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Iowa Issues: The 2008-2009 Economy

posted on December 30, 2008 at 5:43 PM

Next to the floods, the economic downturn has been the most persistent topic of public conversation in Iowa.

Initially the state’s cautious risk-adverse nature seemed to insulate it from the sub-prime mortgage debacle.  But Iowa eventually was touched by the global downturn.  It felt it first in its most stable and promising sector – agriculture. 

A bursting commodity bubble certainly hurts the producer, but it really hammers the processor.  No one knows that economic truth better than Iowa’s ethanol makers. 

Iowa’s farm economy was booming a year ago with historic high grain prices and robust demand for Iowa-made ethanol fuel.  The boom fed multiple sectors of the economy.  But since then commodity prices have plummeted, and with them the corn derivative – ethanol.   Three of the state’s 32 refiners have now filed for bankruptcy. Plans for expansion in the sector have been shelved; a development which provides more chill to the state’s slowing construction industry. 

Investors in ethanol, or other enterprises would seem to be huddled on the sidelines, although economists suggest Iowa may be in batter shape than other parts of the country.  They believe a weakening dollar will encourage foreign buyers to purchase more Iowa produced farm commodities as well as manufactured products. 

But the worry persists, a recovery, when it comes will be seen on corporate balance sheets well before it’s apparent in pay checks or higher levels of employment. 

(Dec. 18) David Swenson: “…In this last recession we talked about a jobless recovery.  We had an economy that was expanding but it wasn't providing more jobs.  And that is one of the worries we have as we come out of this recession, indications are that we're probably going to see a jobless recovery

Thus far the government’s injection of billions of dollars has not produced results.   The release of third quarter numbers show the economy contracted in the third quarter and the concern is, it is contracting even more in the fourth.  

The state’s tax revenues mirror the fear.  The state’s budget for the current fiscal year is projected by 100 million dollars. Projections for the next fiscal year are even more discouraging.   

The speed of the recession’s advance has caught more than a few pubic officials off guard.  

(Dec. 19)Governor Culver: Well, the economy has turned a lot more quickly downward than anyone anticipated. Just last year, for example, at this time, there were 15 states in the country that were having some economic and budget challenges. Today there are 43. Those 43 states collectively are looking at a $60 billion deficit just for fiscal year ’09.”

The governor has already implemented cuts of one and half percent to the current budget.  He and the legislature will wrestle with declining revenues as they craft a budget for the next fiscal year, beginning July 1. The reality is many of the long-term fiscal commitments made in recent years will likely need to be pared.

Tags: agriculture economy ethanol farms floods Iowa


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