Pandemic destroyed fewer U.S. businesses than feared, Fed study shows
Send a link to a friend
[April 17, 2021] By
Howard Schneider
WASHINGTON (Reuters) -Fewer than 200,000
businesses in the United States may have failed during the first year of
the COVID-19 pandemic, a lighter toll than initially feared and one that
may have had relatively little impact on unemployment, according to
Federal Reserve research.
The figure contrasts with the early forecasts that the pandemic would
leave America's "Main Street" desolate as well as with polls that
continue to show large percentages of U.S. small business owners are
worried about their survival.
Perhaps 600,000 businesses, most of them small firms, fail in any given
year, and U.S. central bank researchers estimated that from March 2020
through February of this year the figure has been perhaps a quarter to a
third higher.
That included 100,000 "excess" failures among firms engaged in
close-contact services such as barber shops and nail salons, a sector
described by the Fed research group as the sector hardest hit by the
economic fallout from the pandemic.
While potentially devastating for the owners and employees of those
firms, "relative to popular discussion ... our results may represent an
optimistic update to views about pandemic-related business failure," the
authors wrote.
Offsetting the hit to those services-oriented businesses, they noted,
carry-out restaurants, grocery stores and outdoor recreation companies
seemed to suffer fewer failures than usual, with the net result being a
smaller-than-anticipated blow to the overall economy.
"Many industries have likely seen lower-than-usual exit rates, and
exiting businesses do not appear to represent a large share of U.S.
employment," the researchers wrote.
FEDERAL AID
The study was the latest to sound a positive note on an economic
recovery that has proceeded faster than expected, with top Fed officials
confident that much of the potential permanent damage had been avoided.
Earlier research had anticipated widespread business failures due to the
pandemic, with 400,000 or more small firms going dark.
Census and other surveys continue to reflect stress among some firms
that continue to operate, and the Fed researchers acknowledged that more
failures could occur if, for example, banks, landlords and creditors
become less flexible with their business tenants as conditions return to
normal.
[to top of second column] |
A U.S. flag flutters outside the Brookville Hotel, closed
permanently due to the coronavirus disease (COVID-19) pandemic, in
Abilene, Kansas, U.S. October 10, 2020. REUTERS/Arin Yoon/File Photo
Nor does the study account for the millions of still-lost jobs at surviving
firms that cut staff or reduced operations, or for the disproportionate losses
felt among racial or ethnic groups over-represented in the most devastated
industries.
But it does start to put some scope around one of the potential economic scars
from the pandemic, and suggests that small businesses appear to have been both
more resilient than anticipated, and were propped up effectively by loans from
the Paycheck Protection Program and other federal aid.
The Fed and the U.S. government began flooding the economy with credit and
outright grants for businesses and households last spring, so much so that
personal incomes actually rose even as unemployment spiked to historical levels.
The funding included $755 billion in forgivable PPP loans spread across more
than 9.5 million firms. Although the roughly 30 million U.S. small businesses
are diverse, the vast bulk involve sole practitioners who have no employees,
with the remainder employing only a handful. So the failures of these
businesses, even in large numbers, don't register deeply in terms of overall
employment.
Official government statistics on business failures typically lag the actual
demise of those firms by a year or more. The Labor Department's Bureau of Labor
Statistics and the Commerce Department's Census Bureau have not yet released any
formal estimates on the pandemic's final toll on companies and their workers.
To augment the scarce data, the Fed researchers coupled available government
information with high-frequency, alternative measures such as cellphone location
data mapped onto retail locations, records from payrolls processor ADP, and
other sources.
They found that while the early fears of a large COVID-19 hit may have been
warranted given the numbers of businesses that shut down in the spring of 2020,
by the end of August there was "no evidence of excessive, ongoing business
inactivity; in fact shutdown was well below normal by late 2020."
(Reporting by Howard SchneiderEditing by Paul Simao)
[© 2021 Thomson Reuters. All rights
reserved.] Copyright 2021 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
Thompson Reuters is solely responsible for this content. |