U.S. = 205; State = 201; Omaha = 200] Chamber members view Omaha’s projected economic activity in 2012 more favorably than they view growth prospects at either the state or national levels. Forty-six percent of survey respondents expect stronger growth in the coming year for Omaha. Only nine percent of respondents expect slower growth in the year ahead. At the state level, 31 percent of respondents expect stronger growth in 2012, with 12 percent expecting slower growth during the coming year. Eighteen percent of respondents anticipate stronger growth at the national level; 32 percent of the respondents expect slower growth for the national economy in 2012.

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Commercial Activity Despite low consumer confidence readings, retail and food services sales in September were up 7.9 percent from September 2010. During the same time period, sales, excluding automobile sales, are up 7.8 percent and automobile and other motor vehicles dealers sales are up 8.8 percent. Also, the Federal Reserve estimates the percentage of disposable household income devoted to monthly debt service payments is at a level last seen in the early 1990s.

Locally, our proxy for retail sales is net taxable sales.

This barometer of consumer spending is on pace to end the year up 3 percent to 4 percent compared to 2010.

Improving labor market conditions and a stable housing market should provide the foundation for continued sales growth in 2012.

Companies recognize the favorable environment in Omaha and have acted. This year, we have seen 332 announcements from companies that plan to open or expand service and trade operations in the Omaha metro area. Local economists’ comments are below.

ECONOMIST VIEWS

Christopher S. Decker Net taxable sales in Omaha grew in 2010 by about 3.0 percent. For the first six months of 2011, net taxable sales are up 3.7 percent relative to the first six months of 2010.

Net taxable sales have increased in every month of 2011 through July and, given increases in farm income, steady local employment growth, improving consumer sentiment, and an anticipated active holiday buying season, I expect continued steady growth in retail sales through the end of the year. While large ticket items, such as cars and major home appliances, may not fare as well, I would expect electronic device (high definition TVs, iPads, iPhones, etc.) sales to continue at a healthy clip. I expect between a 3 percent to 4 percent increase over 2010 net taxable sales levels and, assuming no retrenchment in the national economy, a 3 percent to 3.5 percent increase in net taxable sales in 2012.

Ernie P. Goss The housing market continues to batter and weaken the U.S. consumer. However, I expect the U.S. housing market to stabilize by the end of 2011. Thus, the negatives that we are now experiencing from housing will attenuate in the first half of 2012 even as the housing market “moves sideways.” Despite this modest good news, consumer spending, as a result of unemployment rates above 8.5 percent for the first half of 2012, will be restrained to grow at an annualized rate between 2 percent and 3 percent.

For the Creighton survey states, consumer spending will grow at a healthier annualized rate of 4 percent in the first

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half of 2012. Holiday buying for 2011 outside of Creighton’s survey regions will grow at a modest 4 percent to 5 percent over last year’s season. For the nation, holiday buying will grow by a weak 2 percent to 3 percent over the same period for 2010.

Jason R. Henderson In 2012, consumer spending will hinge on job and wage gains. Nationally, modest job and income gains in 2011 allowed consumers to trim elevated debt levels and boost spending on higher priced consumer products. With projected job and income gains and tight labor markets, Nebraska’s retailers could enjoy stronger consumer spending over the next year. The largest gains may emerge in rural communities as booming farm incomes stimulate Main Street spending.

Ken Lemke National consumer spending on goods has begun to rebound. However, consumer spending on services, especially travel and hospitality services, remains weak. This dichotomy is likely to continue through 2012 as national employment and income growth will remain weak. Locally, the strong farm economy and an improving national economy should generate solid growth in consumer spending through next year.

BUSINESS LEADER VIEWS At this stage of the recovery, the focus remains on the consumer. Greater Omaha business leaders view the consumer sector with some caution; however, they are more optimistic about the local consumer sector.

