Iowa could suffer a nearly $18 billion blow to its economy this year as a result of the shutdowns, closures and layoffs caused by the coronavirus pandemic, according to a report released this week by the Tax Education Foundation of Iowa.

In a midweek virtual presentation, Creighton University economist Ernie Goss and colleague Scott Strain of Goss & Associates discussed how the effects of the pandemic have affected the state’s jobless rate and state and local tax collections, among other factors.

The report, the second in a series of presentations on the effect of the pandemic on the state’s economy, came as more of the state reopens, more people begin to return to work, and the Legislature reconvened this week.

Goss said while first-time unemployment claims are on the decline, continuing claims remain high, although with slower growth.

“That’s the number we want to keep an eye on,” he said during Wednesday afternoon’s presentation, which used data released before Thursday’s unemployment claim report from Iowa Workforce Development. It also came before today’s national jobless report for May, which showed the number of unemployed workers fell 1.4 percentage points to 13.3%.

Goss said he didn’t see a “significant bump up” in the number of people returning to work in the coming months because of the enhanced federal unemployment benefit of $600 a week.

While that benefit is set to expire in August, another coronavirus relief package in Congress could extend that benefit, further delaying people’s return to work, he said.

“You don’t have to be an economist: When you incentivize something you get more of it, economically speaking, and we’re getting more unemployed workers simply because one reason is certainly those unemployment benefits,” Goss said.

Strain said the CARES Act could help support some jobs moving forward.

“As we see the impact from the CARE Act, we’ll start to see that reflected in the labor market. But some of these jobs may not come back, some of these small businesses may not reopen, and if you annualize these figures, you’re looking at close to $18 billion in total impact for the state of Iowa, and that’s quite significant,” Strain said.

According to the report, Iowa lost about 227,000 jobs from March 21 to May 9, with wages, salaries and self-employment income seeing a combined loss of more than $1 billion during that period.

Strain said the state could see a decline in future state and local tax collections of $190 million, including sales tax, property tax, individual and corporate income taxes, and other taxes and fees.

Goss said investors are continuing to show caution in the markets.

“The bond prices have grown significantly, which means investors are seeing a lot of risk out there and they’re buying bonds instead of other investment instruments and driving the yields down,” Goss said. 

He said he believes the recovery will go slowly, resembling a Nike swoosh symbol.

“The expansion or return to normal is going slowly, and I think our numbers are going to show that,’ Goss said. 

Strain said some improvement is being seen in spreads between bonds, “which should reflect in normal circumstances, less concern about risk in the market,” he said. 

Strain said other positives are that the Nasdaq composite was close to reaching its most recent high, and some increases in air travel have been seen. He also said initial claims for unemployment benefits peaked in the U.S. in late March, and continuing claims peaked in mid-May.

“At the national level, [this] tells me this will be a very brief downturn in the economy, despite the magnitude of the decline,” Strain said in an opposing view of Goss.

Goss said one difficulty is “separating noise from actual activity.”

“The ‘noise’ meaning the federal intervention,” Goss said. “If we don’t have repeats of this, we may not see the revival you’re talking about. The Federal Reserve has bought bonds up to $6-7 trillion to support the economy, and that’s made the interest rates a little precarious. Someone is going to have to pay the bill on this.”

The bill, he said, is the burgeoning federal deficit of more than $4 trillion this year.

“Ultimately, it’s going to be paid for with higher inflation, higher interest rates or higher taxes, or a combination of all three of those, so that’s the warning I think,” Goss said.