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Will the U.S. economy weather the small business catastrophe?

The COVID-19 pandemic has been causing economic turmoil for over eight months. The headlines are filled with the massive layoffs announced by Fortune 500 companies such as Disney laying off 28,000 workers since its parks can’t open fully and the four major U.S. airlines cutting almost 150,000 workers. But what gets lost in the headlines of these company announcements are the millions of workers out of work because they are employed at America’s small businesses. These small businesses, defined as firms with less than 500 employees make up 44% of U.S. economic activity and employ almost half of all workers per the U.S. Small Business Administration. The shutdowns that were so pervasive throughout the country in the last eight months and the slow pace of state openings have meant many of these businesses could not operate. Yelp, the online ratings service, has data showing that 80,000 businesses permanently shut their doors between March 1st and July 25th. How many of these will be able to reopen or will instead remain closed forever? If they do reopen, will they be at full staff? Probably not, especially if they are restaurants. A place that had 30 workers at full speed might only need 10 or 15 when the restaurant can only serve take-out or has to keep capacity at 25%. How long will the furloughed workers hang on before they have to look for other work? With no further stimulus from the Federal government, bills like rent and food will come due with no income to cover it and hardly any savings to rely on.

Zero in on just the services sector, not including goods, and you find that this sector makes up 42% of the total U.S. economy. These are the restaurants, physical trainers and office cleaners. How long until restaurants need a full contingent like they did in January 2020? If companies choose to stay in a work-from-home situation for the time being, how many building support people will be permanently out of a job? An office building with only 25% of the normal number of people coming each day won’t need all the support it did previously. There will still be some who have jobs supporting these companies and buildings, but not nearly the same number. And what about leisure and travel? All those hotels and businesses that rely on tourism will struggle until people feel comfortable getting onto an airplane and traveling. You don’t need as many housekeepers in a hotel operating at 50% occupancy. Imagine a scenario where just 75% of those workers keep their jobs? That seems great but it also means 1 out of every 4 of those are now out of work and all competing with each other for a small number of job openings.

Small businesses are just that: small. They don’t make headlines. But an enormous number of people work in these firms. If the U.S. economy loses too many of them and those who are out of work don’t start again or try something new, the economic toll will be massive. And even worse, it is hard to count and track all these small business closures so by the time economists and researchers have a better handle on just what happened and the extent of the damage, it will be too late to gather public energy to support them. This bodes ill for the economic recovery, no matter what the raging stock market has to say about it.

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