James R. Young, chairman, president and CEO, Union Pacific Corporation, offers the following, “Global Insight’s current outlook for 2012 is that unemployment will remain high, personal income growth will be well below prerecession levels, and disposable income will grow, but very slowly. All this puts a damper on retail sales, certainly at the national level. The vast majority of the products in our intermodal containers are consumer goods. The international or import side of that business is down this year versus last, and we have not seen much of a peak shipping season to build inventory for holiday sales.

Next year, we are not projecting any significant growth in our consumer-driven businesses. This confirms what the economists are telling us about this year and next – the consumer will remain cautious and no one is projecting a rebound of any consequence in retail sales.

“This may turn out to be another one of those areas where Omaha moves contrary to national trends in a positive sense. Unemployment here remains relatively low, our city and state are not facing financial collapse, and there

appears to be a cautious optimism about the future.

This bodes well for local retail sales.”

Net Taxable Sales ($s)

Nebraska Counties in the Omaha MSA*

Kirk L. Kellner, regional president, Wells Fargo Kansas-Nebraska Region, notes, “Consumers remain worried about jobs and the overall economy. That’s likely to continue to weigh on retail sales going forward. Omaha consumers certainly have been impacted by the gloomy economic headlines, yet have more reason for optimism as the state has not been hit as hard by the foreclosure and unemployment woes seen elsewhere in the country.”

9 8 7 6 (Billions)

W. Gary Gates, president and CEO, Omaha Public Power District, expects retail activity to remain sluggish. Gates sees support for the local consumer stating, “Manufacturers, retailers and suppliers catering to the agricultural sector will see another good year in 2012.”

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5 4 3 2 1

Harlan O. Falk, senior vice president, Great Western Bank, notes, “Retail sales in Omaha remain somewhat soft depending on the product. Holiday sales should remain stable compared to last year, with a slight upturn. Holiday sales will begin early and will see deep discounts on selected products.

The large national chains of discount stores should do well during the holiday season.”

0

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Nebraska Department of Revenue *Cass, Douglas, Sarpy, Saunders and Washington Counties

Net Taxable Motor Vehicle Sales ($s) Nebraska Counties in the Omaha MSA*

1.25

MEMBERSHIP VIEW

Looking ahead to next year (2012), how do you anticipate your business will perform compared to this year? [respondents = 190]

0.75 (Billions)

Fifty-five percent of the respondents expect stronger sales in 2012, with 37 percent of respondents expecting sales at about the same level as this year. A modest 7 percent of respondents anticipate a decline in sales volume next year. As for how businesses are faring thus far in 2011, 50 percent of respondents have posted increased sales revenue compared to 2010. Twenty of the respondents report lower sales activity compared to year-ago levels. Thirty percent of respondents anticipate sales volume at the same level as last year.

1.00

0.50

0.25

0.00

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Source: Nebraska Department of Revenue *Cass, Douglas, Sarpy, Saunders and Washington Counties

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Photo by Scott Drickey, Minorwhite Studios

Workforce A well-diversified economy has helped local labor market conditions and jobs are in the pipeline. Year to date, companies in Greater Omaha have announced plans to add over 4,900 new jobs; the Greater Omaha Economic Development Partnership has landed 41projects, representing over 2,700 jobs at build-out.

The Nebraska Advantage business incentive program continues to encourage job growth in Nebraska. From January 2006 to September 2011, 269 companies have applied to the program. At build-out these companies could hire over 19,000 workers. Just under half of these companies are in the Greater Omaha area.

ECONOMIST VIEWS

Christopher S. Decker Nebraska’s economy has performed reasonably well.

Farm incomes are at historic highs, prompted by strong commodity prices and increased land values. While the state’s unemployment rate remains relatively high (averaging 4.7 percent in 2010, up from 3.0 percent in 2008), it is showing signs of decline. For the first eight months of 2011, the state’s unemployment rate is averaging 4.3 percent, with steady declines posted each month. Employment has been relatively strong this year in transportation and utilities (4.1 percent growth in 2011) and durable goods manufacturing (4 percent). Much of this is linked to growth in the state’s agricultural economy.

Unemployment Rate: Omaha vs. U.S. 10

Total Non-Farm Employment: Omaha vs. U.S.

