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Monday AM Daily | January 31, 2022
Some takeaways from the Economic Forecast
By Joe Gardyasz | Senior Staff Writer

Our five panelists at last Thursday’s Economic Forecast at the Sheraton West Des Moines had a lively discussion about a number of topics that are at the top of everyone’s minds as we head into 2022. If you weren’t able to join the live event, here are some takeaways to consider. Moderated by our group publisher, Chris Conetzkey, the forum included:

  • Steve DeVenney, branch manager and SVP of investments, Raymond James & Associates.
  • Debi Durham, director of the Iowa Economic Development Authority and the Iowa Finance Authority.
  • Brenda Martin, workforce project manager, Center for Industrial Research and Service.
  • Peter Orazem, professor of economics, Iowa State University.
  • Mike Wolf, global economist, Deloitte Touche Tohmatsu Ltd.

Workforce should be top priority
"The most important thing for our companies to focus on right now is retaining and finding employees," Brenda Martin said. "You don’t want to lose who you have — you’ve invested a lot to get them to this point, so acknowledge that you have hired all the easy-to-find people. We know that there were less than 300 available people — before COVID — in every Iowa county. That makes it difficult if you’re a growing company." Companies should invest in removing barriers for those groups that may not be currently employed or who are underemployed, as well as reaching out to K-12 schools to encourage students to think about careers, she said. .

Bankruptcies and foreclosures could surge
Peter Orazem said he’s worried that the "chickens are going to come home to roost" in the next year or two as bankruptcies and foreclosures that were staved off by government-imposed forbearance and stimulus payments end, resulting in potentially massive surges. In 2020, per-capita income increased at some of the fastest levels recorded, while bankruptcy filings were down 30%. If a big rebound in foreclosures and bankruptcy filings occur, it would result in a lot of real estate assets coming up for sale, potentially depressing the real estate markets. "Possibly, it could be good news, if it could all be sustainable, but my sense is that a large departure from past bankruptcy rates is going to be sustained in the future," he said.

Residential housing will be first to feel credit tightening
The residential housing market is typically the first segment of the economy to reflect a tightening monetary policy, said Mike Wolf, who anticipates the Fed will begin raising interest rates in March, likely by 25 basis points to start, followed by subsequent 25-point increases in each quarter following. "It responds quite quickly — people’s demand for housing is based on interest rates. So the first thing you see is a pullback from housing demand, and that will probably ease some of the house price pressures that we’ve seen recently.

Capital investments up; manufacturers diversifying supply chain  
Debi Durham said that from a manufacturing standpoint, the IEDA is busier than ever with its High Quality Jobs portfolio based on "huge capital investments being made by our existing companies," many with an emphasis on digitizing factory floors. "The second thing we’re seeing is the shoring up of supply chains," she said. So companies [American and foreign] are saying, we need to be closer to our customers here, so we need a location here. The other thing we’re seeing, which is extremely encouraging, is that large [original equipment manufacturers] like John Deere and Collins are now working with Iowa’s smaller manufacturers, saying, 'What would it take for you to diversify and to [produce] this product to shore up the supply chain?' So for that part of our economy, I think it’s going to be stronger than ever."

Manufacturing employment rebounds
Iowa’s December employment numbers released earlier this week showed that aggregate employment in manufacturing is back to pre-pandemic levels equivalent to December 2019, Orazem noted. "So we've made back all of those losses. But within that there's a lot of variation in terms of how the different sectors are doing. So we're up to 4.7% unemployment in non-durable-goods manufacturing, and that's largely food and food security. And those are relatively shorter supply chains relative to durable goods manufacturing, where we're still down about 3 to 4%, in terms of employment." However, Iowa’s labor force has been unable to respond as quickly as many other states due to its aging demographic, which is a concern going forward, he said.

