Economists say Iowa economy has hit bottom

AP News
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Posted: Dec 08, 2009 7:52 AM

Iowa has begun a slow recovery from the recession, but economists told Gov. Chet Culver on Monday that the state's economy remains shaky.

"September was the worst month," said University of Iowa economist Charles Whiteman. "That's consistent with the notion that the worst is behind us."

Whiteman was one of 10 members of Culver's Council of Economic Advisors who met with the governor. Their discussion kicked off a week of budget-related events, with Culver giving a speech Tuesday that will likely touch on his budget plans and a meeting Friday that will focus on tax collections.

Although the economy appears to be improving, Culver said assembling a new state budget will be difficult.

"I think we're still going through a really tough time," Culver said. "We're not out of the woods yet."

But Whiteman said signs show the economy is getting better.

Department of Revenue Director Mark Schuling said it's clear that state tax collections, which reflect the health of the overall economy, are picking up.

"We actually rose a little, the first time we've risen in 18 months," said Schuling. "We think Iowa is probably in the beginning stage of recovery."

Iowa Workforce Development spokeswoman Ann Wagner said layoffs were lessening, but that long-term unemployment could be a problem.

While the state's jobless rate of 6.7 percent in October was well below the national average, new figures show that about one-fourth of Iowa's unemployed have been out of work for 27 weeks or longer.

That means despite economic improvement, business owners have been slow to make new hires.

David Miller of the Iowa Farm Bureau Federation said the agricultural economy is "significantly more volatile than the economy as a whole." While some commodity prices have improved, most remain at levels of two years ago, while production expenses have grown.

"We are not necessarily looking at an increase in farm income," said Miller.

Jon Muller, an independent economic consultant, suggested that the state revamp its budgeting procedure. Currently the governor and lawmakers rely on projections from budget experts about how much the state will collect in taxes.

Muller suggested averaging three years of actual tax collection and adjusting that for inflation.

He noted that because state tax collection didn't meet projections, Culver was forced to slash spending across the board by 10 percent.

"We will never be able to predict the severity of a recession like this," Muller said.

Culver said he was encouraged by the general view that the economy was slowly improving.

"The overall prediction from this group that we're on a slow road to recovery is good news," Culver said. "I've heard worse news."

The governor will speak Tuesday to the Iowa Taxpayer's Association. On Friday, the Revenue Estimating Conference will meet and issue projections of how much the state will collect in taxes. Culver and lawmakers must use the projections as the base for the fiscal year budget beginning July 1.