Omaha U.S.

110

105 (2003=100)

(Percent)

8

6

4

2

100

95

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: U.S. Bureau of Labor Statistics

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Omaha U.S.

90

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: U.S. Bureau of Labor Statistics

Construction site for TD Ameritrade’s new headquarters near 114th Street and West Dodge Road.

Overall, nonfarm employment growth in the state will be about 1.2 percent in 2012, led by transportation and utilities, durable goods and services.

The city of Omaha also appears to be faring reasonably well. Omaha benefits from a stable labor force and a diversified economy comprised of many sectors, such as health services and education, which tend to be less cyclical. As a result, the city tends to weather economic recessions reasonably well. The city’s unemployment rate averaged 5.2 percent in 2010, up from the pre-recession level of 3.3 percent in 2008. Currently, the average unemployment rate for the first eight months of 2011 is 5.0 percent and, much like the state, the rate has ticked down

every month. Indeed the employment situation is looking fairly good. In 2010, according to the Bureau of Labor Statistics, the Omaha MSA lost about 2,800 jobs in 2010.

So far, with data through August 2011, Omaha has added 8,450 since August 2010. I expect the city to continue to add jobs through the end of the year, particularly in the short term with holiday hiring at the retail level. Continued strength in the state’s farm sector, as well as modest recovery nationally, will work in Omaha’s favor in 2012.

I would expect the unemployment rate for the city to average between 3.5 percent and 4.0 percent.

Financial Activities: Omaha vs. U.S. 110

Health Care and Social Assistance: Omaha vs. U.S. 125

Omaha U.S.

120 115 (2003=100)

105 (2003=100)

Omaha U.S.

100

110 105 100 95

95

90

90

85

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: U.S. Bureau of Labor Statistics

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Source: U.S. Bureau of Labor Statistics

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Ernie P. Goss The global economic slowdown, and European Union financial problems will slow job growth nationally, regionally and locally. The national unemployment rate will remain above 8.5 percent for the first half of 2012 with the local and regional jobless rates about half the national rates.

Jason R. Henderson Strong job gains could continue to keep Nebraska’s unemployment rate near national lows. Over the past year, employment gains rose nearly 2 percent, almost double the national rate. Nebraska’s unemployment rate hovered near 4 percent, the second lowest rate in the nation.

Business owners reported a dearth of high-skilled workers, especially IT specialists, as they search for additional productivity gains and labor efficiency. Heading into 2012, personal and business service job growth strengthened, and robust exports could underpin additional factory jobs in the year ahead. In contrast, tight budgets at federal, state, and local levels could limit government job gains.

Ken Lemke The national and regional outlook for highly-skilled workers will remain strong for the foreseeable future. For workers and the unemployed without the technical skills needed by businesses, the outlook remains very poor. Nebraska’s relatively strong economy will generate sufficient demand to keep the state’s unemployment rate at or slightly below 4 percent in 2012.

Eric Thompson Modest national growth should translate into solid, if not spectacular, economic growth in the Omaha metropolitan area. Employment should grow by between 8,000 and 10,000 jobs in the Omaha metropolitan area between 2011 and 2012, implying that employment will return to pre-recession levels during 2012. Even manufacturing and construction will add employment in 2012, though growth will be quite modest. Overall job growth will be sufficient to drive the metropolitan area unemployment rate down to around 4 percent for 2012 as a whole. Especially in a relative sense, the economy will seem quite solid in Omaha in 2012.

BUSINESS LEADER VIEWS To Greater Omaha’s business leaders, the region’s workforce is one of our competitive advantages. The strong regional education system continues to provide hard-working, skilled and dedicated workers to area employers.

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Kirk L. Kellner, regional president, Wells Fargo KansasNebraska Region, states, “Omaha’s workforce is one of the best parts about doing business here. We can always rely on seeing a strong batch of candidates when we look to fill positions. We’re always impressed by the skills, creativity and work ethic that our Omaha team members bring to the job. The quality of the Omaha workforce is a tremendous asset in this community.”

