A sluggish agriculture economy, layoffs in various industries increase costs of living.

We'll get insights from two economists on this edition of Iowa Press.

♪♪ Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation.

The Associated General Contractors of Iowa, the public's partner in building Iowa's highway bridge and municipal utility infrastructure.

Across Iowa, hundreds of neighborhood banks strive to serve their communities, provide jobs, and help local businesses.

Iowa banks are proud to back the life you build.

Learn more at iowabankers.com.

♪♪ For decades, Iowa Press has brought you political leaders and newsmakers from across Iowa and beyond.

Celebrating more than 50 years on statewide Iowa PBS, this is the Friday, July 4th edition of Iowa Press.

Here is Kay Henderson.

[Henderson] So is the economy up or down or I guess it's all around us and our two guests today know a lot about the economy, and they have been previous guests on the show.

Let's welcome them back.

Peter Orazem is an Iowa State University professor of economics, and he's right now today, the interim department chair at Iowa State University's Department of Economics.

Welcome back.

[Orazem] Thank you.

Thanks for having me.

[Henderson] And congratulations.

And Chad Hart is a professor of economics at Iowa State University.

And his expertise is in agriculture and finance.

[Hart] Yes, ma'am.

Thank you.

[Henderson] Joining our conversation today is Stephen Gruber-Miller of the Des Moines Register and Erin Murphy of the Gazette in Cedar Rapids.

And before we let Erin ask a question just for our viewers, we need to announce that we are recording this on Wednesday to accommodate everyone's schedules over the holiday.

So, some things that you may know on Friday or Sunday, we don't know on Wednesday.

[Murphy] Well, let me ask you folks, both, Kay mentioned, is the economy up or down by one measurement?

We have a recent report, federal data, that said Iowa's GDP grew by -6.1% in the first quarter of the year.

And not only is that down, that's much worse than almost all the rest of the states in the country.

Nebraska nearby also had the same.

Number.

Peter, let's start with you.

Why such a rough number for Iowa in the first quarter of 2025?

[Orazem] Well, Iowa has not been doing particularly well compared to the rest of the U.S. For many years.

So, we started growing more slowly than the U.S.

In 2018.

And if you go back to the start of the pandemic, we've actually not added any jobs.

So, I don't think Iowa has been doing particularly well, not just in the last quarter, but for the last seven years.

[Murphy] And Chad Hart, 22% of Iowa's economy is related to AG.

Is there anything going on in the ag economy?

And we'll get deeper into that later.

But as we look at this recent number, these recent struggles, is the ag sector play into that?

[Hart] Well, the ag sector took a step back actually a couple of years ago.

And I would say we're still feeling the ramifications of that.

If you look at our GDP, the AG drop really happened in 2024.

And now I think what you're seeing is the follow through effect of that.

Because when we think about agriculture here in Iowa, it impacts all the other sectors as well.

When you think about one of the largest sectors, government wise, Department of Agriculture, when you think about what's the biggest thing on a real estate side, that's farmland values insurance, the crop insurance industry is a major industry here.

And so, when you think about AG slows down all these other industries are related to that slow down as well.

[Murphy] To either of you, maybe help us understand why a little more.

Why is Iowa struggling more than other states?

And again, especially in this most recent quarter, Iowa and Nebraska, so much more even than neighboring states, relatively speaking, like South Dakota, Missouri and Nebraska.

Either of you gentlemen want to weigh in on why it was such a rough quarter here?

[Orazem] Well, if you go back to the pandemic, atypically, the people who left the labor market were people over the age of 55.

And Iowa goes into the pandemic as one of the older labor forces in the country.

And so, one of the problems that Iowa has faced since the pandemic recovery has been we simply don't have enough workers to fill to fill jobs.

And atypically compared to other states.

So, Florida is old, but the old people in Florida were Iowans who went to Florida because they didn't want to continue working.

The Iowans who were continuing working stayed here.

The other problem is immigration.

So, immigration was pretty much cut down during the pandemic and has continued to be relatively slow in the post-pandemic recovery.

