Iowa saw a record drop in a key economic indicator even as the COVID-19 pandemic was just taking hold in March, the Iowa Department of Revenue reported.

The Iowa Leading Indicators Index fell a record three points, to 103.1 from a revised February figure of 106.3. The index is based on the change from the base year, 1999, which was given an index of 100.

The record one-month drop also was more than twice as big as the previous record dive in December 2008. 

That doesn’t surprise Iowa State University economist David Swenson. He said the pandemic has brought employment pain, ag economy weakness and manufacturing losses that will far surpass the Great Recession levels of 2008-10. 

And it’s going to be a long, trying ride, Swenson added.

“I’m really pessimistic,” Swenson said in an interview. “I see continued, rolling layoffs in food processing and manufacturing,” he said.

Restaurants will struggle to regain their footing, Swenson added. Ethanol plants will be “slowed down for a long, long time.”

“There are too many people who think we’re doing a lot. We’re not,” Swenson said. “We are still learning what this is going to be. We haven’t experienced it yet.

“We won’t know how the market reacts for six months or more,” he said. “We don’t know when schools will reassemble with any kind of normalcy. The epidemiologists think we will have another (virus) peak in June or July. 

“This is where we are stuck, and we’re going to be like this for a long, long time,” Swenson added.

Iowa’s economy was flat for six months before the pandemic hit, Swenson said. But with low unemployment, flat was not necessarily bad, he added. 

But the leading indicators show that an economic storm started in March. The stock market appeared to be the main reason for the dive in the index, Swenson said. 

Even before the state revenue department’s report came out this week, there were other early signs of trouble. The Iowa Business Council, representing the state’s largest employers, found its members expected the next quarter to be the weakest since 2009. 

The Iowa Association of Business and Industry — which has canceled its annual conference in June — found in a survey that 47% of its members expected higher sales in the next quarter, down from 73% the year before. That survey, released March 10, was taken before Iowa went into a partial shutdown due to the pandemic. 

The revenue department’s leading indicators index for March was dragged down by unemployment, the stock market, new orders, agricultural futures, average manufacturing hours, and diesel fuel consumption, the state reported.

The states’ stock index fell a record 30.96 points to 77.11 in March. All 31 companies in the index lost ground in the same month for the first time.

Only two of the eight economic components checked were in positive territory — national yield spread (the difference between the short-term borrowing rate set by the Federal Reserve and the interest rate on 10-year Treasury notes) and residential building permits. 

“The Federal Reserve dropped interest rates to near zero and bought $700 billion in bonds as part of a wide-ranging emergency action to protect the economy from the impact of the COVID-19 pandemic,” the revenue department reported. “This marks the most dramatic move by the U.S. Central bank since the 2008 financial crisis.”

Building permits were up 58.7% from the previous March but still 4.6% below the average since 1998. The state has seen 16 straight months in which fewer than 1,000 residential building permits were issued.  

Declining employment in the month, a drop in the six-month indicators index and weakness is a key measure of overall economic health “strongly suggest the Iowa economy will weaken through the fourth quarter of fiscal year 2020 and the first quarter of fiscal year 2021,” the state report said.

The report’s authors also predicted weakened employment growth in the next three to six months. 

Senior reporter Perry Beeman has nearly 40 years of experience in Iowa journalism and has won national awards for environmental and business writing.