Dan Neary, chairman and CEO, Mutual of Omaha, believes, “Omaha’s excellent educational system – from preschool to the Ph.D. level – combined with the strength of the area’s workforce give Omaha a strong competitive advantage in economic development activities.

Hardworking, dedicated individuals are available for most positions and our fine educational system and excellent universities help ensure that we have a qualified labor pool. With ample recreational and cultural opportunities, Omaha’s excellent quality of life and relative economic stability make our city attractive to professional and executive talent.”

James R. Young, chairman, president and CEO, Union Pacific Corporation, offers the following, “I have said it before, but it bears repeating. Omaha’s workforce is outstanding in terms of education, work ethic and commitment. I offer two proof statements to that effect.

First, we hire here, consistently and in large numbers. This year we will hire around 550 people in Nebraska, with more than 400 of those being in Omaha. Next year our projected hiring and Omaha’s portion of that will be about the same. Second, our Nebraska/Omaha hires do extremely well in our company. You will find them at all levels of management, including our most senior executives.”

Harold M. Maurer, M.D., chancellor of the University of Nebraska Medical Center, states, “The quality of Omaha’s workforce continues to be excellent, although we do recruit from across the country for specialty faculty and staff. We have found the workforce in Omaha to be hard working, reliable, accountable and dedicated.”

Steve Martin, president and CEO, Blue Cross and Blue Shield of Nebraska, believes the region’s workforce is up for the challenges ahead. Martin states, “Given the changes that will result from health reform (in the current or some revised form) we at Blue Cross and Blue Shield of Nebraska expect to continue to seek new talent to bring into our workforce. We believe that we can attract that talent from local educational institutions.”

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For W. Gary Gates, president and CEO, Omaha Public Power District, the region’s workforce can be characterized by one word – “excellent.” Gates continues, “We have smart, skilled people in the Omaha area and they still retain the Midwest work ethic that has helped local companies grow and prosper. People in Omaha work hard and the low overall cost of living helps us retain that talent. The result for businesses is access to good employees at a high value-to-cost ratio. The workforce is one of our greatest strengths.”

Jim Krieger, vice-chairman and CFO, Gallup, believes the region’s workforce is adaptive and flexible. Krieger sees the local workforce as a critical element in helping local companies to align “our workplaces around helping our customers achieve success, resulting in superior value creation. Omaha can be known for this locally and around the world.”

©2011 Methodist Health System

MEMBERSHIP VIEW

Looking ahead to next year (2012), how do you anticipate your business will perform compared to this year? [respondents = 191] Thirty-two percent of respondents expect to increase employment levels in 2012 compared to 2011, with 60 percent of respondents expecting to maintain employment at current levels. Only 8 percent of respondents anticipate the need to reduce employment levels in the coming year. Thus far in 2011, 34 percent of respondents report increased employment levels compared to 2010, with 48 percent of respondents reporting employment levels at about the same level as 2010. Eighteen percent of respondents report lower employment levels.

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Capital Investments ECONOMIST VIEWS Greater Omaha remains an attractive place to make capital investment. From the inception of the Greater Omaha Economic Development Partnership fundraising campaign – GO! – in 2004, through the third quarter of this year, the Partnership has landed 329 projects, representing $3.5 billion of capital investment at build-out.

The Partnership takes a seamless regional approach to economic development and the team’s efforts have resulted in investment throughout the region. In 2011, investment activity occurred across Greater Omaha.

In Washington County, the Cargill campus is expanding, with both NatureWorks and Evonik DeGussa announcing significant capital investments. Resonance Innovations, an industry leader for patented innovations of MRI coil technology, expanded in Sarpy County. Businesses in Cass County communities are seeing an increase in job creation due to new orders; companies that have increased employment include Fusion Custom Trailer Manufacturing and Vireo Resources, Inc. (in Plattsmouth), KZCO Manufacturing (in Greenwood) and Oxbow Animal Health, Inc. (in Murdock).

