How bad is Iowa’s economy?

It’s a fair question as we emerge from COVID-19 shutdowns that kept many of us at home for months. 

A new Iowa Leading Indicators Index released last week paints an ugly picture, although the indicators do contain signs for optimism, as do recent employment reports. 

Before we get to the details, I want to make something clear. Although the Iowa Department of Revenue’s Leading Indicators Index sounds like a predictor of things to come, it is more a mirror than a crystal ball. Not only does it include what economists call lagging indicators, the index itself is a month out of date when it is released. The June 2 Index was for the month of April; May data won’t be available until early July.  

But it is the best we have for Iowa’s economy. 

The nosedive it took in March and April was indicative of problems Iowa faces in a decline much steeper than the financial crisis of 2007-09, which played out over 17 months. 

So far this year, the decline has been roughly two-thirds as deep as the entire financial collapse. Of course the current decline is not over and could eventually exceed the earlier plunge.

But that probably won’t happen, at least not for a while, because it is beginning to look like the floor that government officials placed under the economy is holding.   

One good indication is weekly unemployment claims, which shot through the roof in late March and early April at rates of 41,000 to 67,000 per week. They slowed to 13,000 per week in mid-May, and for the last week of May totaled just under 7,000, which is a more normal number.

Unemployment claims are costing the state about $50 million a month because of the unprecedented number of claims filed since February, roughly 346,000. That total is many times worse than the 55,000 jobs lost during the 2007-09 financial meltdown or the 29,000 jobs lost in 2001 from the dot-com meltdown and Sept. 11 terrorist attacks.  

Hardest hit this time were Iowa’s high-touch industries. By the end of May nearly 50,000 of the 119,000 Iowans working in bars, restaurants and other hospitality businesses had been laid off, along with an untold number of barbers, hairstylists and spa operators. 

Also hit hard were manufacturing, where 56,000 of 211,000 jobs were affected; health care and social assistance, where 45,000 of 195,000 workers were sent home; and retail, where 32,000 of 170,000 jobs were affected.

As I said, the good news is that the bleeding has slowed considerably, although it has not stopped. 

Iowa’s Leading Indicators Index for April does not show any significant improvement, but the release for May should. 

Until then, here are some takeaways from the April numbers.

Perhaps the most optimistic takeaway from both the indicators and the employment data involves construction. Compared with other industries, the building trades experienced fewer layoffs in March and April. Also, a decrease in new building permits in April was more than offset by a strong gain in March. May permits should also be down, but probably not as much as April.

The April index showed big declines in manufacturing hours and new orders, but both should flatten and reverse as the COVID-19 shutdown fades.  

The biggest problem Iowa faces now is the farm economy. It’s shaping up to be a good growing season, but that will only further depress commodity prices, which are already depressed by world market conditions and a near-collapse of the ethanol industry. 

Finally, rural bankers are reporting the worst conditions they’ve seen since the 1980s farm crisis.

While we are not out of the woods yet, we are better off than a couple of months ago.