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UI Forecaster Sees Iowa Economic Slowdown in '09 But with Some Strength

The economic forces causing a national recession will likely slow Iowa's economy also next year, but a University of Iowa economic forecaster expects the slowdown won't be as bad in the state.

"The numbers won't be as good in 2009 as they were in 2008 or 2007, but it's not as bad as some are making it out to be," said John Geweke, director of the Institute for Economic Research in the Tippie College of Business.

But Geweke said 2009 won't bring an economic boom for Iowa, either. In his December report presented to the state's Revenue Estimating Committee today, Geweke forecasts a largely stagnant economy for the next two years. In his report, Geweke estimates that Iowans' personal income when adjusted for inflation will grow 1.9 percent in 2009 and 2.5 percent in 2010. He estimates that employment will drop by .1 percent in 2009 and grow slightly by .8 percent in 2010. He also estimates a 90 percent probability that state tax revenues, which are heavily dependent on personal income and corporate taxes, will increase in the 2010 fiscal year as compared with the 2009 fiscal year.

Geweke expects personal income to remain steady or increase slightly because of the run-up in land values. Although values have fallen recently along with the price of corn and soybeans, he said contracts set in place during the increase are still generating income.

"Farmers are still paying rent based on the old land values, for instance, and selling at prices that were set in place before prices fell," said Geweke. "Prices are down, but there are still a lot of people benefiting from the old prices."

Geweke cautions, however, that the report was written using only personal income figures through the second quarter of this year. Third quarter income figures are not yet available, and that lag may result in adjustments in future reports.

Geweke points out that the institute's tax revenues forecasts have been extremely accurate so far in 2008. Estimates of the first three quarters were off by less than a quarter percent, and information available so far shows the fourth quarter estimates to be accurate.

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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