Iowa’s economy improved in 2023 but not as much as the rest of the country.

Iowa’s 2.1% increase in personal income during the third quarter – the most recent period for data – was the fifth-worst in the country and significantly behind the 3.5% national gain.

Similarly, annual growth of Iowa’s gross domestic product typically ranks in the lower third of the 50 states, as it did in the third quarter, at 37th place.

Iowa’s ag-based economy is largely dependent on farm commodity prices; we do well when grain and livestock prices are high, and vice versa.

In addition to benefiting farmers, high commodity prices support Iowa’s main durable goods manufacturers, who make farm and construction equipment, and our nondurable goods factories that process food, including grain and meat.

Iowa’s farm economy boomed for much of 2021 and 2022 after Russian troops invaded Ukraine and shut off that country’s grain exports, eliminating a major competitor of ours for grain sales in world markets.

The lack of competition from Ukrainian farmers helped boost prices for U.S. grain and meat on international and domestic markets with a lot of that benefit landing in Iowa.

Farm commodity prices have fallen in the past year as producers in South America, Asia and Europe moved to fill the void left by Ukraine.

Another thing that boosted Iowa’s economy in 2021 and 2022, but not as much last year or now, was massive federal spending spurred by the COVID-19 pandemic and for infrastructure, which is everything from streets and highways to water systems, airports and public buildings, like Des Moines’ new $140 million federal courthouse.

Congress and the president approved $1.2 trillion in infrastructure spending in late 2021, and while all of that money is not yet spent, most of it is committed.

Iowa’s reported share of that spending is $3.9 billion, which sounds like a lot, but is less than half of 1% of the total. By comparison, Iowa’s population of 3.2 million people is just under 1% of the total U.S. population of about 340 million people.

You could argue that Iowa is not getting its fair share of infrastructure spending because none of the state’s Republican leadership wanted anything to do with the largely Democrat-sponsored infrastructure bill. 

Moving on, the big economic news in 2023 included inflation worries.

The main drivers of inflation were federal spending for COVID-19 relief and infrastructure.

In 2021 and 2022, inflation mushroomed to decades-high levels, peaking at 9.1% in June of 2022 before dropping to 6.4% a year ago.

As 2023 began, many feared a resurgence of sharply rising prices.

But it didn’t happen. Instead, inflation fell throughout the year and was at just over 3% as the year ended.

Driving the decline was food and energy, the two categories that had earlier spurred inflation increases. Both went up sharply beginning in late 2021, and both came down in 2023. 

That sounds like good news, and it was for much of the country, but less so for Iowa, where economic indicators continue to lag.

According to a Jan. 4 news release from the Iowa Department of Revenue, seven of its eight leading economic indicators were below year-earlier levels in November. (December numbers won’t be available until early February, and by then at least one of the indicators – stock prices of publicly traded Iowa companies – should be positive, given the year-end run-up in stock markets.)

But other indicators have been worrisome for much of the past year, including the key farm profit index, which was negative for most of 2023 – meaning the cost of seed, fertilizer and other inputs was higher than the market prices for corn and soybeans.

A new orders index that tracks Iowa manufacturers’ purchase orders has been declining since mid-2021 and is now nearly as low as it was during the worst of the pandemic. 

Home-building permits have followed a similar pattern since the pandemic, providing additional evidence of a lagging economy.