Working in Iowa

 

 

Large round numbers can get politicians elected, but they can also get them in trouble.  Iowa governor Terry Branstad pledged to create 200,000 more Iowa jobs over a five year period.  The clock is ticking.

 

There are a lot of problems with this pledge, the most salient of which is that, barring an incredible transformation in Iowa’s economy, the promise is a hollow one.  Stated differently, it ain’t going to happen.  

 

The actual counting of jobs can be a tricky prospect, and the legislature intends to suggest standards to gauge success along with establishing a baseline value – a beginning point, as it were.  At the outset, a pledge to create jobs would be awfully cynical if it began from the depths of this recession.  The overall national and state economy will recover over time regardless of what the president or the governor does or does not do.  

 

To measure change, the most honest measure would be to use total nonfarm payroll jobs as counted and reported monthly by the U.S. Bureau of Labor Statistics. 

 

That count is based on an on-going survey of businesses, and while the survey may be only more or less right over any given month, the estimation errors average out over time, and it does provide a good sense of the pace of change.  Using those data, the logical beginning point would be the average of employment for the 2007 and 2008 period, which was about 1.525 million nonfarm jobs on payroll.  So for the governor to claim success in five years (assuming, of course, that he stands for and wins re-election), the BLS will have to record an average of 1.725 million Iowa nonfarm jobs for 2016.  

 

There will have to be an average net gain of 40,000 jobs per year to reach the goal.  There were three years since 1980 when annual growth in Iowa exceeded 40,000 jobs, and there were two times where the state suffered losses in excess of 40,000.  When you average all of the nonfarm job growth over the past 30 years, it is a shade under 12,000 a year.

 

To give a better sense of the prospects for such robust growth by 2016, consider the following graph.  The long and dashed line represents the long-term monthly trend in job change since 1980.  The squiggly line represents actual employment from month-to-month. Sometimes it is below the trend line and sometimes above.  Right now it is significantly below that line.

 

Iowa really has yet to start any significant recovery, though the jobs numbers are up from last year, but if it only recovers at about the long-term trend pace, then it will take several years just to re-attain our previous peak employment of 1.525 million jobs.  But we have to reach the short green line, 1.725 million jobs, by 2016.  To do that requires growth as represented by the dashed pink line. For the governor to achieve his stated goal, the average pace of growth will have to be 2.8 times the long-term monthly trend.

 

The fact the target was set at five years gives the governor some cover should he run for re-election.  But just where will Iowa be by that time?  A separate projection of mine that I use in presentations looks at the prospects of re-attaining not the number of jobs, but the number of employed persons we had before the downturn.  Using my most optimistic scenario, I don’t have the state beginning to post net-growth in employed persons until the last quarter of 2013 or the first quarter of 2014.  This recession promises to be long and jobless.

 

There will be legislation passed to enable the governor’s goals, and over time there will be an improvement in the state’s economy. Will one have caused the other?  The short answer is no.  Here’s why:  There are three components to Iowa economic growth.  The first is the national economy.  We are part of the nation; as it grows, so will we.  We have no control over that.  The next part is our unique mix of industries.  We have strengths in agriculture, manufacturing, and financial services.  The first two will shed jobs over the next decade, and the third might add jobs.  Whether financial services growth covers the losses will remain to be seen.  The last component of growth is Iowa’s overall competitive position.  In the Midwest we are, for lack of a better term, just about average.  And no matter what Mr. Branstad or the General Assembly does legislatively, our overall competitiveness will not change much.