Iowa’s economy appears to have stalled and may be sliding backward. 

Seven of the eight economic factors that make up the Iowa Department of Revenue’s Iowa Leading Indicators Index were below par in the most recent report covering May. 

That has not happened since the spring and summer of 2020, when the COVID pandemic was taking hold. And while the indicators began improving in late 2020, the overall trend has been down since last summer.  

The latest decreases involve three key segments of the Iowa economy: manufacturing (new factory orders), agriculture (commodity prices) and insurance (bond yields). 

The only significant gain this year involves construction, where employment is as strong as or stronger than any time since the months preceding the Great Recession of 2008-09.

Employment numbers show more than 84,000 Iowans worked in construction during May. That’s 4,000 more than a year earlier and 6,000 more than the pre-pandemic year of 2019.

Iowa construction employment typically surges when there is increased homebuilding. While there was a small uptick this year in residential construction permits, the 994 permits issued in May was well below the record high of 1,414 set in January 2006.

A fair question is: If this year’s construction surge is not tied to homebuilding, what is driving it?

The obvious answer is increased federal spending. 

Since 2020, the federal government has pushed a total of roughly $4.5 trillion into the U.S. economy, with nearly $17 billion sent to Iowa. That $17 billion is twice the size of the current state government budget. 

A good chunk of the federal money came in the early COVID years in the form of tax refunds for individuals and grants for small businesses. But the money has continued to flow, and many recent allotments have focused on repairing and building new infrastructure.

Federal dollars are helping rebuild the Des Moines International Airport, as well as sewer and road projects throughout Des Moines and the rest of the state. Soon, federal dollars will bring broadband communication services to digitally starved parts of rural Iowa. 

I have not seen a total for all the federal infrastructure spending in Iowa, but it has to be well into the billions of dollars. 

Looking more broadly at Iowa’s economy, a potentially troublesome indicator is one that measures new factory orders as reported by purchasing managers.

The new orders index average for the 12 months ending in May was 52.1, down from 67.0 a year earlier. Pre-COVID, the index was mostly in a range between the low 50s and high 60s.  

The current decline has not yet affected manufacturing employment, which remains mostly steady at about 227,000 jobs. The steady employment numbers suggest that, if the new orders index does not go lower, there may not be much obvious fallout. 

Iowa’s farm economy also shows signs of weakness. Corn, soybean and hog prices are all down from 2022, which was an exceptionally good year for those commodities. 

It’s worth noting that any concerns about the farm economy should include a caveat that when market prices get too low, federal farm payments typically step in and make up some of the slack. 

There is no leading indicator that directly tracks the insurance industry, another key piece of Iowa’s economy, especially in Des Moines. But there is a related measurement that tracks the difference between long- and short-term Treasury bonds, which is a closely watched number for insurers. 

A positive bond yield spread, where long bonds pay 2 to 3 percentage points more than short bonds, is considered good because it gives investors, including insurance companies, the confidence to invest longer term. A spread of less than 1 point is not good, and a negative spread is worse because it creates uncertainty and discourages businesses from long-term planning and growth.

The average spread in May was a negative 1.74 points, which is the worst for any month since the Iowa Department of Revenue began collecting data for the Iowa Leading Indicator Index in 1999.

Even worse, the yield spread has been negative for seven consecutive months, only the second time that has happened in 24 years.