38% of Iowa's population growth has been immigration since 2000.

So atypically, we rely on immigrants to help shore up our relatively slow population growth.

And I think the labor market lack of workers is has been one of the reasons why Iowa's performed relatively poorly over the last six years.

[Hart] And then I'll play off of that.

When you're thinking about the agricultural economy, Iowa tends to be more crop focused, and arguably it's the crop side of agriculture that's struggling more than livestock right now.

Given Iowa's leadership in the corn and soybean side, that means we're feeling more of a pull down there.

You combine that when you look at our manufacturing, ag manufacturing, big part of that, we think of Deere.

We think of Kinsey.

All right.

If the farm economy slows down, we know those slow down.

We've seen the layoffs over the past year with those two big giants, along with a lot of other smaller firms doing that.

And so, it makes sense that, yeah, I was seeing sort of the worst of this right now.

[Gruber-Miller] We'll move on to a couple of questions about the federal bill that's making its way through Congress.

Again, this is Wednesday.

So, the Senate has passed President Trump's large tax bill, which would extend the 2017 tax cuts, have some additional tax cuts and has spending reductions for Medicaid and Snap and other things.

I want to ask a couple of questions about this bill.

So first, if it doesn't pass the 2017 cuts would expire.

And if that were to happen, I'm wondering what kind of impact do you think we would see?

Peter, we'll start with you.

[Orazem] Well, I mean, increases in tax rates are going to lower both investment and lower work incentives.

So, you're likely to have some a result as from those tax cuts.

But they're still going to tax cuts by themselves.

Change things on the margin.

They're not going to have huge effects on either investment or labor supply.

[Hart] Yeah.

I think what you were talking about there, when we're looking at the average Iowan, I want to say it's around $3,000, is what those tax cuts end up being.

When we're looking across the folks here.

But as you're looking, I think the bigger issues might be along with those tax cuts, as you mentioned, there's a lot of reductions in spending when we're looking at that, that bill.

And that's going to impact Iowa in a lot of ways.

As we're looking at cuts in Medicare and Medicaid, as we're looking at cuts on the ACA.

So, availability of insurance, I think we're going to see more impacts through those channels necessarily than we through the tax cuts.

[Gruber-Miller] Yeah.

Get into what some of those would be.

Right.

You mentioned because we could talk about impact on hospitals with SNAP.

We could talk about impact on, you know, farmers grocery stores as well as people who won't have that money to spend.

Can you help us understand what some of those ripple effects could be?

[Orazem] Well, if they don't pass the law, the new law, then some of the old Snap benefits and Medicare benefits continue on.

So, there's sort of some positives and some negatives.

I think if you look at it that way.

[Gruber-Miller] If it were to pass, though.

[Orazem] If it were to pass one of the potential issues for Iowa is the rollback of subsidies for, for wind energy, which of course has been an area of growth for the Iowa economy for many years.

And so that would be one of the things that you might see is, is reduction in new investment in wind generation.

[Hart] When you mentioned SNAP, the idea is we're likely going to see, you know, higher requirements on folks as far as work requirements.

You know, in this case, if you're a parent of anybody 14 or younger, you're going to have to meet some work requirements.

There.

Anybody of working age got to meet some requirements there.

They're going to be 80 hours.

That's required to qualify, you know, to meet those work requirements.

So those are stronger than they have been in the past.

It's going to limit how many folks can qualify directly.

And then again, those that might need it, how many cannot qualify or find it hard to qualify for those benefits.

As we look forward.

So, I think the challenge here though is, is that this bill, those requirements are still evolving over time.

In fact, that's one of the things we're going to be watching as we look at this bill, head back to the House.

The Senate did make some substantial changes there.

The House is going to have to adjust.

When do we coalesce around, let's call it a common set of rules that we're going to play with here?

[Henderson] Let's talk about the Iowa agenda here legislators of the Republican Party have said property tax relief is their top priority heading into the 2026 legislative session.

