Des Moines Register
06-07-06
State economy plods along
But some experts say Iowa grew more than 1.8% in 2005
By DONNELLE ELLER
REGISTER BUSINESS WRITER
Iowa's economy grew a sluggish 1.8 percent last year, a report shows, but
experts say the state's economy performed better than the estimate indicates.
Tax receipts, employment and income growth are among the indicators that
show Iowa's economy is ticking faster than a new U.S. Bureau of Economic
Analysis shows.
How the economic picture breaks down:
The report: Iowa ranked 39th in growth of gross state product, according to the
U.S. Bureau of Economic Analysis. It's a tumble from 2004, which initially
showed Iowa ranking first in the nation at 8.1 percent. That estimate was revised
twice, bringing growth to 4.4 percent.
The estimates were revised as more economic information became available,
said Clifford Woodruff, an economist at the U.S Bureau of Economic Analysis.
The early 2004 estimate was "a one-time blip - not just in Iowa but in other
Midwestern states," said Peter Orazem, an Iowa State University professor.
The wild card is always farming. Bruce Babcock, an ISU agriculture economist,
said farming in Iowa set records in 2004, with strong prices for corn, soybeans
and livestock, as well as strong government price supports.
Last year was only slightly less robust, Babcock said, with a decrease in some
livestock prices. An indication of farming's impact showed in the federal report:
Nearly half of Iowa's 4.4 percent growth in 2004 came from the category that
includes farming.
The U.S. Bureau of Economic Analysis did not break down details of Iowa's
slowing growth in 2005.
Nationally, growth in 2005 slowed to 3.5 percent from 4.2 percent in 2004.
State statistics: Some numbers make Mike Lipsman, an analyst with the Iowa
Department of Revenue, expect that Iowa's gross state product growth will be
revised upward for 2005:
• So far this fiscal year, Iowa's sales tax receipts have grown 6.5 percent to $1.5
billion compared with last year.
• Corporate income taxes are 23 percent higher, hitting nearly $300 million this
year. Personal income tax receipts have climbed 2.2 percent to $2.6 billion. This
year's returns indicate income earned in 2005.
• Overall, total receipts have climbed 6.4 percent higher to $4.7 billion. Officials
anticipated an increase of about 5.9 percent in revenue.
In addition, Iowa has been near full employment, said officials.
Ann Wagner, a labor market analyst at Iowa Workforce Development, said the
number of Iowans working outside of farming averaged 1,480,400 last year,
record employment since the state started collecting records in the 1970s.
Average weekly salaries also climbed 3.1 percent last year to $632.07.
Wagner said growth has been across most industries, including manufacturing,
which had been hard-hit by the 2001 recession.
Political mileage: An anemic 1.8 percent growth in Iowa's economy last year
won't help Gov. Tom Vilsack if he decides to make a presidential bid in 2008,
said Steffen Schmidt, an ISU professor of political science.
"It's not the number you want if you're interested in ending your career with
pizazz and momentum for a presidential run.
"It becomes a political knife that can be used against you," especially when
combined with the planned closing of Maytag Corp. in Newton, Schmidt said.
Gov. Tom Vilsack said the numbers only tell part of Iowa's economic story.
"While transformation does not happen overnight, we are making key
investments now that will ensure strong Iowa communities later," Vilsack said in
a statement.
Schmidt said Vilsack has gotten a lot of political mileage from the state's shortlived spotlight as one of the fastest growing states in the nation. Those glowing
numbers were revised to more modest growth.
The numbers can be difficult for others, too. Whichever of the four Democrat
candidates who emerges from the Democratic contest Tuesday will face U.S.
Rep. Jim Nussle, a Republican whose campaign can make hay of Iowa's
economic reversal of fortunes.
"Unfortunately, low numbers work against the Democrats," Schmidt said.
Possible concerns: Orazem, the ISU economics professor, said people worry
about the economy, even when it's strong.
"When times are good, we're nervous that they won't stay good," Orazem said.
Additional increases in the interest rates could significantly slow home building
and home buying. High fuel and energy costs will eventually bite into corporate
earnings, which could hurt investment in buildings and restrict hiring, Orazem
said.
Lipsman, the state economics analyst, said he's carefully watching one leading
economic indicator: receipts from diesel fuel purchases by freight companies.
They've been strong for three years but recently started to drop.
"Motor carriers have to move freight, so it can't be explained away because of
higher fuel prices."
If the trend continues, Lipsman said Iowa might see economic slowing late this
year.