Economic uncertainty will remain the norm – at least for the next several months, panelists said during the Business Record’s Economic Outlook event on Jan. 24. So what can business leaders expect? Read on to see some of the takeaways from the discussion.

Speakers included:

- Don Coffin - CEO and president, Bankers Trust Co.

- Debi Durham - Executive director, Iowa Economic Development Authority & Iowa Finance Authority.

- Eric Lohmeier - Founder and president, NCP Inc.

- Tom Rietz - Soumyo Sarkar professor of finance and departmental executive officer, University of Iowa Tippie College of Business.

- Nate Schelhaas - Senior vice president and head of life protection solutions, Principal Financial Group Inc.

Four things business owners can do to prepare for a recession

There are four things companies can do to prepare for a recession in addition to driving down expenses and building up cash reserves, Schelhaas said. One is to secure a line of credit. “You don’t know when you might need some additional capital,” he said. The second thing is to diversify your revenue in ways you maybe haven’t thought of before. Another is to strengthen and fortify key relationships. The last piece of advice Shelhaas gave on this front to business owners was to listen to employees. “What’s on their mind? What’s important to them? Sometimes there are benefits that don’t cost you a dollar,” he said, giving examples of working remotely and hosting a take-your-pet-to-work day. “When you think about going into a recession, those types of benefits can have a meaningful impact on your employees and your bottom line.” – Emily Kestel

Worry about keeping your own house in order, not whether or not a recession is coming

Coffin challenged people to look beyond the word “recession,” because it’s a “big word that scares people.” Instead, he encouraged people to focus on their own company and family. “There isn’t really a recession if everybody has a job,” Coffin said. “If you have a job, you don’t have a recession. You’re moving forward and growing.” He added, “Recession is a mathematical kind of statistic and not necessarily the end of the universe.” Coffin also said a recession isn’t likely to be felt in Iowa, due to its financial position. “I just feel like with the unemployment rate being low, the jobs being plentiful and people still looking to hire, that indicates to me, at least in Iowa, if we do have a recession it’s not going to last very long.”  – Emily Kestel

Despite recessionary signals, Iowa’s economy is strong

Durham said that while there are “headwinds nationally and internationally that we have no control over,” Iowa’s economy is strong and positioned well to weather the storm. “It’s diversified and we actually invested [ARPA] dollars in some strategic investments that will serve us well into the future,” she said. Durham said the state’s manufacturing sector is “extremely strong,” and there has been some easing of supply chain disruptions. Exports were up in 2022 compared with 2021, she said. Durham also said China’s easing of its zero COVID policy will serve Iowa well as it’s Iowa’s third-largest trading partner. “I believe we’re going to fare better. I think we’re in an enviable position that is going to weather the storm much better. I do believe that we’re seeing recessionary signs, but Iowa’s in a really good position.” – Michael Crumb

Iowa banking is on “really solid footing”

“Problem loans are down low across the board,” Coffin said. “Past dues are way down. I think all the banks are good from a capital standpoint, so I don’t see many issues on the banking side. I think the opportunities that present in Iowa are numerous and I think we’re still in line for a good year.” – Michael Crumb

It’s important to keep current interest rates in historical perspective

“I bought a house in 1983 in Waterloo and I assumed a loan at 14.5%," Coffin said. "Things are different, and for a little perspective here, the interest rate in the 1970s roughly started and ended at about 7.5%. In the ’80s it was anywhere from 10% to 18%. I think the high at one time was 21%. So the ’90s were 8% to 10%, and the 2000s were 6% to 8%, so it’s coming down now since 2000 so we tend to think it has to stay down. We’re not in a high rate environment today, relatively speaking. So I think it’s going to be higher than it was two years ago, rolling forward for a few years, but I think it will stabilize and gradually come down from where we are.” – Michael Crumb

The business community can be the solution

Rietz challenged those in attendance to address issues facing the world today. “The proposition I have is if you look at all of the major problems in the world, food insecurity, starvation, not enough clean water, people are fighting over scarce resources and causing wars. You are the solution to all of those problems,” he said. He said people are working on technologies to do all the work. What is needed is the resources to do it. “We’ve already talked that the government doesn’t have enough resources," he said. "But businesses can aggregate capital to enact the technologies and solve all those problems.” – Michael Crumb

Remote work continues to change employment landscape

While the conversation generally focused on new conditions that could be coming Iowa’s way in 2023, Durham cited the ongoing need to address the state’s population and labor participation challenges. Since the pandemic, Durham said men ages 25-34 have not returned to the workforce and there has been a wave of early retirements. Remote work and the way it continues to change the employment landscape came up as Schelhaas mentioned the rise in people he knows working for out-of-state companies from Iowa. “I think [that] is a great equalizer for rural Iowa, particularly with the investments we're making in broadband," Durham said in response. "You can run the world from anywhere as long as you are connected.” She also said the trend is causing shifts for how the Iowa Economic Development Authority looks at incentives. “We're still not going to give incentives to a company that is employing people in California, but we're not tying employee numbers now to a place,” she said. “As long as the employees are in Iowa somewhere, we're going to count it, so it really is changing the way we even do business.” – Sarah Bogaards

Local implications of Big Tech layoffs

Durham said the swath of recent layoffs from Big Tech companies does present an opportunity to attract people to Iowa or have native Iowans return to the state to be closer to family. Lohmeier said the layoffs are “a sign of things to come as far as where you're going to see the volatility in jobs, and I do think it’s going to be more … white-collar versus blue-collar.” He said tech companies are correcting after the growth curve didn’t stay “higher for longer” as they thought, but it’s not only the tech sector that can be affected. “I think both [Coffin and Durham] have mentioned the whole company would have to be really efficient about their costs,” Lohmeier said. “The biggest cost for most companies, especially service industry, is human — it’s labor. I think people are going to really hold on tight to those folks that are really hard to find … but I think it's going to be like, ‘Wow, we're not growing as fast. I don't need as much HR. I don't need as much onboarding.’” –Sarah Bogaards

Two-tiered economy

Lohmeier said he viewed the economy as two-tiered. “I see a pretty long-term downturn in real estate and real estate development. [It includes] residential all the way through to commercial, including warehouses. We’re going to see some real softening of warehouses.” Over 2 million square feet of new industrial space was built in the Des Moines area in 2022, according to CBRE’s Des Moines industrial fourth-quarter report. More than half of that space was speculative construction, Lohmeier said. If developers are unable to lease the space, they will have to refinance it, he said. “It’s going to be tougher for a while.” On the other hand, more than $4 trillion will be pumped into the economy in the coming decade, he said. “Labor’s going to be really strong because of the infrastructure bill.” Ag manufacturing will also be strong, he said. “We’re really going to have some pretty strong areas of the economy and some pretty weak parts of the economy.” – Kathy Bolten

Inflation’s impact on consumers

Durham raised concerns about the financial health of consumers. “We’re seeing credit card debts rise,” she said. “We’re seeing people employed but many are going back to dual jobs to make ends meet. … Inflation is going to do a lot more damage. Yes, it’s coming down slightly but I do not see the Fed changing course. I think the story of what [inflation] is doing to consumers is yet to be told.” – Kathy Bolten

Forecasting state revenues

In 2022, a tax reform bill was passed in both the Iowa House and Senate and signed into law by Gov. Kim Reynolds. The bill lowers the individual tax rate for all Iowans, eliminates income tax on all retirement income and overhauls the state’s corporate tax system. “I think we face some challenges in the state in forecasting our own state revenues,” Rietz said. “The tax laws have changed so much that all of the forecasting we’ve done in the past is thrown out the window, and that could throw us off the rails.” – Kathy Bolten