U.S. Paycheck Protection hit some of its mark, but missed the most
vulnerable
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[July 15, 2020]
By Howard Schneider and Brad Heath
(Reuters) - The Paycheck Protection Program
appears to have thrown a critical safety net under U.S. middle and
upper-middle-wage jobs, but it faltered when it comes to lower-paying
positions and the industries hit hardest by the coronavirus pandemic,
according to a Reuters analysis of loan details.
Analysis of data on nearly 4.9 million PPP loans released last week by
the Trump administration showed the program, a subject of controversy
because a number of larger well-connected borrowers tapped it even
though it was designed to aid vulnerable small businesses, did partially
hit its target.
Separating U.S. industries into groups of around 60 each ranked by
average annual pay, the Reuters analysis showed that employers in the
middle of the wage scale received an outsized share of PPP loans both in
dollar terms and the number of loans disbursed.
The middle group includes a diverse set of industries such as automobile
dealers, building electrical and heating installers, and freight
trucking companies, representing around 16.5% of the U.S. workforce and
a similar share of establishments. The group received roughly 25% of the
more than $520 billion in PPP loans disbursed as of June 30, and around
20% of the number of loans
The next highest paid group, with average annual salaries near $74,000
and including doctor's offices, equipment wholesalers and accountants,
included under 13% of the 101 million workers covered by the analysis,
but received more than 18% of PPP loans.
Parsing how many jobs were saved in each category is more difficult. For
example, workers in the lowest wage category make on average just under
$25,000 per year, so any given amount of funding would support more of
their salaries.
Companies nationwide reported the money preserved some 51 million jobs
overall, though a spot check by Reuters turned up numerous red flags,
including large numbers of jobs recorded as saved with very small loans.
PPP loans are meant foremost as a way for businesses with 500 or fewer
employees to cover payroll and are forgivable, in effect turning them
into government grants, as long as most of the money is used to pay
employees.
Still, the program appears to have given proportionately less support to
the lowest-wage industries, a group which includes restaurants, golf
clubs and ski resorts and other leisure services hard hit by the
coronavirus recession. Those industries represented roughly 38% of
employees, but received less than a fourth of the PPP funds. The group
also accounted for about 35% of U.S. small business establishments, but
just around 30% of PPP loans.
For the analysis, Reuters divided industries into five groups ranked by
annual salary using details from the first three months of 2019 from the
U.S. Quarterly Census of Employment and Wages. The first-quarter report
for each year in the QCEW includes categories for the number of
employees in each establishment, allowing those with more than 500 to be
excluded, and average annual pay rates to be calculated for the rest.
Data for 2020 is not yet available.
MORE HELP NEEDED
Despite questions on how the funds have been disbursed, economists and
Federal Reserve officials have credited the PPP with helping keep
disposable income from falling too sharply in recent months, and
preventing the worst, Depression-style outcomes from occurring.
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People visit the Destiny USA mall during the reopening, as the
coronavirus disease (COVID-19) restrictions are eased in Syracuse,
New York, U.S., July 10, 2020. REUTERS/Maranie Staab/File Photo
Recently released bankruptcy data for June buttress the point.
Though the Chapter 13 bankruptcies used by larger firms to
restructure their businesses were up 40% year to date from a year
ago, overall business bankruptcy filings fell 13%.
"Businesses are saying we got PPP and it is allowing us to stay
afloat," Atlanta Fed President Raphael Bostic said last week,
recounting conversations with entrepreneurs around his southern U.S.
Fed district.
Yet, he said, the "the smallest of the small" businesses,
particularly in towns and rural areas, may be at more risk, and more
so among the restaurants and small shops important to downtown life
outside of urban America.
That's a group he said that may need more help as the pandemic
continues and officials debate what economic props to keep in place
over time. There is still around $140 billion in PPP money
available, but it is due to lapse within weeks, as are other
coronavirus relief efforts approved earlier this year in legislation
like the CARES Act.
Policymakers have worried many employers in lower-paying and more
vulnerable sectors appear to have forgone seeking PPP assistance
because they either lacked banking relationships, found the rules
confusing, or were uncomfortable with taking on debt even if it
might be forgiven. Also some employers in that group may have
reasoned that other pandemic assistance programs, such as enhanced
unemployment benefits, were a better option for their staff and
opted not to seek loans.
The data released last week by the Small Business Administration had
some gaps. Specific loan amounts were not provided for transactions
above $150,000, covering 282,164 loans, or 13.5% of the total. For
those loans, Reuters used the average amount for each category.
Industry codes were provided for almost all of the transactions.
Other U.S. data suggest the PPP did help prop up the economy, at
least so far, even as it fell short of the loftiest aims. Some
economists, for example, feel it has led to declines in unemployment
claims, even though they remain high.
The manufacturing and construction industries in particular drew 10%
and 12% of PPP dollars. Yet combined the two sectors account for
less than 10% of the 14.7 million net jobs lost from February
through June.
The leisure and hospitality industry, by contrast, absorbed more
than a third of the net jobs lost so far during the pandemic, but
received less than 10% of the PPP loans.
(Reporting by Howard Schneider and Brad Heath; Editing by Dan Burns
and Andrea Ricci)
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