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News Service:

Annette Hacker, director,
(515) 294-3720

Office: (515) 294-4777

01-26-09

OrazemBR

Iowa State economics professor Peter Orazem reacts to a question during the Des Moines Business Record's 2009 economic forecast panel earlier this month Photo by Duane Tinkey, The Business Record

Contacts:

Contact: Peter Orazem, Economics, (515) 294-8656, pfo@iastate.edu

Liesl Eathington, ReCAP, (515) 294-2954, leathing@iastate.edu (available only by e-mail Jan. 26-30)

Mike Ferlazzo, News Service, (515) 294-8986, ferlazzo@iastate.edu

Iowa State economists assess the state of the Iowa economy and its 2009 future

AMES, Iowa -- President Obama's inaugural address emphasized the severity of the nation's economic crisis. And while Iowa State University economists Peter Orazem and Liesl Eathington agree that the crisis hasn't hit bottom yet, they say that Iowa continues to weather the storm better than the rest of the nation.

A University Professor of economics, Orazem reports that Iowa doesn't suffer as much during the tough times because of its more modest growth during economic prosperity.

"If you look at it sector by sector, in the sectors that have expanded the most rapidly over the last several years -- such as retail, or real estate -- we expanded, but we didn't expand as much (as other states)," Orazem said. "And if you look at the sectors that fell the most nationally -- such as manufacturing -- we fell, but not as much. And so to some extent, we tend to have a much more moderated business cycle than the national cycle, and I think some of that is happening.

"So while we've lost 5,000 jobs in manufacturing over the last year, that's much lower than the proportional loss of manufacturing jobs nationally," he said. "Our banking system also did not get heavily involved in real estate. Some of that was dumb luck because we didn't have a boom. And so, we didn't get involved in the same sort of problems."

The director of ISU's Regional Capacity Analysis Program, Eathington says when she looks at the levels of different indicators -- such as the level of unemployment or the rate of foreclosures -- compared to national averages, Iowa doesn't look as bad as other parts of the nation.

As an example of Iowa's mitigated loss, the economists cite that while the national unemployment average has risen to 7.2 percent -- its highest level in almost 16 years -- Iowa's unemployment is at 4.3 percent.

"One of the reasons is we tend to not have a lot of excess labor hanging around anyway," Eathington said. "We tend to export our labor. So there wasn't really a lot of excess out there."

That's not to say that the state of the Iowa economy is strong. As an example, Gov. Culver has already ordered a 1.5 percent across-the-board state budget cut to help offset an estimated $779 million shortfall in the budget for the fiscal year that starts July 1.

Eathington serves on the Governor's Council of Economic Advisors and reports that economists on the council have grown increasingly concerned.

"At the last meeting in December, we were asked about the outlook for the state's economy. At that time, it was about half and half," Eathington said. "Half of the people thought it was going to get worse than what we were seeing. And half of the people thought it was a lot of 'The sky is falling' talk.

"Now, I'm hearing more people who are starting to notice (the bad economic outlook) and feel things directly," she said. "So that's why I'm pessimistic that we haven't reached the bottom yet."

Eathington's been looking at how relative changes in economic indicators compare with the changes in previous years.

"Over the long term, what those types of comparisons are suggesting is that on just about every front -- in terms of employment and manufacturing activity and national consumer sentiment -- we're declining more than during either of the previous two recessions," she said. "We're looking more like the 1980s (a serious recessionary period). So it's scary."

But Orazem -- who participated in The Des Moines Business Record's 2009 economic forecast panel earlier this month -- is a bit more optimistic.

"Peak to trough, the economy was doing quite well and was probably overheated because of cheap access to money," Orazem said. "And so at least so far, I don't think that Iowa itself is doing that badly. Certainly I would agree that on the national front, the recession looks like it's going to be deeper than say 2001 or 1992. But those were relatively mild recessions."

He calls some recent comparisons by Iowa lawmakers of the current economic crisis to the Great Depression as being a bit out of line.

"We've run right past 1982, and I don't think we're going to be that bad either," he said. "That was a really bad recession for Iowa because it was heavily influenced by a very bad agricultural market, which was a much bigger fraction of our business than other places. Some of the other industries were also going through problems at the time -- like meatpacking and tires -- a heavier share of the manufacturing base at that time. But I think some of this is more politics than it is economics."

Both economists expect the new Iowa Workforce Development statewide employment report to show escalating unemployment across the state, a reflection of the economy's continuing downward trend.

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LieslEathington

Liesl Eathington

Quick look

Iowa State economists Peter Orazem and Liesl Eathington agree that the country's economic crisis hasn't hit bottom yet, but they say that Iowa continues to weather the economic storm better than the rest of the nation.

Quote

"Peak to trough, the economy was doing quite well and was probably overheated because of cheap access to money. And so at least so far, I don't think that Iowa itself is doing that badly. Certainly I would agree that on the national front, the recession looks like it's going to be deeper than say 2001 or 1992. But those were relatively mild recessions."

Peter Orazem