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Release: Immediate

Iowa's economy to experience moderate growth in 1997 and 1998

IOWA CITY, Iowa -- The Iowa Economic Forecast released today by The University of Iowa Institute for Economic Research predicts moderate growth for the Iowa economy for 1997 and 1998. The report was prepared for the Iowa Economic Forecasting Council, which received it today in Des Moines.

According to newly released data from the U.S. Commerce Department, Iowans' real personal income (that is, adjusted for inflation) grew about 6 percent during 1996. This figure represents a substantial upward revision to the historical data, since earlier estimates had placed growth at under 4 percent. The pace of economic growth in 1996 is by far the most rapid the state has seen in recent years, except for the flood recovery year of 1994.

The forecast indicates that real personal income will grow an additional 2 percent in 1997 and 1.8 percent in 1998. Institute Director Charles H. Whiteman said that Iowa experienced the acceleration in growth before the rest of the nation. "Nationally, growth picked up in the fourth quarter of 1996 and was maintained through the first quarter of 1997. In Iowa, we got our rapid growth earlier in 1996. It was a very good year in Iowa," he said. "Six percent growth is remarkably strong for a year in which we were not recovering from a recession, flood or drought. The forecast for 1998 is that growth in Iowa will be very much like the national average."

Nonfarm employment is predicted to grow about 1.4 percent in 1997 and a little under 1 percent during 1998. As has been true in recent months, the service sector will show the strongest growth, and manufacturing will be the weakest.

The Institute also released state tax revenue forecasts. Whiteman indicated that the Institute's model predicts that fiscal year 1998 revenue growth is likely to be between 2 percent and 2.5 percent, very much in line with the state's official forecast of 2.2 percent. These low figures represent the effects of tax cuts enacted during 1997. He cautioned that the uncertainties surrounding revenue forecasts are large. The state's Revenue Estimating Conference will meet later in the month to consider whether to change the official estimate.