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UI Economic Forecaster Sees Continued Growth in Iowa Despite National Downturn

Despite a national economy that continues to struggle, University of Iowa economic forecaster John Geweke said Iowa's economy should keep growing thanks to continuing increases in demand for energy and food, and minimal exposure to the real estate meltdown.

In his recent report to the state Revenue Estimating Committee, Geweke forecast that the real incomes of Iowans will grow about 1.8 percent in each of 2008 and 2009. Employment growth will be more modest, with an expected .1 percent growth in jobs in 2008 and .2 percent in 2009.

"That keeps us away from recession numbers," said Geweke, director of the Tippie College of Business' Institute for Economic Research. The institute provides a quarterly forecast of state revenues that the Revenue Estimating Committee uses to prepare state budget estimates for the coming year.

In a sign of the slowing national economy, Geweke has lowered his estimates for both income and employment growth from his most recent quarterly forecast in December 2007. Then, he anticipated a 1.9 percent income growth in 2008 and 2.2 percent in 2009.

He also revised downward his estimates for employment growth from his December forecast of .3 percent in 2008 and .4 percent in 2009. The current employment estimates are lower than three of the last four years, he said.

Still, Geweke said Iowa's economy will likely remain strong relative to the national economy. He said the reason for the continued growth is increased energy and biofuels production in the state and continued increases in global demand for food produced in Iowa.

"Currently you can point to specifics like ethanol as probably the single biggest factor in the strength of Iowa relative to the rest of the U.S. in 2007 and 2008," said Geweke. "But beyond that, the higher prices for food and energy we see worldwide will almost certainly be sustained, and this means Iowa's leading exports are likely to command a higher relative price in the future."

He said Iowa also has considerably less exposure to the mortgage crisis roiling the national economy because of comparatively modest real estate prices in the state.

Geweke is a professor of economics in the Tippie College of Business and Harlan E. McGregor Chair in Economic Theory in the Department of Statistics and Actuarial Science in the College of Liberal Arts and Sciences.

The Institute for Economic Research serves Iowans as an advisory group to the Governor's Council of Economic Advisors. The council's discussions are, in turn, used by the state's Revenue Estimating Conference in determining the official prediction of the rate of growth of tax revenues for the coming two fiscal years. The Board of Regents created the institute in 1975 to facilitate cohesive and continuing economic research, and to establish a formal mechanism for providing interaction with, and economic research services to, government and industry. Each quarter the institute produces the Iowa Economic Forecast, which contains quantitative forecasts of economic conditions and tax revenues for the State of Iowa using the latest advances in econometrics.


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