1. Business
  2. CoronaVirus
  3. News
  4. Small Business

Small Business And Covid-19

Everything we need to get the economy growing is sitting in consumer bank accounts. First came government checks sent to nearly everybody and then unemployed workers received an extra $600 each month in their unemployment checks. However, consumers, those employed and unemployed, did not spend the money mostly because they could not due to government stay at home orders and mandated business closures. You can’t actually take a vacation or eat in a restaurant on the internet. This took the consumer saving rate to an incomprehensible 33% in April. As the economy opened up, spending followed, posting record increases in May that took the savings rate down to a still stunning 23% (historically around 4%-7%). Lower income consumers have taken their spending back to pre-Covid levels. However, higher income consumers have not and small business owners could use a little help (more spending) from that segment of the population.

This matters because consumer spending is the source of income for most small businesses. The net percent of owners reporting quarter-over-quarter gains in sales was at historically high levels in January and February. In the second half of March, government policies to deal with the Covid-19 pandemic were imposed, “recommending” that consumers shelter in place and that all non-essential businesses close. Sales tanked in April and consumer spending posted a record -13% decline. A net negative 31% of small business owners in June reported quarter-over-quarter declines in sales (last 3 month compared to prior 3 months).

This of course trigged a record layoff of workers, which numbered about 18 million in June. About 80% of the unemployed or laid off workers expected to be called back to work. In the meantime, Congress supplemented unemployment benefits by $600 a week. And indeed one-third of the workers have been rehired or replaced as of the June BLS jobs report, helped by an 18% gain in retail sales in May.

However, pre-crisis economic activity is still a long stretch away, requiring a continued and substantial pickup in spending to reach that level again. The unemployment rate is over 10% and 18 million remained unemployed. Most expect to be called back to work as the economy opens up, about 3 million are permanently unemployed. The net percent of owners expecting real sales volumes to rise was 6%, up from -42% in April! The net percent expecting the economy to improve was 39%, well above the 5% posted in March when economy was closed down. The level of uncertainty is high, owners are unsure about consumers and the government, they can only guess at will happen. The recession was clearly caused by government Covid-19 policies which are still in flux. Consumers are more optimistic now but that could change too. There may be more federal stimulus and that will certainly shore up confidence. But who knows? What is clear is that more spending, from whatever source, is needed to get small business employment heading to the levels last seen in February, the official peak of the last expansion.

Comments to: Small Business And Covid-19

Your email address will not be published. Required fields are marked *