The powerful derecho storm which hit Iowa this week is just another example of how difficult 2020 has been for Iowans. The storm is inflicting further damage to an economy already under significant stress due to COVID-19.
Even though Iowa is back open for business, the pandemic continues to impact citizens and business as social distancing policies remain. Iowa’s unemployment rate fell from 10 percent in May to 8 percent in June. Even with unemployment rates falling, fear of the virus continues to prevent people from resuming regular activities. In addition, many small businesses are fighting to survive by keeping their business open at limited capacities due to social distancing. Every aspect of life in Iowa is being impacted by the pandemic.
With the help of economists Ernie Goss, Ph.D., and Scott Strain, TEF Iowa has issued a series of reports tracking the economic impact of COVID-19. In their latest analysis, The Economic Impact of COVID-19 On The Iowa Economy: Summer Update, the authors estimate that from March 21, 2020 to July 4, 2020 the Iowa economy lost $5.1 billion as a result of the pandemic. “Both rural and urban Iowa have lost a significant number of jobs and economic activity due to COVID-19,” noted Goss.
Goss noted that “compared to this time last year, Iowa’s job count is down by roughly 6.7 percent in urban areas, and by approximately 8.5 percent in rural areas.” Goss argues that “weakness in agriculture related to the global economic recession, and in ethanol tied to low fuel prices have been prime factors weighing on rural economic activity.” This also includes the uncertainty in agricultural trade, especially with China.
Goss and Strain estimate that over the next 12 months, if the economy does not rebound, Iowa’s economy could see a $17 billion loss in terms of wages, jobs, and self-employment income. In addition, without an economic rebound, it is estimated that COVID-19 will shrink Iowa’s economy by 9.1 percent over the period of March 2020 to March 2021.
From an economic standpoint, the good news for Iowa is that as the COVID-19 emergency began, Iowa had $800 million in reserves and a projected budget surplus of nearly $400 million. With economic uncertainty likely to linger, Iowa’s budget is positioned much better than some of our neighbors to dampen the financial impact of this pandemic. The legislature, responding to revised revenue estimates and continued uncertainty, passed a “status quo” $7.78 billion Fiscal Year (FY) 2021 budget. This budget was only slightly higher than the $7.75 billion FY 2020 budget. The Council of State Governments, in their recent report, COVID-19: Fiscal Impact to States and Strategies for Recovery, examined the fiscal conditions of the states and Iowa was one of the states in the best fiscal condition.
Since the COVID-19 situation is fluid, it is difficult to predict what type of economic recovery will occur. For example, it is too early to know what impact the various stimulus measures from the federal government or Federal Reserve will have on Iowa’s economy.
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“Initially, I expected that the unprecedented level of federal government and Federal Reserve stimuli would produce a sharp economic rebound, that is, a V-shaped downturn and rebound. However, with each passing month without a vaccine, the economic recovery is resembling a Nike Swoosh, or check mark, and the check mark is turning a bit clockwise each week without a vaccine,” stated Goss.
Goss is also concerned about the consequences from the massive amounts of federal spending and the monetary stimulus from the Federal Reserve, which may result in a “combination of higher taxes, interest rates, and inflation.”
The recent storm that swept across Iowa could not have come at a worse time. It is estimated that 10 million acres of farmland were damaged along with countless businesses, homes, and properties across the state.
Before the storm, Iowa’s economy was seeing some improvements. However, setbacks such as this storm and other uncertainties continue to show us that we are not out of the woods yet.
Walt Rogers is deputy director of TEF Iowa, a public policy think tank, and a former state legislator from Cedar Falls.