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News Analysis: January 10, 2008

posted on January 10, 2008 at 8:16 PM

Whispers of an economic slowdown have dampened expectations for this year’s legislative session. Given that it’s an election year, it’s unlikely lawmakers will do anything to alarm voters. Conventional wisdom is the less an incumbent has to explain the better.

Still there are needs and issues that must be addressed. David Pitt joins us with an update on economic issues and others in the news.

Beck: There’s some economic news today. The Federal Reserve is expected now to lower interest rates. We have news of an Iowa business closing at least one of its plants. What are you hearing, Dave?

Pitt: Well, what I think what we’re hearing are a lot of mixed signals about the economy. I think there are some very positive trends and there are some negative trends, and I think it’s just going to be a matter of time to see how they work their way through our system.

We heard some reports today from holiday sales, retailers reporting -- a number of retailers reporting sales were off a bit this year as compared to last year, stores like Target, JC Penney reporting lower sales. Wal-Mart had a slight up tick in sales this year. So again, even there it’s mixed but it was a disappointing season for a lot of retailers. They’re looking for January, hoping that a lot of people will redeem those holiday gift cards and those kinds of things. So there still could be some hope that that might pick up in January for them.

But there are some things that kind of remain persistent in the economy. High oil prices seems to be putting a dampening effect on people’s willingness to spend money, and we’re also seeing the mortgage credit crisis might be bleeding over a bit into retail credit, credit cards and those kinds of things. You know, we’ll just have to see how things work their way through.

Beck: And the mortgage crisis was blamed in part today when we heard news from Pella Windows that they’re closing their plant in Story City. They sort of blamed the mortgage crisis.

Pitt: Right. I think, you know, they depend on the housing industry, and it is anticipated that the housing industry will certainly be slower this year. So that appears to be part of what their decision – that went into their decision-making process.

Beck: Two hundred jobs or so in Story City?

Pitt: Right.

Beck: I know they have other plants in Iowa, but that’s a big hit for that community.

Pitt: It would be for any community, and I think the Pella Corporation has said that they will try to see if those people can be employed somewhere else in the corporation. It’s a relatively large company with a number of sites not only in Iowa but other states, so there is an opportunity for some of those employees. But obviously it’s difficult anytime you see, you know, a couple hundred jobs go away like that.

Beck: You mentioned that while some retailers saw a downturn or at least a little bit of a negative impact over the holidays, hoping for positive numbers, some, Wal-Mart, had better numbers. Is there a trend that when we see companies doing poorly that those with really lower prices, like a Wal-Mart, actually go up because consumers who might have previously shopped at Penney’s don’t have the money to go there so they go to Wal-Mart?

Pitt: I think there may be some shifting like that. Again, I think it’s just a matter of consumer confidence and whether people are spending. And if they do spend, perhaps they do go to a store in which they feel like they’re getting a value for their money that they spend or, you know, looking at lower cost of things to buy. The report today indicated, for instance, clothing, apparel. That industry really took a hard hit this December. So people are deciding where they’re spending their money, not only, you know, what retail location, but on what they are spending their money on.

Beck: So if you spend all your money on gas, you might not get a new sweater.

Pitt: Right, probably.

Beck: Well, we are also going to move later in our program to talk about some legislative issues. Are these businesses saying that they need action at all from lawmakers?

Pitt: Well, I think one of the things that businesses will continue to ask for out of this legislative session is an equaling of property taxes. It’s been an issue that has lingered for a number of years, and I think they really want to see action. It doesn’t appear that the two parties in the legislature agree on what approach to take. So there may be some effort to pass legislation, but it probably will not be the overriding – the overarching, large picture type action that the business community would like to see to take place.

Beck: So piece-meal it.

Pitt: Yes.

Beck: And the confusion – or the problem is that commercial property taxes are higher than residential and agricultural, right? But there’s some fear -- You know, as a homeowner, we don’t want to pay more, right? Is that the issue?

Pitt: And it’s a complicated issue. It’s a matter of how do you equalize it without placing more of a burden on one or the other – whether it’s agricultural property taxes or homeowners property taxes. So it’s definitely a complicated issue and that’s probably why it hasn’t been solved. There is a study committee that looked at it before the legislature goes into session, and they’ll look at it again before the next session.

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