Fed hoped to skirt a second virus wave. Small businesses
may sink in it
Send a link to a friend
[July 24, 2020] By
Howard Schneider
(Reuters) - The number of outright failures of U.S. small businesses in
the first months of the coronavirus pandemic was comparatively modest,
but the months ahead look far grimmer as cash balances dwindle, federal
help expires, and the disease surges back.
That outlook, taking shape from a range of research in recent weeks by
business organizations and think tanks, suggests a reckoning awaits
Federal Reserve officials and other policymakers who rolled out support
quickly in March and April, and by June seemed hopeful an economic
rebound was taking root.
After the Fed's June 10 meeting, Chair Jerome Powell said "assuming that
the disease remains or becomes pretty much under control, I think what
you see is...an expansion that builds momentum over time." The 7-day
moving average of daily deaths that day was showing a steady decline and
the number of new coronavirus cases was under 20,000.
Both have turned higher, with daily new cases nearing 70,000. When the
central bank meets next week it will have to recalibrate its outlook
around a new wave of infections policymakers had initially excluded from
their baseline view of a steady rebound in the second half of the year.
"The tone of next week's ... meeting is likely to be on the dour side,"
said Karim Basta, chief economist at III Capital Management.
Recent surveys indicate programs rolled out in March, including the
Paycheck Protection Program's forgivable business loans, did prevent the
worst in the pandemic's first phase.
A recent survey covering more than 13,000 members of small business
networking group Alignable found that among firms with at least one
employee only an estimated 1.6% had closed permanently. That would
translate nationally to about 96,000 of the roughly 6 million firms with
between one and 500 workers.
The figure is consistent with estimates from Web site Yelp concluding
around 77,000 firms listed on its review platform were shuttered for
good.
Both are below an earlier study coordinated by the Harvard Business
School putting more than 100,000 small firms at risk of failure in the
initial weeks of the pandemic.
A study by the JP Morgan Institute using data through May showed cash
balances among many of the smallest businesses, notably restaurants and
personal service firms, skyrocketed in May as federal relief funds
bought them time.
Sean Salas, chief executive of Camino Financial, an online lender
focused on Latino-owned small businesses, said it was also borne out in
a recent survey of loan recipients and applicants. Nearly 70% had
reopened and almost all others were confident they would, as
entrepreneurs pivoted to new business models, drew on family resources,
or took other steps to stay afloat. So far.
As government funds were deployed early on, "I was very confident the
failure rates would be low," Salas said. "But as we think about the
reemergence and the recovery, I do worry a bit more. The confidence
level dipped at the end of June."
[to top of second column] |
A view of the Home
Team Pub with strict social-distancing rules after reopening from
coronavirus disease (COVID-19) restrictions in the Syracuse suburb
of Liverpool, New York, U.S. July 22, 2020. REUTERS/Maranie Staab
ADJUST TO THE REALITY
Some measures of recovery and reopening have indeed stalled.
Several states have placed fresh restrictions on commerce likely to hit small
businesses disproportionately - this time without offers of loans or expanded
unemployment benefits for workers and consumers unless Congress acts.
After a spate of optimism in June, a National Federation of Independent Business
monthly survey found 23% of respondents in early July said they'd be out of
business within six months "under current economic conditions."
Other recent surveys have found increasing numbers of small entrepreneurs expect
the recession to outlast their resources.
"The small business sector stalled in late June, and with public funding running
dry the situation could deteriorate more in the coming weeks," said Oxford
Economics analyst Gregory Daco. "The Fed will have to adjust their discourse to
the reality."
While no updated economic projections are due at the Fed's July 28-29 meeting,
its policy statement and Powell's press conference could describe the turn the
economy seems to be approaching, with no clear sense that a robust reopening can
proceed without risking faster coronavirus spread.
(Graphic: A July jobs dip? link:
https://graphics.reuters.com/
USA-FED/SMALLBIZ/
gjnpwxemkvw/chart.png)
May and June saw unexpected gains in employment as states lifted the
virus-related restrictions that brought the economy to a halt in March and
April.
Data released by Yelp this week showed the possible underside of that - a close
correlation between user postings about bars and restaurants in May and the turn
in infections that took root in June.
(Graphic: Yelp "interest" surged; virus followed Yelp "interest" surged; virus
followed link:
https://graphics.reuters.com/USA-ECONOMY/YELP/rlgvdnwllvo/
chart.png)
States that have been more successful in controlling the virus, like New York,
also have higher percentages of businesses reporting as closed in surveys by
groups like Alignable.
Bars are considered a particular hot spot for transmission, and states like
Florida and Texas have reinstated restrictions on them. Overall, a Goldman Sachs
"lockdown index" combining information on official restrictions and social
distancing data, turned higher in early July after falling steadily from April's
peak.
(Graphic: The screws retighten? link:
https://graphics.reuters.com/USA-ECONOMY/SMALLBIZ/
xlbpgbnkevq/chart.png)
"We do expect closures to continue," said Yelp vice president for data science
Justin Norman. "We anticipate states will roll back or delay reopening plans ...
possibly turning even more temporary closures into permanent ones."
(Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci)
[© 2020 Thomson Reuters. All rights
reserved.] Copyright 2020 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |