Pockets of Rural America Are Less Vulnerable to Economic Fallout—For Now

This story originally appeared on Stateline.

Every part of the country will feel the economic fallout from the coronavirus crisis. But the small and isolated rural areas that lagged during the economic boom may fare better, relatively speaking, in the aftermath of the pandemic.

Those places tend to be less tied to global and financial markets. With little population density, they are less conducive to virus transmission. So far, states such as Wyoming, the Dakotas, Nebraska and Iowa have reported far fewer COVID-19 cases than New York and other states with large cities.

“If you are a somewhat more isolated economy that does not attract as much visitation from either outside the U.S. or even domestically, you are less vulnerable,” said Adam Kamins, an economist and director at Moody’s Analytics, in a webinar last month.

The states least affected by the huge spike in unemployment claims are largely rural. They include West Virginia, Arkansas and Georgia. In part, that’s because those states have taken less dramatic steps to slow the spread of the virus. Among them, only West Virginia issued a stay-at-home order before the end of March.

Nevertheless, “the industries that have been hard hit are just not as prevalent in rural areas,” said Ernie Goss, an economics professor at Creighton University in Omaha, Nebraska. He cited the relative lack of retail and hospitality businesses in Corn Belt states.

Economists rank regions as economically vulnerable to coronavirus fallout based on demographic and economic factors, including their number of COVID-19 cases, connection to international travelers, reliance on tourism, population density and reliance on global trade, according to a Moody's Analytics analysis. 

Smaller metropolitan areas in the South and Midwest, such as Birmingham (Alabama), Memphis, Indianapolis and Columbus (Ohio) will experience a low average impact relative to the largest U.S. cities, Kamins said. 

But the slower pace of the outbreak in rural areas may be breeding complacency. Rural residents and Republicans consider the coronavirus to be less of a threat to community life than urban people and Democrats do, according to a survey conducted by the Pew Research Center’s Election News Pathways project. (The Pew Charitable Trusts funds the research center and Stateline.)

Some people in rural areas are reportedly taking protective measures, such as social distancing, less seriously. Rural places have a higher share of seniors and a shortage of hospitals and doctors. Nonmetropolitan counties are reporting a growing number of cases as testing ramps up, and the pandemic may just hit rural America later.

“As with the Great Recession, the economic impact could be delayed in rural areas,” said Shannon Monnat, director of the Lerner Center for Public Health Promotion at Syracuse University. “Rural areas recovered more slowly and some never recovered at all.”

Monnat said it’s important to consider whether a rural area is reliant on one industry whose closure would have devastating effects. She also highlighted the significance of local commuting patterns. “The state is the bottom line here, because if people feel they can travel all over the state the virus can spread really quickly,” said Monnat, a rural demographer and sociologist.

Once strict mitigation strategies such as social distancing are put in place, rural economies may even be more economically vulnerable because fewer people have jobs that allow them to telework, said Angela Rachidi, who studies poverty at the American Enterprise Institute, a right-leaning think tank in Washington, D.C. Rural residents who live far from metropolitan areas also tend to have lower incomes, Rachidi said.

“The mitigation strategies might have more of an effect on them even if the spread of the disease makes them less vulnerable,” Rachidi said.

Furthermore, rural places with commodity-based economies, such as oil or agriculture, will be buffeted by a global slump. Countries in the European Union, China and East Asia will be more reluctant to trade, and those reduced purchases will trickle down to the local level, said Doug Farquhar, a former rural development expert at the National Conference of State Legislatures.

“Having international trade be disrupted is going to have a bigger impact on them than the contagion itself because of the way they’re located,” Farquhar said.

Local Demand

In some largely rural states, some regions will fare much better than others.

Utah, for example, is a net exporter of energy, so low oil prices have delivered an extra hit to workers in those industries.

In addition, 10% of Utah’s jobs are in leisure and hospitality. And in the rural areas outside of a narrow string of cities and towns along a mountain range toward the north central part of the state, the reliance on those jobs is even greater. 