CSG International, Inc. consolidated their Omaha operations to a 208,000-square-foot campus at 180th Street and West Dodge Road. Ajasa, a Minnesota-based information technology staffing and consulting firm, expanded their operations to Omaha. Their office is located at 24th and Lake streets.

The Partnership continues to aggressively pursue companies. The team recently completed a recruiting trip to Illinois, meeting with business people and site consultants in Chicago and downstate. The cost of doing business in Omaha is 19.4 percent lower than Chicago’s and we wanted to get the word out. Stay tuned.

Christopher S. Decker Building permits for residential construction in Omaha seem to have stabilized. In June, July and August of 2011 the city experienced some increase in permits to build. This seems to suggest that the Fed’s efforts to keep mortgage rates low are helping this troubled sector to some degree. It will be some time, perhaps years down the road, before residential construction recovers to prerecession levels, but residential building activity in Omaha will, barring any national retrenchment, maintain current rates or show modest improvement in 2012.

Commercial building activity, too, has been relatively stable. In the last few years, when the national economy was in the depths of recession, Omaha witnessed quite robust commercial building activity with the development of Aksarben Village and Mammel Hall on the University of Nebraska at Omaha campus. Since March 2011, the 12

number of non-residential building permits has recorded some decline. That said, there are a number of new major construction projects underway in the city, such as the TD Ameritrade building near 114th Street and West Dodge Road. I would anticipate some steady permitting activity through 2012, predicated on the relatively positive economic outlook for the state of Nebraska and city of Omaha.

In summary, the national, state and city economies are not growing fast enough to generate enough jobs to get us back to pre-recession levels by the end of 2012, therefore I anticipate steady, albeit slow, growth next year.

Ernie P. Goss Businesses and consumers remain too cautious to grow their spending on capital equipment and housing at a pace consistent with healthy economic growth. The uncertainty surrounding healthcare reform, and income tax increases beginning in 2013 will present a drag on this area of the economy. I expect annualized growth of no more than 4 percent for the first half of 2012. Locally and regionally, I expect growth in this area to be a full two percentage points higher for the first six months of 2012.

Jason R. Henderson With stronger profits, business investment could strengthen further in 2012. Still, volatile input costs and uncertainty surrounding the strength of the recovery could limit capital spending to productivity-enhancing investments.

Businesses continue to focus their capital spending on replacing worn or outdated equipment and software.

Commercial real estate activity remained sluggish in 2011 as businesses were hesitant to spend money on building projects to expand projection capabilities. With elevated vacancy rates, prices and rents on commercial properties remained weak. In addition, the pipeline of future projects is thin with the completion of several large public construction contracts.

Ken Lemke The outlook for capital expenditures nationally and within the region remains good as low interest rates and consistent, if not quite strong, demand from Asian markets encourages businesses to replace aging assets.

Manufacturing businesses are also being forced to invest in technology to replace their aging workforce. After 40plus years of declining U.S. manufacturing employment, with limited opportunities for new workers, employers are unable to find the highly-skilled workers they now need to replace retirees.

BUSINESS LEADER VIEWS Greater Omaha business leaders look to continue to invest in the region; however, increased regulatory cost may have a dampening affect on investment expenditures.

New Non-Residential Permit Valuations ($s) 700 600 500 400 (Millions)

James R. Young, chairman, president and CEO, Union Pacific Corporation, expects his company to continue to make investment expenditures in Nebraska. Young states, “We have invested almost $150 million in Nebraska through the first nine months of 2011 to add capacity, build facilities, improve our track structure and develop new business systems. By year end, the number will be even higher. Most of the systems development and some of the facility investment has taken place in the Omaha area. While investment plans for 2012 are still being developed, it is reasonable to project investment levels equal to or greater than this year, barring another economic downturn.”

200 100

W. Gary Gates, president and CEO, Omaha Public Power District, mentioned the impact of increased regulatory costs on business investment decisions.