Governor Reynolds was on this program, said she's going to come up with a property tax plan, meet with local officials.

Peter, how difficult will it be to come up with some sort of property tax relief proposal?

You have you have former experience as a local.

[Orazem] Well, I was on the, on the Ames City Council, but I've also done research on, on property taxes and, and it turns out property taxes are probably more painful for things like startups.

And Iowa does very poorly on startups compared to the rest of the country.

And that's another thing that's been dragging down the Iowa economy.

I mean, if you're a brand new firm, you don't have any income and you don't have any sales, but you still have property.

And so, you have to pay property tax even if you're not paying much in income tax or sales tax.

And so, but of course, the property taxes is a local government initiative and the state restricts the ability of the local government to use other taxing methods.

Right.

So, the sales tax may be relatively modest in terms of its adverse economic effects compared to the property tax.

But we limit the ability of the local government to use sales tax.

And so, if they want to cut back on property tax, I think they have to think about their taxes more broadly and whether or not we want to allow local governments to meet their financial needs using some of the other, perhaps less damaging or less -- hatever the right term would be for reducing investment, I came at a loss.

[Henderson] Well, the focus seems to be, as we've been covering the debate, the three of us is on residential race, not on commercial and business.

Does that seem it should be the flip?

[Orazem] Well, a long time ago, Iowa decided to tax residential property at about half the rate of commercial property.

And they've been gradually reducing that gap.

But if you think about it, what that means is that businesses take the disproportionate share of the cost of local government away from residences, even though you would presumably argue that at least the benefits from public services are equally shared by businesses and residential areas, I'm not entirely sure what they plan to do for residential areas, but one thing you can say is residences.

Vote, and businesses don't.

So, from that perspective, my guess is it may be a little bit difficult to rebalance the burden away from businesses toward residential property owners.

[Henderson] The ag land in Iowa's tax on a formula.

And we're not going to have a quiz about how it works.

But you earlier mentioned that, you know, the value of farmland is kind of an issue in the whole evolving ag economy.

If there were a property tax relief plan that addressed residential and maybe business and not ag land, would that have an effect on the ag community?

[Hart] I mean, it could have an impact on the ag community, but when we're looking here as well, one of the big challenges when you're looking at agriculture, as we already mentioned, the ag economy is already struggling.

Are you looking to necessarily increase the tax burden on a sector that is already dealing with its own financial problems here, even though when you're looking at ag land, for example, it is still holding at very strong values?

In fact, that's one of the sort of catch 22 that farmers are facing right now.

What they're facing is limited cash flow.

They're having struggles, if you will, paying the bills.

But do they have assets available to them?

They do, but they're long-term assets.

They're locked up in the land.

The old saying is farmers tend to be asset rich and cash poor.

[Murphy] So how again, speaking of the ag economy and encouraging folks who are interested in this to stick around for market to market, but to steal a little bit of their work here?

What is the way out of this then for the Iowa agriculture economy?

What's the way forward?

What helps rebound from the doldrums?

It's been fighting through here.

[Hart] Well, agriculture is just like the general economy.

It goes through cycles.

And right now, arguably what we're experiencing in agriculture is a problem of productivity.

What has really happened here is that we've been able to outproduce what is actually really good demand for our products right now.

In fact, let me tear apart the corn market for a second.

Right now, as we staring at corn, the corn we grew at the, you know, harvested at the end of 2024, we brought in a very sizable crop.

In fact, I think it was the third largest crop we've ever had.

When we look at the demand, the usage of that corn, it's actually at record levels right now.

But that's not necessarily pushing prices higher.

Why?

Because, well, we had the third biggest crop last year.

We're projected to have the biggest crop coming on record this year.

We're out producing that record usage and that has driven prices down and is limiting where the ag economy can go.

That said, as we're looking forward in these cycles, what goes down tends to come back up again in a few years.

We're just sort of waiting for the turn.

[Gruber-Miller] So, another policy that affects the ag economy, but also other sectors, including construction, manufacturing and all sorts of things is the tariff policy by President Trump.

