The Federal Reserve Building is set against a blue sky in Washington, US, May 1, 2020. REUTERS / Kevin Lamarque / File Photo
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 has had relatively little impact on unemployment, according to Federal Reserve research.
This figure contrasts sharply with early predictions that the pandemic would leave America’s “Main Street”, as well as with polls that still show that large percentages of small business owners in the US are concerned about their survival.
Perhaps 600,000 companies, most of them small businesses, fail in any given year, and US central bank researchers estimate that from March 2020 to February of this year, this figure was perhaps a quarter to a third higher.
That included 100,000 “redundant” failures at close contact companies such as hairdressers and nail salons, an industry described by the Fed’s research group as the one hardest hit by the economic impact of the pandemic.
While potentially devastating to the owners and employees of those companies, “our results compared to the popular discussion … may be an optimistic update of views on pandemic-related business failures,” the authors wrote.
To offset the blow to those service companies, they noted, restaurants, supermarkets, and outdoor recreation businesses seemed to go out of business less than usual, with the net result being a smaller than expected blow to the economy as a whole.
“Many industries have likely seen lower than normal exit rates, and it appears that corporate exits do not represent a large portion of US employment,” the researchers wrote.
FEDERAL SUPPORT
The study was the latest to take a positive note of an economic recovery that has gone faster than expected, with top Fed officials confident that much of the potential permanent damage had been avoided. Previous research had anticipated widespread corporate failure as a result of the pandemic, leaving 400,000 or more small businesses in the dark.
Census and other surveys continue to reflect the stress in some businesses still operating, and the Fed researchers recognized that more bankruptcies could occur if, for example, banks, landlords and creditors become less flexible with their corporate tenants as conditions return to normal .
Nor does the study explain the millions of jobs still lost at surviving companies that are downsizing staff or operations, or the disproportionate losses suffered by racial or ethnic groups overrepresented in the most devastated industries.
But it is starting to create some leeway around one of the pandemic’s potential economic scars, suggesting that small businesses appear to be both more resilient than expected, and were effectively backed by loans from the Paycheck Protection Program and other federal aid.
The Fed and the US government began flooding the economy last spring with credit and outright subsidies for businesses and households, so much so that personal income actually increased even as unemployment peaked to historic levels.
Funding included $ 755 billion in forgivable PPP loans across more than 9.5 million companies. While the approximately 30 million small businesses in the US are diverse, the vast majority are lone workers who have no employees, while the rest employ only a handful. So the failures of these companies, even in large numbers, are not recorded in depth in terms of overall employment.
Official government statistics on bankruptcies typically lag a year or more behind the actual demise of those companies. The Labor Department’s Bureau of Labor Statistics and the Commerce Department’s Census Bureau have not yet released formal estimates about the pandemic’s ultimate toll on businesses and their employees.
To increase the scarce data, the Fed researchers matched available government information with high-frequency, alternative measures, such as cell phone location data mapped to retail locations, payroll processor data from ADP, and other sources.
They found that while early fears of a major COVID-19 hit were warranted given the number of businesses closing in spring 2020, there was “ no evidence of excessive, sustained business inactivity ” at the end of August. fact that the closure was far below normal at the end of 2020. “
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