Gates notes, “Due to the negative financial impact of the 2011 flood and increasing cost burdens due to EPA regulations, OPPD will push capital investment projects to future years to soften rate increases for our consumer owners. OPPD will continue to work with the University of Nebraska Medical Center to build OPPD’s $20 million Omaha Center in north Omaha.”

Dan Neary, chairman and CEO, Mutual of Omaha, mentions, “Investments in midtown Omaha continue to pay dividends as new businesses come to Midtown Crossing. The $325 million mixed-use development, as well as development in surrounding historic neighborhoods, creates jobs and improves the quality of life in the city.”

Another midtown entity expects to continue to invest in Omaha. Harold M. Maurer, M.D., chancellor of the University of Nebraska Medical Center, states, “We anticipate continued growth at the medical center with new programs coming online in geriatrics, the College of Public Health and the College of Nursing Sciences.

These will continue to attract new faculty and staff as well as students, residents and fellows. We anticipate construction of new facilities, such as the new Stanley M. Truhlsen Eye Institute.” The Truhlsen Eye Institute is a $20 million state-of-the-art facility.

0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

New Residential Permit Valuations: Single Family ($s) 800 700 600 500 (Millions)

Harlan O. Falk, senior vice president, Great Western Bank, discusses the impact of the costs of uncertainty on capital expenditures. Falk notes, “Businesses are uncertain about future costs of employee health insurance, taxes, regulations, and the national and global economies. There is the constant fear of a recession and future business costs, and leaders do not want to be in a position of putting their businesses in jeopardy. Businesses have cash and when capital investments are made they are using their own funds versus borrowing.

300

400 300 200 100 0

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010

Steve Martin, president and CEO, Blue Cross and Blue Shield of Nebraska, states, “We plan to continue making significant capital investments in technology during 2012.”

MEMBERSHIP VIEW

Looking ahead to next year (2012), how do you anticipate your business will perform compared to this year? [respondents = 188] Eighty-nine percent of respondents expect to increase capital expenditures (29 percent) or maintain spending at current levels (60 percent) in 2012 compared to 2011. Thus far in 2011, 25 percent of respondents report increased levels of capital expenditures compared to 2010. Fifty-three percent of respondents have spent about the same amount on capital in 2011 as in 2010. Twenty-three percent of respondents report a lower level of capital expenditures in 2011 compared to 2010.

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Demographics Jerry Deichert Greater Omaha continues its steady growth. According to population estimates prepared by Decision Data Resources, the Omaha MSA’s population exceeded 880,000 persons in 2011 and has been increasing at an annual rate of about 1.3 percent since 2000. The Omaha area is projected to continue its steady growth during the next five years, with population surpassing 900,000 in 2016.

The Omaha area has been attracting people, and a large portion of Omaha’s growth has been due to the arrival of new residents. The net migration rate during the 2000s exceeded the 1990s rate and was the highest net migration rate since the 1950s. Omaha’s relatively low unemployment rate is enticing residents to stay here and people from other states to move here for work purposes.

Many of the people moving into Omaha are relatively young, and, as a result, the median age of Omaha’s population has remained younger than the national average (34.8 years for Omaha compared to 36.9 years for the U.S.).

Omaha’s income continues to outpace the national average, and the gap is projected to continue for the next five years at least. Decision Data Resources estimates that Omaha’s median household income is $4,128 more than the national median—about an 8 percent differential.

Moreover, a study prepared by the Center for Public Affairs Research at the University of Nebraska at Omaha showed

850000 Source: Decision Data Resources

Commuting times also are shorter in Omaha than for the U.S., with the average commuting times of 19.8 minutes and 25.3 minutes respectively.

Although estimates of home ownership fluctuate from year-to-year, 66.8 percent of all houses in the Omaha area are owner-occupied compared to 65.1 percent nationally.

Housing is very affordable in Omaha. Even though Omaha households have higher incomes, the median housing value was 19 percent below the national average. As a result, in 2010, the median owner-occupied housing value was 2.7 times as large as the median household income in Omaha, while the comparable ratio was 3.6 for the U.S.

County

881,493

2016 Projection

Omaha’s hard working labor force is another major asset.

