Fitch: Iowa’s jobless rate is 12.7%, counting all sidelined workers

Iowa’s falling unemployment rate — the fifth-lowest in the country — would more than double if the number of people who have left the workforce temporarily or permanently were included, a national credit rating agency says. 

Iowa reported a seasonally adjusted unemployment rate of 4.7% for September, based on U.S. Bureau of Labor Statistics protocols. That number would be 12.7% if the workers who have left the job market were counted, said Eric Kim, a senior director at New York-based Fitch Ratings. 

“There is a fairly wide gap between the official rate of 4.7% and the 12.7% Fitch adjusted rate,” Kim said. “All we are doing is accounting for changes in the labor force.” 

Fitch’s adjusted rate for Iowa compares with 10.4% nationally. Kim said the gap between Fitch’s adjusted rate and the official rate in Iowa is one of the widest in the country. Still, Fitch, a bond-rating firm, gives Iowa’s state government its highest rating, AAA, based on its ability to pay debt.

Iowa’s September rate was down from 13.6% in Fitch’s August analysis.

The COVID-19 pandemic has added to a labor shortage that typically is fueled by the relatively old Iowa population, Kim said.

“You have a very high level of departures from the (nonfarm) labor force,” due to child care issues, job losses, safety concerns and other factors, Kim said. “So the headline (unemployment) figure doesn’t give you the full picture of what’s going on in the labor market.” 

Fitch is not saying Iowa officials are wrong, Kim said.

“We are not saying that the (official) unemployment rate is incorrect or invalid,” Kim said. “It measures the percent of the labor force that is unemployed.”

Iowa Workforce Development reported a 65.1% labor force participation rate for September. The state listed 1.7 million workers in September 2019, and 1.6 million last month, a loss of 100,000 workers in a year. 

The question becomes how many of the sidelined workers are gone for good, and how many will come back. 

Pat Garrett, spokesman for Iowa Gov. Kim Reynolds, said the state is supporting programs such as Future Ready Iowa and registered apprenticeship programs to attract more young workers.

“We are trying to get people in a labor force that skews older,” Garrett said.

Garrett said Iowa’s unemployment rate, lower than all states but Nebraska, South Dakota, Vermont and North Dakota, is expected to continue to fall. The rate was 2.8% before the pandemic hit. September marked a fifth straight month of lower unemployment rates in Iowa.

All states calculate the official rate the same way under federal guidelines, Garrett noted. Including various combinations of workers who are temporarily or permanently out of the workforce would require a federal change in reporting rules, he added.

And despite Fitch’s analysis of Iowans who aren’t in the workforce, Garrett said Iowa has a strong workforce.

“Iowa still has one of the highest labor participation rates in the country,” Garrett said. Iowa business groups regularly list a shortage of skilled workers as one of their strongest challenges.

The Bureau of Labor Statistics reported Iowa’s September labor participation rate was 65.1%, down 0.5% in a month but higher than Midwest rate of 63.8%. Iowa’s rate also was higher than the western states’ rate of 61.4% and the northeastern states’ rate of 61.6%.

Unemployment rates soared after the COVID-19 pandemic spread across the country. Many states have seen some recovery since spring. September unemployment rates ranged from 3.5% in Nebraska to 15.1% in Hawaii, the U.S. Bureau of Labor Statistics reported.

Iowa lost 12% of its nonfarm jobs between February, before the pandemic hit, and April, when the virus had spread across the state, Fitch reported. That compares with a national figure of 14%.

However, Fitch found that Iowa has regained 56% of the jobs it lost during the pandemic, better than the national rate of 51%, Kim said. 

When Iowa reported 4.7% unemployment for September, Iowa State University economist David Swenson tweeted that the bad news  was “the state’s total labor supply is continuing to contract.”

Payroll employment increased about 7,300 last month, that’s good news, though the state is still down about 85,400 jobs from September of last year.

Bad news is that the state’s total labor supply is continuing to contract, and is down nearly 100K from last year. pic.twitter.com/WoEeLUhiz6

— Dave Swenson (@daswenson) October 20, 2020

Colin Gordon of policy group Common Ground Iowa wrote in an annual assessment of Iowa’s workforce that Iowa’s labor participation rate fell from 70.9% before the pandemic. He said the official unemployment rate “masks a big drop in the share of the population working or looking for work.”

Gordon added that the Economic Policy Institute has projected Iowa is likely to lose 42,586 more jobs without a new federal stimulus package.