Iowa’s economy had the worst growth in the nation early this year. Why?

JOHNSTON — Iowa’s economy had a rough first three months of the year, according to federal data.

And the state’s economy has been sluggish for much longer than that, one state economic expert said Wednesday.

Iowa’s gross domestic product, or GDP — a measurement of the state’s total economic activity — shrunk 6.1 percent in the first quarter of 2025, according to the U.S. Bureau of Economic Analysis. That number was the worst in the U.S. — tied with neighboring Nebraska — and well below the 0.5 percent decrease in GDP nationally.

Iowa’s economic performance in the first quarter of 2025 even lagged well behind other neighboring states, outside of Nebraska: Iowa’s other five neighbors saw GDP decreases between 0.6 (Wisconsin) and 2.7 percent (South Dakota).

“Iowa has not been doing particularly well compared to the rest of the U.S. for many years,” Peter Orazem, an economics professor and interim chair of the Iowa State University Economics Department, said Wednesday. “We started growing more slowly than the U.S. in 2018. And if you go back to the start of the pandemic, we’ve actually not added any jobs.

“So I don’t think Iowa has been doing particularly well, not just in the last quarter, but for the last seven years.”

According to the BEA’s chain-type quantity index for GDP — which measures output while canceling the impact of inflation — Iowa’s economic growth largely mirrored the nation’s from 2005 through 2017.

But starting in the third quarter of 2017, Iowa’s growth lagged the nation’s, and starting in the third quarter of 2021, that disparity has widened significantly.

In other words, since 2017 Iowa’s economic growth has lagged the rest of the country, and since 2021 the state has lagged far behind the rest of the country.

Orazem, during a discussion for the taping of this weekend’s episode of “Iowa Press” on Iowa PBS, said Wednesday that one reason Iowa’s economy is struggling more than other states’ is Iowa’s aging populace and difficulty growing its population.

Iowa had its best year for population growth in 2024, increasing by 0.7 percent, according to U.S. Census data. But from 2009 to 2024, Iowa’s population grew by the equivalent of just 0.44 percent annually, below the national median mark of 0.51 percent.

“If you go back to the pandemic, atypically the people who left the labor market were people over the age of 55. And Iowa goes into the pandemic as one of the older labor forces in the country,” Orazem said. “And so one of the problems that Iowa has faced since the pandemic recovery has been we simply don’t have enough workers to fill jobs — and atypically compared to other states.”

Reynolds blames state’s decline on agriculture struggles, Biden

Speaking to reporters Tuesday at the grand reopening of a wind turbine production facility in West Branch, Gov. Kim Reynolds largely attributed the decline to struggles in agriculture — a trend seen across the Midwest. Finance and insurance sectors also faced challenges, Reynolds said.

She said there's a push to expand both existing and new markets for agricultural products, with support from officials like U.S. Department of Agriculture Secretary Brooke Rollins and the U.S. trade representative.

Reynolds, a Republican, also criticized trade policies under Democratic former President Joe Biden’s administration.

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“You know, President Biden did absolutely nothing with agriculture — with trade — for four years, and we continue to get better at what we do,” Reynolds said. “Our farmers continue to increase yields with smaller footprint. So we need to find a market for those commodities, and I’ve reached out to Secretary Rollins. … We’re working with all of the partners to hopefully not only build out our existing markets, but look for opportunity for new markets.”

Evolving tariff concerns also highlight the need to finalize trade deals to help stabilize Iowa’s economy, the governor said.

“So I know there’s been a lot of controversy with the tariffs, but I think actually it’s starting to play out, and you’re seeing some of our economic experts kind of change their opinion on the impact that tariffs may have on our economy moving forward. But we need to get some deals done,” Reynolds said.

Chad Hart, an economics professor at Iowa State University who specializes in agricultural policy, said Iowa’s agricultural sector has been “treading water,” waiting to see how Trump’s tariff policies will play out.

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“For our farmers the big thing they need to worry about is not the tariffs that are put in here in the U.S., it’s how other countries respond to those tariffs. And right now, we haven’t seen a lot of responses from other countries because of the on again, off again nature of what we’re seeing here within the U.S.,” Hart said on “Iowa Press.”

“When we’re looking at machinery, though, it’s a much different deal,” Hart added. “They are feeling the pinch of the tariffs that the U.S. has put on. Steel and aluminum have went up. That’s part of the reason why you continue to see John Deere, Kinze (Manufacturing) let’s say keep things slowed down. They’re not looking to grow. In fact, they’re looking to still shrink and consolidate to handle those additional costs of the tariffs.”

Iowa Business Council projects positive outlook in quarterly survey

The Iowa Business Council, meantime, projected a positive outlook for the next six months in its quarterly Economic Outlook Survey, published Wednesday.

The IBC is a nonpartisan, nonprofit organization with 21 members from major Iowa businesses that, according to the group, employ more than 150,000 Iowans. The quarterly survey measures members’ expectations for sales, employment and capital spending for the next six months.

“Iowa Business Council members remain confident in the state’s economic trajectory,” IBC President Joe Murphy said in a news release. “While uncertainty continues to influence business decisions, our long-term outlook for growth and opportunity in Iowa remains strong.”

Rob Sand, a Democratic candidate for Iowa governor in next year’s election, issued a statement after the release of the federal report that showed the state’s poor economic performance in the first quarter. In the statement, Sand said “the insiders in Des Moines are dragging Iowa’s economy further into the ditch and leaving Iowa families behind in the process.”

“Iowa Press” can be viewed on Iowa PBS at 7:30 p.m. Friday and noon on Sunday, and any time online at iowapbs.org.

Tom Barton of The Gazette contributed to this report.

Comments: (515) 355-1300, erin.murphy@thegazette.com

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