Iowa’s economy has begun the process of reopening with continued limitations due to social distancing. Nevertheless, economic uncertainties remain. How will businesses cope with operating at limited capacity? Will Iowa consumers feel safe to fully reintegrating into the economy or will a fear of a “second wave” keep people away? How will lost economic activity impact state and local tax revenues?
To better understand the economic impact of COVID-19, TEF Iowa has teamed up with economists Ernie Goss, Ph.D., MacAllister Chair in Regional Economics at Creighton University, and Scott Strain, M.S., senior economist with Goss & Associates. Goss and Strain have recently updated their report, The Economic Impact of COVID-19 on the Iowa Economy. The COVID-19 situation is very fluid, and it is important to remember that not all data is available. For example, Iowa has received $2.8 billion in stimulus aid from the federal government, yet it is still too early to measure the full economic impact of these resources.
Nevertheless, Goss and Strain are estimating Iowa’s unemployment rate in May ranges from 12 to 15 percent. In addition, from March 21 through May 9, it is estimated Iowa’s economy lost $2.7 billion. During this same period Iowa’s future state and local tax revenues will likely decline by $190 million.
In projecting the impact from March until the end of the year, Goss and Strain estimate Iowa’s overall economy could be reduced by $17.9 billion, $1.2 billion in future state and local tax revenues, and Gross Domestic Product (GDP) could be lowered by 5.1 percent.
Goss and Strain are predicting a Nike-style “swoosh” recovery, with the “expansion or return to normal going slowly.” Goss and Strain stated the impact of COVID-19 is hitting rural Iowa hard, especially rural hospitals and clinics which were forced to discontinue non-emergency medical care. Agriculture is another sector of the economy that is crucial to Iowa. Goss and Strain note lower commodity prices along with problems in supply chains, international conditions, and a global economic slowdown will have an impact.
Regarding state and local governments, Goss and Strain stressed the importance of building budget reserves. “I think one lesson is we need reserves to plan for what we sometimes call ‘black swan’ events, which are low probability, but high cost.” Goss and Strain argue that based on revenue shortfalls, “we’re all going to have to share in the burden of trimming the size of government.” Goss and Strain provided important advice for all levels of government, “don’t spend in the good times, so you don’t have to cut back during the bad times.” This includes education, whose budget Goss argues has been “fat in a lot of years, whether post-secondary or K-12.” A direct result of COVID-19 will be businesses and education becoming more innovative in their operations.
Perhaps one of the largest fears for the economic recovery is a “second wave” of COVID-19 hitting Iowa and the nation. Both Goss and Strain recommend “not going down the road of a shutdown or lockdown because we cannot close the economy down,” due to the overwhelming financial repercussions which would be sure to follow.
The good news is, prior to the economic shutdown, Iowa’s state budget had strong reserves and a surplus. Iowa Workforce Development is also reporting a decline in jobless claims as more Iowans return to work. In May, the national economy added 2.5 million jobs and the national unemployment rate fell from 14.7 to 13.3 percent. Iowa and the national economy may be starting down the road to recovery, but too many uncertainties remain before we can claim an economic revival.