Chicago Fed Insights

Iowa’s Road to Recovery and Growth

August 25, 2020

Iowa, like every U.S. state, has been challenged by the sudden health and economic crises caused by Covid-19. Then on August 10, a severe storm with winds exceeding 100-mph swept across the state, damaging crops and leaving hundreds of thousands of residents without power. To discuss Iowa’s road to recovery, the Chicago Fed’s Project Hometown hosted a panel discussion on Tuesday, August 18, with experts from the state who examined the roles that governments, businesses, and nonprofits can play in promoting an inclusive economic recovery for all of Iowa’s people and industries.

At the start of 2020, Iowa’s economy was relatively flat. Economic growth in the state lagged behind that of the region, a result of job losses in manufacturing and agriculture, two of the largest sectors in the state, said Dave Swenson, a research scientist at Iowa State University. As a state that produces more than it consumes, Iowa’s economy “is a function of how well the rest of the United States and the rest of the world is doing. We sell to them,” Swenson said. The U.S. consumer sector as a whole was looking fairly strong at the start of the year, with increases in wages, low unemployment, and a strong housing market, noted Kanlaya Barr, a senior economist at John Deere, a leading agricultural equipment manufacturer, so Iowa’s economic outlook was fairly positive. Then the pandemic hit, causing the consumer sector to crater, taking Iowa’s economy with it.

One of the first casualties was the state’s ethanol production. Ethanol, which is added to gasoline, is a renewable fuel made primarily from corn. When traffic on the nation’s roads plummeted due to school and business closures, around 40% of Iowa’s ethanol producers shut down or reduced their production, Barr said. Producers in agricultural sectors, including hogs and milk, soon followed suit, a consequence of Covid outbreaks at meat processing facilities, as well as the sudden disruption to the country’s wholesale food supply chain as restaurants and schools shuttered for months. In June, Iowa’s unemployment was 8%, more than double what it was the previous June, stated moderator David Oppedahl, a senior business economist at the Chicago Fed.

Iowa’s agriculture sector was further harmed by the derecho storm in early August. While the extent of the damage is not yet fully known, Barr estimated that about 3.5 million acres of corn and 2.5 million acres of soybeans lost as much as half of their harvest.

The derecho’s damage caused significant human suffering as well, Swenson added, including damage to thousands of homes across the state. This complicates the challenges that Iowa’s smaller towns and cities were already facing. “The agricultural sector has built-in mechanisms that help it out. Cities, not so,” Swenson said. He pointed out that Iowa’s non-metropolitan cities never recovered from the Great Recession of 2007–09, and they have some of the highest unemployment rates in the state. These “micropolitan” areas are often served by small businesses, many of which lack the financial resources to weather prolonged closures caused by the pandemic.

The concurrent crises of the past six months have also taken their toll on Iowa’s workforce. The consequences have been particularly acute for minorities, essential workers, and undocumented workers. Minorities have disproportionately high rates of Covid, with repercussions both for their health and their ability to work. Minority-owned small businesses are also particularly vulnerable, as underlying inequalities in the economy mean they often have fewer financial resources, lower credit scores, and lower profitability than non-minority owned businesses, Quentin Hart, mayor of Waterloo, said.

Iowa’s essential workforce, many of whom work in the state’s large agricultural sector, has also suffered disproportionately during the pandemic. Johnny Alcivar, director of Workforce Programs at Proteus, Inc., a nonprofit that provides services to farmworkers, partnered with the state of Iowa to perform rapid Covid testing of all farm crews that arrived in the state this spring. Almost every crew had at least one positive case, Alcivar reported.

Furthermore, a significant number of agricultural workers are undocumented immigrants who are ineligible for CARES Act funds and often for other forms of government assistance. This population has an immediate need for help with basic needs, such as housing, utilities, and transportation, Alcivar said, and while Proteus has sought additional funding to provide that assistance, the demand exceeds their resources.

Given the numerous causes of distress—the Covid pandemic, the derecho, longstanding socioeconomic inequities—the road to recovery is not likely to be fast. But the panel did identify specific measures that will make a difference.

To save small businesses, rebuild damaged property, and continue to serve their residents, Iowa’s cities need rapid relief funds from the state and federal government, Hart advised. Iowa’s cities are facing significant revenue losses as proceeds from road use taxes, hotel/motel taxes, and local sales taxes have all declined due to changing consumer behavior caused by the pandemic. The disbursement of relief funds should take into account the disparate impact of Covid, Hart continued, noting that some areas, especially those with meat packing plants, have been impacted to a much greater extent than others. Hart also advocated a federal infrastructure bill, which would help provide jobs, rebuild damaged property, and invest in essential infrastructure.

The workforce also needs assistance in the form of health safety and job training. Health safety measures are still needed to protect workers from Covid, all the more so if there is a second wave of the pandemic. For workers who have lost jobs, Hart described a local initiative by Hawkeye Community College to train students to build houses. This teaches useful job skills while also increasing the supply of affordable housing, which is another need for many families, Alcivar observed.

Because these are unprecedented times, no one approach will be sufficient to rebuild Iowa’s communities and help them fully recover from the health and economic crises. “We cannot take a one-size-fits all approach,” Hart said. Rather, the moment requires imagination and new ways of doing things. “There’s a lot of hard work ahead,” Oppedahl concluded, “but working together and being innovative will help lead to a better economy for all people.”

The views expressed in this post are our own and do not reflect those of the Federal Reserve Bank of Chicago or the Federal Reserve System.


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