How will the suddenly volatile markets fare? Is the yield curve providing hints about a recession? How will Iowa and your business be affected by the economy in 2019?

For almost two decades, the Business Record’s annual Economic Forecast has helped CEOs and business owners gain insightful perspective on what the economy holds for the coming year.

We’ll discuss questions such as:
– Are certain indicators pointing to a looming recession?
– How have federal and state changes to tax reform affected Iowa?
– What are the most significant threats to the Iowa economy in 2019?
– What’s the outlook for employment and wages?
– How will the stock market fare after a year of volatility?

To prepare, we’ve asked panelists to answer a question before the event. The question and their answers follow. (Robin Anderson, Principal global investor, is also on the panel.)

We asked: What is the most important thing businesses should know about the economy in 2019?

Debi Durham | Director, Iowa Economic Authority and Iowa Finance Authority

To quote Consumer Electronics Show organizer Gary Shapiro, “Every company today is a technology company.”

Even legacy brands are finding ways to leverage artificial intelligence, automation and data-driven decision-making to accomplish goals like process improvements, waste reduction and connecting with customers who want to play a bigger role in knowing and deciding how products are made.

Businesses that understand the convergence of convention and computing — such as John Deere, which is making its debut at CES this year — will be successful, and the early adoption of cutting-edge technology will set Iowa apart on both the business and workforce fronts.

As many as one-quarter of jobs may be automated by 2030, but at the same time, automation could add 15 million American jobs. These are high-quality, high-paying jobs, and Iowa’s future workers are skilling up. The number of Iowa students taking the Advanced Placement computer science exam increased by 28 percent in the last three years.

The opportunity to apply the latest and greatest technology to the oldest and strongest Iowa industries truly is one of the most important and exciting trends I expect to unfold in 2019.

Eric Lohmeier | President and Managing director, NCP Investment Banking

We all have a front-row seat to see how the economy responds to a higher interest rate environment (200-plus basis points over the average of effectively zero for almost 10 years) without the effects of the stimulative corporate tax cuts of 2018.

From our firm’s perspective, I think there is a low chance of a recession in the next 18 months, but a rather high chance for a “corporate profits” recession. This likely means stable to slightly negative corporate valuations.

Wage growth is very real today with the last reading over 3 percent year-over-year, and we believe that is sustainable at multi-decade low unemployment rates. Effects of trade wars lag from their implementation. The multi-front trade war that was started in earnest by the U.S. in 2018 and wage growth are having real effects on corporate costs.

The problem is that companies are having a difficult time passing these costs on to the end consumer. It is simple math: Cost inflation of 3 percent from a combination of increases in wages and the supply chain, and the ability to pass through, let’s say, 2 percent (the GDP growth estimate) and you have the net effect being a decrease in the corporate profit margin. In addition, refinancing any debt issuance is likely to be 100 to 300 basis points higher (depending on credit quality). Hence an “earnings recession,” which is much different ? and, frankly, much less severe ? than an actual recession. M&A valuations peaked midway through 2018, and due to the factors above (especially higher rates and more risk premium demanded in borrowing), we will see a moderate comedown while remaining above historical averages. We won’t repeat 2008, short of an existential (if there is one, likely a Washington, D.C.-induced) crisis. 

Dave Swenson | Department of Economics, Iowa State University

Iowa’s economy has extraordinary assets. Iowa’s manufacturing sector has recovered close to pre-Great Recession levels. Iowa’s financial sector is thriving, and the fastest levels of industrial growth are occurring in industries depending significantly on college-educated workers. 
 
But Iowa is also regionally and sectorally vulnerable.
 
Iowa’s ag sector, beset by several years of robust production and low prices, is now the victim of trade policy decisions that impact Iowa farmers more so than in any other state. In just a few short months in 2018, Iowa’s ag sector went from cautious optimism to utter despair.  Expectations of growth in grain and meat exports evaporated overnight. The result: A bad situation was made markedly worse.
 
Businesses in Iowa need to be aware of the implications of national policy decisions that lead to massive collateral consequences. There are, for example, at least seven workers in industries that make metal products for every worker in Iowa primary metals manufacturing firms that have benefited from the protective tariffs. Right now, Iowa’s economy is a casualty of policy choices that have questionable value for the U.S. economy at large. It will get worse as the year progresses, and the damage will affect nonmetro areas worse than the metros.

Georgia Van Gundy | Executive Director, Iowa Business Council

Volatility and uncertainty will be prevalent.

Numerous extenuating factors will create high volatility in the economy during 2019, and businesses will need to have operation models that can adapt. There are many political and economic uncertainties, along with numerous conflicting indicators, that will foster this volatile environment. Unfortunately, a number of these factors are out of the control of business.

For instance, our challenging national political environment has both a real and a distorted impact on the marketplace. This environment is more unpredictable than historically and continues to create uncertainty in key policy areas impacting business, such as trade. As the 2020 presidential election is already percolating, candidates may introduce business-unfriendly ideas that could alter the marketplace.

The divergence between the real economy and financial markets that marked 2018 creates unpredictability and will continue well into this year. Last year the real economy was booming while financial markets struggled. The 2019 financial markets will see broader swings than last year. Business leaders watch the financial markets and take their negative cues from it; therefore, business sentiment has fallen significantly. However, consumers are impacted by job growth, wage gains and housing prices, which are presently strong, thus creating a positive consumer sentiment. Altogether, business leaders may slow capital expenditures while they worry about falling stock prices. At the same time, consumers may keep sales, revenue and profits growing despite the current negative outlook.

In addition to trade and the markets, nontraditional competitors entering various industries will continue to disrupt the market and business models. Think Amazon. How will our economy evolve during 2019 as businesses try to adapt to the impacts innovation and technology have on consumer consumption and attraction to nontraditional competitors? This disruption is unpredictable and also creates volatility on many fronts.

Meredith Corp.’s Ceryanec named Deloitte CFO of the Year 
     
Joe Ceryanec, chief financial officer of Meredith Corp., has been selected by the Business Record as the Deloitte CFO of the Year. The award will be presented to Ceryanec at the Business Record’s Economic Forecast Luncheon on Jan. 31.
     
Ceryanec, who succeeded Suku Radia as Meredith’s CFO in October 2008, has been instrumental in guiding the company through its $2.8 billion acquisition of Time Inc., a transaction that made Meredith the largest magazine publisher in the country.           

Read more about Ceryanec in the Feb. 1 issue of the  Business Record.