We've they've been a little bit stop start.

Some of them have come on.

They've come off again.

They may be coming back on later this month.

But what impact does that have?

We'll start with ag and just, you know, the negotiating work towards getting some of these longer-term trade deals, like what could that do for the ag economy.

[Hart] So, the ag right now, the ag sector I'd say is treading water right now, waiting to see how this tariff regime is going to settle out.

For our farmers the big thing they need to worry about is not the tariffs that are put in here in the U.S., it's how other countries respond to those tariffs.

And right now, we haven't seen a lot of responses from other countries because of the on again, off again nature of what we're seeing here within the U.S.

In fact, as I look at export sales right now for old crop, for the crop we grew last fall, very strong right now.

But as I look at advanced sales for the crop we're growing right now, those are weak again, waiting to see what's going to happen on the tariff platform here.

When we're looking at machinery, though, it's a much different deal.

They are feeling the pinch of the tariffs that the U.S. Has put on.

Steel and aluminum have went up.

That's part of the reason why you continue to see John Deere Kinsey keep let's say keep things slowed down.

They're not looking to grow.

In fact, they're looking to still shrink and consolidate to handle those additional costs of the tariffs.

[Gruber-Miller] And Peter, how about the impact of tariffs on other sectors of the economy?

[Orazem] Well, I mean, Iowa is also very export oriented in its economics.

I mean, we cannot absorb all of our production and agriculture or all our production in, in manufacturing of agricultural implements domestically.

Right?

We are oriented and we have a comparative advantage in producing for international markets.

And so, anything that restricts our ability to sell abroad is going to show up in a loss of wealth here in Iowa.

And I think that's one of the reasons why Iowa has performed relatively poorly.

And if you look at some of our neighboring states, they've also been performing relatively poorly over the last few years.

The tariffs that started in 2018 have, in fact changed who we can sell to.

And I think the uncertainty shows up in the prices that you observe for those commodities.

It may not be I let's hope that we can sell everything that we produce.

We know we'll sell everything we produce.

But the question is going to be, what's that price going to be?

Outside of agriculture in Iowa we're not as exposed to tariffs.

And so, I think I think most of the effect in Iowa is going to be in in the agricultural sector specifically.

And then the manufacturing that services that, that agricultural producer.

[Henderson] Beyond the Deere layoffs, there have been layoffs at other manufacturing facilities, and there have been some closures where businesses say this is an old plant, I can't use it anymore.

I'm going to close it down.

So, talk about the factory manufacturing outlook for Iowa.

Peter, for just a moment, it is it time for like a retooling and if so what sort of spurs that.

Are we going to see more of these plant closures?

Because Iowa's manufacturing base is older in terms of what's inside those manufacturing plants.

[Orazem] I think the bigger problem for manufacturing has not been capital.

It's been labor.

And so, if you look at manufacturing in Iowa for a while, our non-durables, our food production was outpacing the rest of the U.S.

In the post pandemic recovery.

And that's actually slowed down.

So, if you look at both durable and non-durable employment growth, Iowa in the last year is lagging the rest of the country.

And we've actually given away jobs in both of those sectors Certainly, there's going to be some retrenchment, but a lot of the retrenchment in, say, food production and meatpacking and so on that occurred several years ago.

And you still see, for example, in the Perry closing, new companies coming in to try to take advantage of the facilities.

The real question is how many people are going to be in those facilities.

So, the Perry plant that closed, we lost a lot more jobs than the number of jobs that are coming back with the new plant.

[Murphy] Peter, you talked about something earlier relative to population growth here in Iowa, which has been a struggle, and immigration as a part of that equation.

I wanted to circle back to that.

When you talk about trying to find ways to grow Iowa's population and then the new federal immigration policy, are those two things at odds with each other?

[Orazem] Certainly they are.

But Iowa's had a problem with attracting immigrants relative to, say, the companies on the coasts for many years, because we don't have a lot of large firms.

