October 21, 2014

“Unexpectedly good” news about Iowa economy

A University of Iowa economist says the Iowa economy may have started to turn around in the third quarter of this year, but another member of the Governor’s Council of Economic Advisors warns this may be a “jobless recovery.” 

Charles Whiteman of the University of Iowa says some economists “saw the turn” a couple of months ago in the national economy, and he says the state’s economy seems to be emerging from a “deep trough” as personal income taxes paid to the state were up, ever-so-slightly, in the second quarter — by a little less than half a percent.

“In my reading, we got some news that was unexpectedly good,” Whiteman says.

Whiteman also cites a report from “Moody’s” that concludes Iowa is among 11 states which are starting to emerge from the recession as well as a Creighton University survey which found Iowa business conditions “above…neutral.”

“Some signs that the turn is upon us and perhaps things are going to look up,” Whiteman says. Iowa Department of Revenue director Mark Schuling says the latest “Iowa Leading Indicators Index” his agency develops went up for the first time in 18 months.

“We think Iowa is probably beginning the stages of recovery,” Schuling says. “It would be better to have a little more information in a few more months to actually make that determination accurately, but what we’re starting to see occur is that the recession probably did end several months ago and Iowa is one of those states that’s starting to come out of it.”

Karin Petersen, a vice president at Pella Corporation, warns this may be a “jobless recovery” as businesses look for sustainable profits first before adding full-time workers. 

After the meeting, Governor Culver seemed reluctant to embrace the rosier economic predictions offered during the Monday afternoon meeting. 

“I think we’re still going through a really tough time.  We’re not out of the woods yet and we’re going to have a real challenge in terms of putting the (state) budget together for Fiscal ’11, but I’ve heard worse news,” Culver said.  “You know, I think there was a general feeling that we’re slowly seeing some signs of improvement.”

Governor Culver asked members of his Council of Economic Advisors for ideas to improve the process of predicting state tax revenue.  A few suggested a new system which would use three-, five- or seven-year averages on which to base the state’s budget, but such a change would require piling up a huge cash surplus and the experts agreed there’d be huge political pressure on legislators and the governor to spend that money instead.

Jon Muller, a financial and business consultant from Des Moines, says no matter how good the data that experts review before they make their predictions, no one can predict “historic” collapses in the economy.

“I look at these collapses more as natural disasters than as some planned event.  It’s like a tornado except that one day we may actually be able to predict where a tornado is,” Muller says.  “We will never be able to predict the severity of a recession like this.” 

Governor Culver says he’s “intrigued” by some of the ideas his economic advisors came up with, and he’ll talk with legislators about ways to improve the process of predicting state tax revenue.