ISU researcher, one of governor's economic advisors, predicts long economic recovery

AMES, Iowa -- A recent survey by the National Association for Business Economics reported that more than 80 percent of economists believe the nation's recession is over and an expansion has begun. But those same economists also indicated that they expect the recovery will be slow as worries over unemployment and high federal debt persist.

The idea of economic recovery seems far removed from Iowa right now as worries over unemployment and state budget cuts persist. And Iowa State University economist Liesl Eathington says she's not really seeing sunny skies on Iowa's economic horizon anytime soon -- particularly in employment, even though new Iowa Workforce Development statistics last week showed Iowa's unemployment rate remained stable at 6.7 percent in September.

"I don't know that we are at the bottom yet in terms of job losses in Iowa," said Eathington, director of ISU's Regional Capacity Analysis Program (ReCAP), who serves on the Gov. Chet Culver's Council of Economic Advisors. "Employment typically lags other economic indicators during recessions. When we do hit bottom, I wouldn't expect to see us recover our 2007 employment levels for at least another two years -- and probably more. It's going to be long."

After the last recession in 2001, Eathington reports that Iowa didn't recover to pre-recession employment levels until 2005.

"I think the sooner we come to terms with the fact that we are in for a fairly protracted period of economic stress for households and fiscal stress for the state, the better off we're going to be in terms of decision making, because it's not just going to turn around," she said.

Eathington's heard some Iowans refer to the state as being almost "recession-proof" because of its strong agricultural and food production sectors. And she agrees that food production does tend to continue to perform well in a recession because people still need to eat.

But that's not necessarily where the state's economy is taking the big hit in the current recession.

"I think there are a lot of things about this state's economy that people might be surprised about, and one of them is the importance of manufacturing," Eathington said. "It's a pretty big chunk of the overall economy, but across the state -- especially in some of our non-metro communities -- it's even more important.

"So that's one of the things that we're really concerned about as we look at the statewide unemployment rate and how it's impacting some communities," she continued. "It's actually much higher and it's likely to get worse in places like Burlington, Ottumwa, Fort Dodge and many smaller communities that have a heavier reliance on manufacturing."

As for the state's current budget shortfall resulting in Gov. Culver ordering a 10 percent budget cut in all state agencies -- and projections of an even leaner FY 2011 -- Eathington sees that mirroring the private sector as a product of the nation's lagging economy just now catching up with the state.

"What's happening with the state's revenues isn't really much different than what many businesses have experienced, where they didn't necessarily feel the crack of the housing bubble or the Wall Street meltdown," she said. "They weren't directly impacted by some of those early declines in consumer spending.

"Many of the things we produce in the state are farther back in the supply chain, so we're starting to really feel the hit now from the one that was taken by the firms that buy what we make," Eathington continued. "And now until household and business spending starts to pick up again and those first line industries start to respond, then they're not going to demand the things that we [Iowa] make. So again, we'll probably see kind of a lag."