Remote work’s double-edged sword
Anecdotally, CIRAS is hearing that Iowa companies needing to fill middle-management positions are hiring out-of-state people to work for them remotely because they can’t find the talent here, CIRAS’ Martin said. "COVID taught us that people don’t necessarily have to be here to work for our companies, and that is happening today," she said. "The flip side is that we’re losing talent that might live here. They’re giving their talent to California companies that pay extraordinary wages. We had a company tell us right before Christmas they hired a programmer who was a top wage for Des Moines — over $100,000. He came in the next week and resigned because some company in California offered him $200,000. So it’s happening, and be aware, Iowa is global in that way.

Wolf drops the K(ansas) bomb on flat-tax proposal
On the subject of the flat tax proposal floated by Gov. Kim Reynolds and now the Iowa GOP, Deloitte economist Mike Wolf cautioned that reducing the corporate income tax rate may be an ineffective growth incentive. "It’s very popular, but I think the lesson learned from Kansas under [Gov. Sam] Brownback when they reduced their corporate income tax hoping that this would spur a whole bunch of investment, which didn’t happen and they had to reverse their tax rates. I think in theory, we hope these reductions in taxes will spur economic growth, but in practice … I would be more cautious about it."

In response, Durham said the reason that Kansas’ corporate tax cut blew up was that the state didn’t put triggers in place to regulate it, and that Kansas didn’t have the kind of budget reserves that Iowa has. The state’s larger focus will be on personal, not corporate, tax, she said. "I like that we’re focusing on personal income tax, because to me, that’s where wealth is created," Durham said. "The corporate tax is on a much slower trajectory of [proposed] lowering, but we still have to [do that]."

Investment returns will be ‘much more moderate’
From an investment standpoint, Steve DeVenney sees reasons to be concerned about a market correction coming. "In the last three years — 2019, 2020 and 2021 — the stock market as measured by the S&P 500 has doubled in price. It hasn’t done that since 1997, 1998, 1999. And if you were around then, the next two years the S&P lost 40%. So there is excess out there. The correction we’re seeing right now, the Nasdaq closed down 20% a couple of days ago. It could get worse before it gets better. It’s just all the uncertainty about the workforce … And this week energy prices hit $90 a barrel, an eight-year high. … So it’s probably going to be a period of fits and starts. But I don’t think any of us should expect returns like we’ve seen in the last 10 years. It will be much more moderate."

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Principal in $25B reinsurance deal with Talcott, increases share repurchases by $1.6B
Principal Financial Group today announced it has entered into an agreement with an affiliate of global investment firm Sixth Street and its insurance platform, Talcott Resolution, to reinsure Principal’s in-force U.S. retail fixed annuity and universal life insurance with secondary guarantee (ULSG) blocks of business. Under the terms of the transaction, the Talcott affiliate will reinsure about $25 billion of liabilities, comprising $16 billion and $9 billion of retail fixed annuity and ULSG liabilities, respectively, from Principal. Principal will continue to service and administer the policies of the reinsured blocks of business. The Des Moines-based insurer said it expects deployable proceeds of about $800 million upon closing the transaction and through additional transactions designed to improve the capital efficiency of its in-force individual life insurance business. Principal plans to return the proceeds to shareholders through share repurchases. In connection with today’s announcement, Principal’s board of directors has approved a $1.6 billion increase to the $1.1 billion that remains available under the company’s existing share repurchase authorization as of Dec. 31. 2021, resulting in an aggregate share repurchase amount of $2.7 billion. Additionally, Principal has increased its share repurchase target for 2022 from a range of $800 million to $1 billion to a range of $2 billion to $2.3 billion. "We are focused on improving capital efficiency and strengthening Principal to win, grow, and create long-term shareholder value," said Dan Houston, chairman, president, and CEO of Principal. "We conducted a comprehensive process designed to optimize the value of these blocks, while improving our overall risk profile and reducing the capital requirements of our portfolio. At close, these transactions, along with strong operating performance, enables a significant increase to our share repurchase program, while supporting our ability to invest in growth, serve our customers, and lead in higher growth markets."

