While some economic indicators seem relatively positive, it’s difficult to determine how the federal economy is truly faring without the latest data. That was the take during the first episode of the Iowa Economy Podcast, hosted by Business Publications Corp. President and Group Publisher Chris Conetzkey. For the first episode, guests included Scott Horsley, chief economics correspondent at NPR, and Anne Villamil, Henry B. Tippie research fellow in economics and economics professor at the University of Iowa.

The podcast was recorded on Oct. 31, when the federal government was shut down and many data sets typically published by the Bureau of Labor Statistics and other agencies were unavailable. 

“We’ve been really handicapped this fall by the government shutdown, which has choked off a lot of the economic data, the official economic data that we would ordinarily rely on to take the temperature of the economy,” Horsley said. “The economy is primarily driven by consumer spending, and we think that’s held up fairly well. But we don’t have a really good sense because, for example, we haven’t gotten some of the fall spending numbers that we would ordinarily get. Of course, what props up a lot of that spending is the job market. We haven’t gotten a lot of the job market numbers that we would ordinarily have at this time.”

But consumer sentiment and the impact of trade volatility are also important factors to consider, the guests said. 

An economist’s snapshot

Villamil provided an update on the three main economic indicators she watches: GDP, employment and inflation. 

GDP: National GDP is faring well, she said. 

“The second quarter was strong,” Villamil said. “GDP rose at a rate of 3.8% which was up from a decline of 0.5% in quarter one. A lot of that was due to tariffs and trade that declined in the first quarter. And the Atlanta Fed estimates that the third quarter is going to grow similarly robustly. The Conference Board Leading Economic Index has declined also.”

Consumers with the highest incomes continue to buy goods, but those with lower incomes are not, which is lowering consumer sentiment and playing into the overall health of the economy, she said.

 “We also pay attention to measures of sentiment and that’s part of the concern going forward,” she said. “The University of Michigan Consumer Sentiment Index was 53.6 in October and if the indicator is above 50, the economy is moving forward. If it’s below 50, it’s starting to contract. You might look at that and say, ‘It’s above 50, [therefore the economy is performing well]. And it is above 50, but it was 55 in September and it was 70 a year ago. So sentiment is slowing down.”

Employment: Labor and employment data have been mixed, she said. 

“It’s currently OK in the sense that the unemployment rate is 4.3% which, by historical standards, is a good reading,” she said. “But there is certainly concern about the future. Laborforce participation has been declining, and measures of job openings, in the JOLTS report, are a bit concerning. Furthermore, there’s declining business confidence, and that’s concerning because it restrains employment going forward and investment. But actual services and manufacturing data right now is expanding a bit, hence the mixed picture.” 

Employment trends also play into business sentiment, which is a strong economic indicator and is down because of tariff volatility, she said. 

“Business sentiment is something we also pay attention to because it drives investment and hiring. There’s been a lot of uncertainty about tariffs. They affect input costs. There are also concerns about the current shutdown. There are concerns about the workforce, both skilled labor and immigrants who are important in certain sectors; construction, agriculture, hospitality. Health insurance right now is a big issue, and that’s about 20% of the economy and will affect people’s disposable income.”

Other important indicators have fallen in recent months, she said.

“Data indicators on the business side [are] falling a bit, so the ISM Manufacturing new orders fell to 48.9 and that’s below that 50 threshold, the export order book has fallen 14.1% in September, and the business sentiment there that’s put out by the Conference Board is delayed due to the shutdown, as many, many [data] series are. We’ve really got to get that data going again. The August readings were a decline of 0.5 of 1% of the leading indicators, and current conditions were weakly positive at two-tenths of 1%.”

Inflation: Inflation and monetary policy are also showing mixed data. Inflation is above the Federal Reserve’s 2% target reading. 

“The Fed has a dual mandate. It looks at both inflation and unemployment and it has noticed, as we all have, increased uncertainty, which has gotten worse in the short term due to the government shutdown and the lack of data,” she said. “The Fed, in its most recent meeting, just cut its policy rate by a quarter of a point, so that rate is now in the range of 3.25% to 4%. Again, the Fed’s dual mandate is to balance inflation and employment, and the Fed judged the risks on employment to be sufficient to lower by a quarter point. But it also said in its statement, essentially, ‘Don’t read too much into this, we’re going to be looking at the data, and we may cut in the future and we may not.’ Taken together, the current indicators are OK , but there is uncertainty and concern about the future.”