Omaha residents are more likely to be in the labor force when compared to the U.S. According to the U.S. Census Bureau in 2010, 73.2 percent of Omaha’s population 16 and older was in the labor force, compared to a labor force participation rate of 64.4 percent for the nation. During the first nine months of 2011, the Omaha area’s unemployment rate averaged 4.9 percent, compared to 5.3 percent for the comparable period in 2010. Omaha’s unemployment rate remains considerably below the national rate and among the lowest metros.

Omaha MSA: Population Projections by County

Population: Omaha MSA

2011 Estimate

that when adjusted for the cost of goods and services, Omaha’s income ranked in the top five highest metro areas among the largest 100 in the nation.

Cass

946,003 900000

950000

2000

2011

2016

Projected Growth

Census

Estimate

Projection

20102016

24,334

25,124

24,661

Douglas

463,585

525,813

560,470

6.6%

Sarpy

122,595

164,517

187,175

13.8%

Saunders

19,830

21,042

22,194

5.5%

Washington

18,780

20,465

21,384

4.5%

Harrison

15,666

14,708

13,875

-5.7%

Mills

14,547

15,062

15,073

0.1%

Pottawattamie

87,704

94,762

101,171

6.8%

Omaha MSA

767,041

881,493

946,003

7.3%

Source: U.S. Census Bureau, Decision Data Resources

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-1.8%

Median Age of Population: Omaha vs. U.S.

Employment Distribution: 2000 vs. 2010

38

(percentage of total employment) 5.3% 4.6%

Mining, Logging and Construction

36

24.3%

Trade, Transportation and Utilities

20.6% 3.4% 2.4%

Information

8.1% 8.8%

Financial Activities

34

2000 2010

8.1% 6.8%

Manufacturing

13.5% 13.8%

Professional and Business Services

12.3%

Education and Health Services

32

15.4% 9.3% 9.6%

Leisure and Hospitality

3.2% 3.9%

Other Services

12.5%

Government

30

Omaha

14.3%

0

U.S.

5

10

15

20

25

Source: U.S. Bureau of Labor Statistics

Source: Decision Data Resources

Cost of Living: Omaha vs. U.S. (3Q 2011)

Rate of Net Migration in Nebraska Counties of the Omaha MSA: 1950 to 2010

0 -0.7%

5

-0.8%

4.7% 4.1%

4

3.7%

-5 -6.0%

3.1%

3 -8.1%

-10

2

-10.1%

(Percent)

-11.5%

-15

1 0 -1

-20

-2 -22.0%

-3 -25 Composite Index (100%)

Grocery Items (12.95%)

Housing (28.99%)

Utilities Transportation (10.02%) (11.98%)

Health Care (4.07%)

Misc. Goods and Services (31.99%)

Source: Council for Community and Economic Research (C2ER) - ACCRA Cost of Living Index

1950s

1960s

-3.1%

1970s

1980s

1990s

2000s

Prepared by: David Drozd, Center for Public Affairs Research, University of Nebraska at Omaha: September 26, 2011 Sources: 1950-2010 Decennial Censuses, U.S. Census Bureau; Vital Statistics Reports, Nebraska Department of Health & Human Services

2011 Median Household Income: Omaha vs. U.S.

Homeownership Rate: Omaha vs. U.S. 70

-4

-3.2%

Omaha U.S.

60000

$58,031

68

55000

$53,903

(Percentage)

66

50000 64

45000 62

40000 60

2000

2005

2007

2008

2009

2010

Source: U.S. Census Bureau – Census 2000 and American Community Survey

Omaha

U.S.