Kansas City businessman Lark appointed as new SBA regional administrator
Vercie Lark, a small business venture capital and angel investor in Kansas City, Mo., has been appointed by President Joe Biden as the new regional administrator for the U.S. Small Business Administration’s Region 7, which serves Iowa, Kansas, Missouri and Nebraska. Lark, who retired in 2018 from global technology company DST Systems in Kansas City, is the author of "Make It Rain: Increase Your Wealth and Financial Security," a self-help personal finance book. He has held various executive leadership roles for Fortune 1000 companies during his 35-year career. He also has owned and operated small businesses, including a BP gas station and convenience store, multi-family real estate investments, and an online clothing store. Lark fills the position previously held by Tom Salisbury, who left the agency  in January 2021 after three years as administrator. The Region 7 office in Kansas City is one of 10 regional offices overseeing 68 district offices across the country.
Deloitte CFO of the Year: Michael Skokan
Doing what’s best for Hy-Vee’s employees — who now number more than 93,000 — was always at the top of Mike Skokan’s mind as chief financial officer of the West Des Moines-based company.

Skokan, who retired in mid-December as executive vice president, CFO and treasurer after a 35-year career with Hy-Vee, is being recognized by the Business Record as the Deloitte CFO of the Year. The award honors an often unsung individual who demonstrates outstanding performance in his or her role as corporate financial steward. Read more


ER wait times grow longer at Des Moines' overstretched hospitals
Axios Des Moines: The wait time for patients seeking emergency care at Des Moines hospitals has spiked since October, resulting in sick patients waiting sometimes up to 10 hours for treatment. The recent omicron wave has put an already stressed hospital system near its breaking point, resulting in delays for care and sometimes extreme situations. Patients are often stuck in waiting rooms for twice as long as the estimated median times last year — and many are giving up and leaving without care. The wait for care has doubled for patients in the last eight months at UnityPoint's emergency rooms, which include Lutheran, Methodist and Methodist West. Since August, the median wait has averaged three to four hours, but it can spike to 10-plus hours depending on the time of day.

Auto dealers propose generic license plates with no county name listed
Radio Iowa: A Senate committee may soon debate the concept of leaving the county name off the bottom of some Iowa license plates. Iowa is one of five states that have county names listed on the standard state license plate. Brad Epperly, a lobbyist for the Iowa Automobile Dealers Association, said the proposal would create the option for a generic plate that doesn’t list the county where the vehicle’s owner lives. "We have a number of plates already, specialty plates that don’t have county names on them," Epperly said. The Iowa State Sheriffs and Deputies Association is opposed to the bill. An association representative said a survey of county sheriffs in Iowa found 77% were opposed to the idea.
Media startups focused on underrepresented groups booming across the country

BY MICHAEL CRUMB: In response to what is seen as a dearth of storytelling that is focused on issues affecting Black people and is produced by Black people, there’s been a flurry of media startups across the country that are focused on underrepresented groups. This story from Business Insider looks at some of those startups, including the new nonprofit newsroom Capital B, which began publishing Monday in Atlanta. "We've found that even where there's not an overt news desert, there are so many Black people who are disconnected from the news, or who are unwilling or unable to pay to access it, or who simply do not see themselves reflected in the offerings," said Lauren Williams, co-founder of Capital B and former editor-in-chief at Vox.

Small Iowa grocery store celebrates success despite pandemic
Small businesses have had a hard time navigating the COVID-19 pandemic, but that's not the case for one metro grocery store. La Favorita has been operating on the east side of Des Moines for 15 years, but a good amount of its business was coming from another part of town, and that sparked this idea to expand. On Saturday, the family-owned Mexican grocery store cut the ribbon and danced in celebration as they just opened their second location on Army Post Road. It was a long road for the Ramirez family. They bought the building three years ago and started the renovation just before the pandemic hit. Read more
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