The Economic Impact of COVID-19 on the Nebraska Economy: First Cut

Estimates contained in this white paper will be updated as the number of Nebraska COVID-19 deaths and positive tests are made public and monthly state employment data are released. Please visit PlatteInstitute.org/Policy to read the following reports in this series.

Dear Nebraskans,

There is no way to predict how long or how deep the economic impact will be on Nebraska from the COVID-19 crisis.  The state of Nebraska is receiving $1.25 billion from the federal government to help aid the state in managing the fiscal impact from the virus.  The details of this federal money are not yet known, but we do know that some of this money will be directed to our local governments.

With regards to our state budget, Nebraska operates in a biennial (two-year) budget cycle, which was passed last year by the Legislature.  This puts Nebraska in a better situation than most states, because the Legislature technically doesn’t have to adjust the budget if this crisis lingers past the end of the fiscal year (June 30).

At the end of the 2019 legislative session, there was a projected balance of $455.2 million in the state’s cash reserve or rainy-day fund. However, there are some items the Legislature wants to address in this year’s budget adjustment, including $55.2 million for flood relief, an adjustment to the Homestead exemption, and needs of the Department of Health and Human Services.  Thanks to the large amount in the cash reserve, the state should be able to manage through the end of this budget cycle without too much negative impact.  Nevertheless, there is still the lingering question: what is the impact of COVID-19 on the state during the next biennium budget cycle and to Nebraska’s economy as a whole?

To answer that question, the Platte Institute has partnered with Ernie Goss, Ph.D. at Creighton University to estimate what the impact of COVID-19 will be on Nebraska.  This ‘First Cut’ tells us the preliminary numbers of the crisis using limited data from the month of March.  The major impact of the virus did not take its toll on Nebraska until the month of April, thus, as more data is made public and state employment data is released, this estimation will be updated.

In order to generate an economic impact figure quickly, modeling software has been used to give us these estimates.  While this software cannot capture all economic activity gained or lost due to the COVID-19 crisis, it does give us a general sense of what the impact will be on Nebraska, even if the dollar amounts are not exact.

According to this preliminary analysis, in March 2020 Nebraska experienced a loss of 6,434 jobs, and $3.1 million in state and local tax collections, for a total impact of $63.4 million.

I invite you to follow the Platte Institute as we continue to explore the economic impacts of COVID-19 and what this means for the great state of Nebraska.  The Platte Institute is committed to taking this information and helping elected officials and policy leaders make the best decisions for all of us.  The goal of the Platte Institute is to help minimize the pain of this crisis while also helping to maximize our growth opportunities on the other side.

Thank you.  Take care and stay healthy,
Sarah Curry
Policy Director

Introduction

Not since 1776 when Adam Smith delineated the industrialized capitalist system in his Wealth of Nations has the global economy or the U.S. economy experienced the challenges presented by COVID-19.   Economic impacts ranging from slight to decimation, the virus has altered both purchasing and selling patterns of businesses and consumers across the nation, including Nebraska.  The objective of this “white paper” is to quantify the economic impacts on the State of Nebraska, with the understanding that the estimates will change as the geographic intensity of the virus changes.  Authors expect to update the estimated impacts presented in this study several times until the virus is controlled, or moves to remission.

The Expanding Infection Rate

On March 9, 2020, the coronavirus had infected 647 U.S. citizens and 2 Nebraskans.  This represented approximately 2 infections per 1 million Americans and 1 infection per 1 million Nebraskans.  By April 2, the number of infections per million residents had expanded to 729 for the U.S. and to 136 for Nebraska. Figure 1 profiles the expansion in infections per million.

Figure 1: COVID-19 positive tests per 1,000,000 residents, U.S. and Nebraska compared, March 10, 2020 – April 7, 2020

This infection expansion has had a profound impact on the U.S. and Nebraska labor markets and economies. Figure 2 profiles first-time claims for unemployment benefits as a percent of total non-farm employment between the last week of February and the fourth week of March. As presented, the U.S. claims as a share of total non-farm employment has exceeded the Nebraska share, and the gap has widened over the observed period.

Figure 2: First-time claims for unemployment benefits as a percent of non-farm employment, U.S. vs. NE (not seasonally adjusted)

Estimated Economic Impact

Methodology. Since Nebraska employment data for March will not be released until April 17, it is necessary to make some fairly strict assumptions to produce this “first cut” of impact estimates.  Step 1: U.S. employment data by industry for March will be used to estimate Nebraska employment data by industry.  After April 17, actual Nebraska employment data will be used to generate estimates.  Step 2:  Estimated direct job losses from Step 1 will be input to IMPLAN Multiplier System, an economic modeling application. IMPLAN will produce spillover impacts, which when added to direct impacts, equal total economic impacts for the state.[1]

IMPLAN uses classic input-output analysis in combination with regional specific social accounting matrices and multiplier models. IMPLAN provides a highly accurate and adaptable model for its users. The IMPLAN database contains county, state, zip code, and federal economic statistics which are specialized by region and can be used to measure the effect on a regional or local economy of a given change or event in the economy’s activity.  Primary sources for IMPLAN data are the U.S. County Business Patterns and the U.S. Bureau of Economic Analysis. IMPLAN and RIMS (Regional Input-Output Modeling System) are two of the most widely used multiplier models.

Estimated impacts.  Table 1 lists the estimated economic loss for the State of Nebraska, for March 2020 only.  As presented, losses for March 2020 were: 6,434 jobs, wages & salaries of $17,207,235, self-employment income of $2,243,439 and a total impact of $63,393,203. The annualized average yearly wages and salaries of jobs lost was $32,092.  This is well below the state average.  This is due to the fact that 70% of the jobs lost were in the low wage industries of hospitality and retail (Source: U.S. Bureau of Labor Statistics).

Table 2 lists the estimated loss in state and local tax collections from the COVID-19 pandemic. As listed, the total estimated loss in state and local tax collections for March 2020 was $3,128,530. The local taxes lost in this table represent data at the county level and the figure is for all 93 counties in aggregate. Importantly, note that the loss in property taxes is based on a reduction in property tax assessments.

On March 19, in an attempt to slow the spread of COVID-19 infection rates, California became the first state to order residents to stay at home, except for essential activities  As of April 7, 42 states covering 90% of the nation have been ordered to stay home, often termed “shelter in place.”  Nebraska was one of nine states that has not enacted “shelter in place” rules and ordinances. While there is no formal “shelter in place,” there have been statewide directives put in place which limit or prohibit certain businesses and social activities as well as specific directives at a county level.  Table 3 lists March claims for unemployment benefits as a percent of total state non-farm employment according to “shelter in place” orders.[2]

As presented in Table 3, non-shelter-in-place states experienced lower rates of unemployment claims as a percent of total non-farm employment at a median of 1.67% compared to shelter-in-place states at a median of 2.82%. This data suggest that March economic impacts for Nebraska and other non-shelter-in-place states are likely to be lower than that for shelter-in-place states.

Conclusions and Caveats

Importantly, these estimated losses are based on the assumption that March losses are not offset by increased purchases in later months. However, it is clear that some losses, for example, reduction in haircuts in March will not be offset by a doubling of haircuts in a future month.  The estimated losses contained in this white paper will be updated when the U.S. Bureau of Labor Statistics releases preliminary March employment data for the state.

The analysis presented here does not consider how much output will be further lost, nor does it consider the impact of the federal rescue plan which includes payments to state and local government agencies to offset the negative impacts of COVID-19.