Key Iowa sectors are ‘hurting’ 

Shifting trade policies throughout the year have had a profound impact on two of Iowa’s top sectors: manufacturing and agriculture. 

“Anne talked about the manufacturing numbers, which have really been in the tank for months now because of the trade war,” Horsley said. “A lot of exporters rely on imports for some of their processes. Manufacturers are supposed to be the beneficiaries of the president’s tariffs, but they’re all screaming bloody murder every month. That ISM report is full of people complaining about not only the level of the tariffs, but the random way that they kick in. It’s very hard to make predictions. That’s really hard on manufacturers.”

He mentioned how new trade policies have been negative for farmers, raising input costs and depressing the price of products. 

“The trade war has been terrible for farmers. It’s both raised the cost of their fertilizer and other inputs, and it has depressed the price of their product,” he said. “We had a terrific corn and soybean harvest this year, not only in Iowa but across the country unfortunately, so good that the prices – I don’t have to tell your listeners – are terrible.”

Hopefully, Horsley said, recent news of a trade deal with China could help improve the situation for farmers, although he is cautiously optimistic based on past history. 

“The president’s recent meeting with Xi Jinping, it looks like China’s going to at least end its boycott of U.S. soybeans, which has been terrible for your listeners, farmers in Iowa and throughout the Midwest,” he said. “But all that’s doing is getting us back to where we were before the trade war started, and frankly, I lived through this in the first Trump administration. China doesn’t always come through on all these sales commitments, so I will believe those purchase orders when I see them.”

Villamil agreed that Iowa’s economy is not performing well. 

“Iowa is taking it on the chin. Agriculture, manufacturing, even financial services, those are three key sectors in Iowa, and they are hurting,” she said. “Unemployment is actually going up, GDP in Iowa has been mildly negative, so that is concerning. I couldn’t agree with Scott more that the trade war has been very, very damaging for Iowa, and most ironically, in sectors that it was designed to support, like manufacturing.”

The trade policies have also stressed Iowa’s relationships with its top trade partners: Mexico, Canada and China, she said. 

“We don’t have new trade agreements with Canada and Mexico. As a matter of fact, we keep another 10% on Canada because we didn’t like an ad, which is very, very concerning,” Villamil said. “With Canada, we actually import a lot of inputs; aluminum, steel. Scott talked about components for fertilizer. When we impose those increasing tariffs on Canada, we are raising the prices for U.S. firms’ inputs. It’s a very concerning situation.”

What they’re watching

Moving forward, Villamil said she is keeping an eye on the economic outlook by monitoring uncertainty in business and consumer sentiment, while Horsley said he is watching GDP performance and productivity. 

“We have got to start reducing that uncertainty by having a set of policies that we explain, stick to and implement,” Villamil said. “That uncertainty is the case for tariffs, but it’s the case for many other things. We look at health insurance now there’s just a tremendous amount of uncertainty with respect to what health insurance is going to look like. Health care as a sector is 20% of GDP, almost. These are big numbers, and we’ve got to start having policies. I think the initial argument was with tariffs, we’re going to say these things because we’re going to negotiate agreements. We need agreements that are actually negotiated, signed and then implemented.” 

Horsley said he is watching how population decline, immigration and AI overlap and affect the economy. 

“The productive capacity of the economy is dependent on the population and on productivity. We have seen a significant slowdown in population growth. We know the demographics of our native-born population are growing slowly and could even start to shrink,” he said. “We have been relying on immigration to kind of close that gap and to keep the population growing. Those immigration trends have now changed, and we’ll see if that reverses, but unless we see some sort of spurt from productivity — and it’s possible that AI or other factors will help us to boost our productivity — but unless we can make up in productivity what we’re losing in population growth, then we are in for a substantially slower economic period of economic growth going forward, long term.”

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Check out Episode 2 and Episode 3