Nebraska’s Economy Shocked by COVID-19
Following initial detections in China in late 2019, the number of COVID-19 cases outside the United States began to increase significantly in February. The first case of COVID-19 was reported in December in Wuhan, a large city in the Chinese province of Hubei. By the end of February, amid a lockdown of Wuhan, the number of confirmed cases in China had increased to about 80,000. At that time, the virus was only beginning to be detected outside China (Chart 1).
Confirmed infections in the United States began to increase substantially in February and March, leading to extensive closures, cancellations and disruptions. Whereas confirmed cases of COVID-19 in China began to plateau in late February, other countries began to identify significant increases. Two days after Italy placed the country on lockdown, the World Health Organization on March 11 declared a global pandemic (Figure 1). The NBA canceled its basketball season the same day, followed later by the NCAA, public schools, and many other events where people regularly would gather in close proximity.
The closure of large numbers of businesses and other institutions in March began to weigh heavily on economic indicators across the country and, to a slightly lesser extent, in Nebraska. Surprised by the speed and severity of the global economic shutdown, U.S. equity markets dropped sharply in March. After peaking February 19, the S&P 500 fell nearly 24% over the next month as businesses across the country closed and uncertainty surged. By the end of March, almost 50% of small businesses in the United States were closed (Chart 2). Even in Nebraska, a state that often weathers economic shocks relatively well, almost 30% of small businesses were closed. With businesses shuttered, at least temporarily, unemployment filings spiked. Activity in industries dependent on the gathering and movement of people had ground to a halt. Air traffic at Eppley Airfield in Omaha dropped more than 90% from February to the end of March, consistent with national developments (Chart 3).
Recognizing the magnitude of the crisis, Congress and the Federal Reserve announced numerous policy actions to provide support to businesses, households and financial markets. The Coronavirus Aid, Relief, and Economic Security (CARES) Act, a $2.2 trillion dollar fiscal support program, was signed into law on March 27. Among other features, the CARES Act created the Paycheck Protection Program, provided financial support to individuals and families through direct payments, and added an additional $600 to weekly unemployment insurance checks. Following an emergency cut to interest rates at an unscheduled meeting March 3, the Federal Reserve subsequently announced numerous programs intended to ensure the proper functioning of various financial markets roiled by a spike in volatility (Figure 2).
In April, the number of confirmed COVID-19 cases in Nebraska continued to accelerate. While infections in Nebraska generally tracked that of the nation through the end of March, cases in Nebraska increased more rapidly in April (Chart 4). The disproportionate increases in Nebraska appeared to be due, in part, to positive tests at meatpacking plants in Nebraska and the region.
As the shutdown of U.S. and global businesses and institutions persisted through April, economic conditions continued to deteriorate. Prior to the global pandemic, U.S. real GDP was projected to increase at a rate of about 2.0% in 2020, similar to that of recent quarters (Chart 5). The shutdowns associated with the pandemic, however, caused expectations of GDP to be revised sharply lower in the first half of 2020.
Businesses across Nebraska indicated that the pandemic had a substantial effect on activity, but slightly less than the nation. Survey data collected by the U.S. Census Bureau in April showed 37% of businesses in Nebraska reported that the pandemic had a large negative effect on activity (Chart 6). Nationally, more than half of businesses reported a large negative effect associated with the pandemic.
Unemployment in Nebraska also rose sharply in April, particularly in industries dependent on in-person gatherings. Following almost six consecutive years with a jobless rate of less than 3.5%, unemployment in Nebraska spiked to 8.3%, the highest rate since at least the mid-1970s, and well above the peak rate of 4.9% during the Great Recession (Chart 7). The number of jobs in Nebraska dropped about 8%, but the job losses were especially pronounced in the leisure and hospitality industry, which critically depends on large numbers of in-person customers (Chart 8).
A drop in agricultural commodity prices also weighed heavily on Nebraska’s economy. By the end of April, the price of corn was almost 25% less than at the start of the year, and the prices of other major agricultural commodities also declined significantly (Chart 9). The closure of numerous meatpacking facilities across the state, and the region, likely contributed to the significant decline in cattle and hog prices. A sharp reduction in ethanol production, due to low ethanol prices connected to reduced demand for transportation fuel, also contributed to a decline in the price of corn.
In May, newly confirmed infections of COVID-19 continued to rise, but at a slower pace in percentage terms. In early May, new confirmed cases in Nebraska had been rising by about 80% week to week. By the end of May, new cases in Nebraska were increasing about 15% per week (Chart 11). As June progressed, growth in new cases in Nebraska continued to slow.
Very gradually, businesses began to reopen and consumers began to venture out, cautiously, from home. By the end of May, less than 10% of small businesses in Nebraska were closed, compared with more than 30% during the most intense period of pandemic-induced lockdowns in mid-April (Chart 12). Aggregated and anonymized tracking data from smartphone devices, available from users who opted in to the tracking, also showed a sharp uptick in foot traffic across the state from mid-April through May.
Following the severe economic shock from COVID-19, Nebraska’s economy has begun to recover, but uncertainty about prospects for future growth remains high. With the start of summer, business activity appears to be increasing and the spike in unemployment this spring has softened in recent weeks. Significant fiscal and monetary policy support likely has mitigated some of the direst potential outcomes of the economic crisis resulting from the pandemic. However, significant risks remain. The severity of the shock still could lead to unforeseen shockwaves throughout the economy due to a drop in business activity and associated layoffs. A resurgence in the virus could lead to further economic hardship. And while extreme disruption often can lead to longer-term growth, the path forward still may be arduous.