According to a study by the Fed, the pandemic has destroyed fewer US companies than feared
© Reuters. FILE PHOTO: The Federal Reserve in Washington
By Howard Schneider
WASHINGTON (Reuters) – Fewer than 200,000 US businesses may have failed in the first year of the COVID-19 pandemic. This is a smaller number than originally feared and may have a relatively small impact on unemployment, according to Federal Reserve research.
The number contrasts with early predictions that the pandemic would leave America’s “Main Street”, as well as polls that continue to show that a large percentage of US small business owners are concerned about their survival.
Perhaps 600,000 businesses, most of them small businesses, fail in any given year, and US Federal Reserve researchers estimated the number was perhaps a quarter to a third higher from March 2020 through February this year.
This included 100,000 “excessive” failures at companies that have close ties, such as barbershops and nail salons, a sector that the Fed research group has identified as the sector most affected by the economic fallout from the pandemic.
While potentially devastating to the owners and employees of these companies, “our results may represent an optimistic update of views on pandemic-related business failure compared to public discussion …,” the authors wrote.
They found that restaurants, grocery stores, and outdoor recreational businesses that offset the success of these service-oriented businesses appeared to suffer fewer outages than usual, with the net result representing a less-than-expected blow to the overall economy.
“Exit rates are likely to be lower than usual in many industries and companies leaving do not appear to have a large percentage of US employment,” the researchers wrote.
The study was the most recent to give a positive rating for an economic recovery that has been faster than expected. Fed leaders were confident that much of the potential permanent damage had been avoided. Previous research had anticipated widespread business failure due to the pandemic, which darkened 400,000 or more small businesses.
Censuses and other surveys continue to reflect the stress of some companies that remain in business, and Fed researchers admitted that further errors could arise if, for example, banks, landlords, and creditors become less flexible with their business tenants when conditions recede normalize.
The study also fails to take into account the millions of jobs still lost in surviving companies that are downsizing or downsizing, or the disproportionate losses experienced among races or ethnic groups overrepresented in the worst-hit industries.
However, it is beginning to get a grip on some of the pandemic’s potential economic scars, suggesting that small businesses appear both to be more resilient than expected and have been effectively backed by paycheck protection program loans and other state aid.
The Fed and the US government began flooding the economy with loans and direct grants for businesses and households last spring, so personal incomes actually rose even though unemployment rose to historic levels.
Funding comprised $ 755 billion in PPP eligible loans distributed among more than 9.5 million companies. Although the 30 million or so US small businesses vary, the vast majority are individual practitioners with no staff, while the rest only employ a handful. The failures of these companies, even in large numbers, are not profound in terms of total employment.
Official government statistics on business failure are typically a year or more behind the actual decline of these companies. The Department of Labor’s Bureau of Labor Statistics and the Department of Commerce’s Census Bureau have not yet released formal estimates of the final number of pandemics for businesses and their workers.
To augment the scarce data, the Fed researchers combined available government information with high-frequency, alternative measures such as cell phone location data mapped to retail locations, records from the ADP payroll clerk, and other sources.
They noted that given the number of businesses closed in Spring 2020, early fears of a major COVID-19 hit were justified, but had “no evidence of excessive, prolonged business inactivity” by the end of August, the shutdown was to the end 2020 far below normal. “