And so, if you look at H-1b visas, which are the visas that you can use to bring in new international college graduates, we just don't have large enough firms to compete for those things.

And so, they all get swept up by the metas and, and, and, and, and Amazon and so on.

And for example, I had a student who was a double major in aeronautics and aeronautical engineering and economics.

She could not get a job in the United States because she could not get an H-1b visa.

Our companies are at a disadvantage here in Iowa, and I think politically, we should be thinking of ways of changing the rules on H-1b visas.

So smaller companies can attract as well as larger companies, perhaps by pooling the H-1b visas at the state level.

[Murphy] And Chad, this impacts obviously, the AG economy as well.

And to the point of the last question about plant closures and layoffs, those food processing plants often employ a lot of immigrant populations.

What, you know, how much are those things?

You know, at issue with an immigration policy that's taking a much harder line on deportation.

[Hart] Agriculture when you look at large across the country, definitely relies upon immigrant labor to fill in a lot of the gaps that we have within the labor force.

When we're looking here in Iowa, it tends to be more focused on, as you say, meat processing, where we do see the larger impacts.

But even when we're talking about on the farm, you do see immigrant labor being used on the farm as well.

In fact, Iowa farmers are fairly aggressive in trying to bring in international labor to help them along, especially skilled labor.

When it comes to some of our larger farms within the state.

So yeah, immigration definitely matters when it comes to Iowa agriculture, and that's one of the challenges everybody right now across the state is scrambling to find the skilled labor that they need.

[Orazem] One of the reasons you end up with undocumented workers in the United States, as we simply do not add to the number of legal immigrants that we can bring.

So, if you look at the quotas, those were set in 1990 per country.

And so, one of the reasons you see a problem with undocumented workers is the U.S. Is starved for labor.

So, if you look historically, the number of unfilled vacancies per month is now around 45%.

Before the pandemic, it was around 5%.

So, you used to be you would be able to fill all your vacancies in a month, and that's no longer the case.

But if you look, for example, at the rules for legal agricultural labor here in Iowa, most of the agricultural labor is going to be used in in raising livestock.

But it's a year-round enterprise.

And the H-2a visa rules say, well, you have to be here temporarily.

And it's oriented toward harvesting fruits and vegetables.

It's not oriented toward the type of agriculture we have here in Iowa.

[Gruber-Miller] So, I think we just have a couple minutes left.

I wanted to ask, we've referenced a couple of times changes to the economy as resulting from the pandemic, and one of the ones I've been curious about is like downtown usage in terms of office vacancies and things like that.

We're seeing more remote work, businesses giving up downtown, real estate.

And I'm kind of wondering if we can read anything into what the long-term trends are for how cities can grow with those some of some of those things occurring?

[Orazem] Well, I mean, Des Moines certainly sees some of that.

So, you see some repurposing of buildings.

It's not as easy as I would have thought to, to convert an office building into, say, high rise apartments, because the plumbing isn't oriented toward having a lot more bathrooms.

For example, interspersed through all the, all the all the floor space.

But I think you're going to see not perhaps less so in Des Moines.

I mean, the places where you see the biggest drops in rents are in in places like San Francisco and New York, where the rents were astronomically high to begin with.

And a company has every incentive to shrink their exposure to that.

Those costs and let people work from someplace else.

[Henderson] Well, we have to call this discussion to a close at this moment.

Thank you both for being here today.

[Hart] Thank you.

[Orazem] Thanks for having us.

[Henderson] You can watch every episode of Iowa Press at iowapbs.org.

For everyone here at Iowa PBS.

Thanks for watching today.

♪♪ Funding for Iowa Press was provided by Friends, the Iowa PBS Foundation.

The Associated General Contractors of Iowa, the public's partner in building Iowa's highway, bridge and municipal utility infrastructure.

Across Iowa, hundreds of neighborhood banks strive to serve their communities, provide jobs, and help local businesses.

Iowa banks are proud to back the life you build.

Learn more at i owabankers.com.