Source: Decision Data Resources

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Omaha Trends

EMPLOYMENT (000s) 1990 1995 2000 2005 2007 2008 2009 2010 Total Non-Farm Employment 355.2 392.2 441.6 448.8 463.6 469.8 459.5 456.5 Private Employment 301.8 336.6 386.4 388.9 402.5 407.7 395.1 391.4 Mining. Logging and Construction 12.4 17.5 23.2 25.7 25.2 25.7 23.8 20.9 Manufacturing 32.8 34.6 35.7 32.9 33.6 33.8 31.5 31.0 Trade, Transportation & Utilities 90.6 98.6 107.5 99.4 100.2 99.7 95.1 94.0 Information 10.8 12.9 15.1 13.3 12.6 12.2 11.5 11.1 Financial Activities 29.8 31.3 35.7 37.6 39.9 40.7 40.1 40.2 Professional and Business Services 40.8 49.0 59.6 61.6 64.6 65.5 62.8 63.0 Education and Health Care Service 40.7 45.2 54.5 60.2 64.7 67.8 69.1 70.1 Leisure and Hospitality 30.8 34.2 41.0 42.2 45.3 45.6 44.2 43.6 Other Services 13.1 12.9 14.0 16.1 16.5 16.7 17.1 17.6 Government 53.4 55.6 55.3 59.9 61.1 62.1 64.4 65.1

UNEMPLOYMENT RATE (%) 1990 1995 2000 2005 2007 2008 2009 2010 Omaha MSA 2.8 2.8 2.8 4.3 3.3 3.6 5.1 5.2 State of Nebraska 2.3 2.6 2.8 3.9 2.9 3.2 4.8 4.7 United States 5.6 5.6 4.0 5.1 4.6 5.8 9.3 9.6

BUILDING PERMITS 1990 1995 2000 2005 2007 2008 2009 2010 Number of Permits/Units - Omaha MSA Single-Family Permits 2,161 2,526 3,393 5,487 3,512 2,885 2,677 2,072 Multi-Family Units 1,201 1,097 2,442 1,061 1,284 1,379 367 684 Non-Residential Permits 423 579 365 401 308 279 154 149 Total Permits (includes multi-family permits) 2,673 3,212 3,975 5,976 3,878 3,215 2,851 2,939 Valuation of Permits - Omaha MSA ($ millions) Single-Family 149.6 220.3 357.1 706.1 458.4 429.7 406.6 345.6 Multi-Family 19.8 31.3 114.7 62.4 171.2 101.2 28.9 45.5 Non-Residential 93.2 163.7 228.1 196.0 698.5 409.6 204.8 156.5 Total Valuation 262.6 415.3 699.9 964.5 1,328.1 940.5 640.3 547.6

RETAIL 1990 1995 2000 2005 2007 2008 2009 2010 Net Taxable Sales ($ billions) 4.2 5.5 7.0 8.7 9.1 9.2 9.0 9.2 Net Taxable Sales of Motor Vehicles ($ millions) 531.8 699.0 970.9 1,055.0 1,099.3 1,093.7 1,093.1 1,152.8

POPULATION 1950 1960 1970 1980 1990 2000 2010 Omaha MSA 444,814 535,717 619,122 653,889 685,797 767,041 865,350 City of Omaha 251,117 301,598 347,328 314,255 335,795 390,007 408,958

GROSS METRO PRODUCT (2005 $s millions) 2003 2004 2005 2006 2007 2008 2009 2010 Total Real (inflation-adjusted) Output 37,647 38,834 39,389 40,775 42,095 41,872 42,203 42,367 Growth Rate (%) 3.9% 3.2% 1.4% 5.0% 6.9% -0.5% 0.8% 0.4% Private Industries (inflation-adjusted) Output 33,163 34,393 35,005 36,246 37,756 37,484 37,684 37,707 Growth Rate (%) 4.6% 3.7% 1.8% 5.4% 7.9% -0.7% 0.5% 0.1%

– An email with a link to complete the 2012 Economic Outlook Survey was sent in late September 2011 to active member contacts of the Greater Omaha Chamber. A total of 213 surveys were completed (or partially completed). The results of this survey and other economic statistics are available at OmahaChamber.org and SelectGreaterOmaha.com.

METHODOLOGY

SelectGreaterOmaha.com 402-346-5000 • 800-852-2622 1301 Harney St., Omaha, NE 68102 13206 Grover St., Omaha, NE 68144