“Those rural economies aren’t as diverse as some of the more urbanized places, so the impact we’re expecting might actually be even more concentrated,” said Juliette Tennert, director of economic and public policy research at the Kem C. Gardner Policy Institute at the University of Utah. 

But the economy in Utah doesn’t revolve around tourism like it does in Nevada and Hawaii. Tourism also isn’t an outsized employer in rural counties such as Cache and Box Elder to the northwest and Juab in central Utah, which are among the places Moody’s Analytics considers less vulnerable.

Manufacturing is among the largest industries in Cache and Box Elder, although each has other anchors, such as Utah State University in Cache County. Juab has agriculture that feeds local demand.

“There are economic impacts taking hold, but they’re not the direct impacts associated with travel and tourism, mining and transportation,” Tennert said.

But service workers are losing their jobs, said Juab County Commissioner Byron Woodland. Urban residents from neighboring counties are flocking to Juab’s recreational areas and straining local law enforcement and emergency medical services — not to mention potentially spreading the virus, Woodland said. 

Woodland, 69, said his 401(k) has taken such a hit he doesn’t know when he can retire. He typically commutes 50 miles to his other job as a dentist for the state providing care to intellectually disabled people. But with quarantining measures, he’s been unable to work.

“We’re in a world of hurt, and it’s going to get worse,” Woodland said. 

Isolation Pays

In central Minnesota, Benton and Stearns counties are among the areas Moody’s Analytics considers less vulnerable. 

Commodity crops such as corn and soybeans don’t depend on a large or seasonal labor force, said Arne Kildegaard, an economics professor at the University of Minnesota Morris. Unlike with fruits and vegetables, most work can be done with machines, so labor isn’t concentrated. 

But workers in poultry processing, meatpacking and large modern industrial dairies often live and work in close quarters. If members of the labor force contract the virus or are quarantined, “that’s going to be a big blow,” Kildegaard said.

“Nobody really knows what this is going to look like in rural counties, but you can conjure up some pretty scary scenarios,” said Kildegaard, former director of the Center for Small Towns at the University of Minnesota Morris.

But the two counties’ vulnerabilities are probably offset by their sparse population, which reduces the risk of transmission, Kamins said. In addition, each is outside the St. Cloud metropolitan area, so they have little tourism.

Nearly three in 10 rural bank CEOs said they expect little economic impact from the coronavirus threat, according to the March Rural Mainstreet Index from the Creighton Institute for Economic Inquiry, a monthly survey of bank presidents and CEOs in 200 small rural communities. Goss, the Creighton University economics professor, said he expects that number to decline.

“But it still stacks up better,” Goss said. “The negatives are less negative in rural areas than urban areas.”

However, the regional confidence index in March reported its greatest one-month decline since the survey began in 2006. More than six of 10 bank CEOs expect the coronavirus to push their local area into a recession.

Global Ties

There have been over 220 confirmed cases of COVID-19 in North Dakota. Economists, farmers and others are worried about the virus’ economic impacts — not so much due to transmission but because of international trade.

Prior to the trade war that began in 2018, farmers sent most of their soybeans to China. They hoped to recover markets after President Donald Trump and China signed a phase one trade deal earlier this year. The coronavirus crisis will likely delay a comeback.

“This becomes another excuse for us not to garner a market back,” said Mark Watne, president of the North Dakota Farmers Union.

“Rural areas, despite being highly productive from an agriculture standpoint, don’t have much local food production,” said Ben Lilliston, interim co-executive director and director of Rural Strategies and Climate Change at the Institute for Agriculture and Trade Policy based in Minneapolis. “People aren’t buying much locally because it’s all geared toward a global market or large commodity market, so for the longer term, that’s a vulnerability.” 

And it’s harder for rural areas to recover from setbacks, especially when they lack economic diversity, said Tennert, with the University of Utah. 

“At this point, a handful of our rural economies still have not made up the jobs they have lost in the great recession,” Tennert said. “That’s what I get concerned about. What does this thing look like long term? If this goes on for a long time, we’d be especially concerned about rural economies.”