A surge of unemployment has shaken the US economy in light of COVID-19. American businesses, small and large, are experiencing record-low sales, record-high layoffs, and a six-month forecast that is anything but certain. In order to subdue the coronavirus outbreak, public health officials are telling Americans to wear a mask, avoid face-to-face contact, and shelter-in-place. With over 5 million confirmed cases in the US as of August 2020, not only is our health at risk but our livelihoods as well.
The Current Impact of COVID-19
As the vast majority of citizens of the United States and the world lockdown, economic activity and spending are rapidly slowing down. Many people are experiencing the economic effects of coronavirus through the closing of shops and restaurants. Specific industries, such as the travel industry, including airlines and hotels, are losing revenue by the billions due to no non-essential travel.
However, smaller businesses that rely on tourism revenue are at an even more significant risk of closing. Small businesses, in general, are currently walking on eggshells.
Small Businesses Disproportionately Affected
More than 99% of all businesses are small businesses, and they employ about half the US workforce. That’s about 30.7 million American small businesses in total, a number that is dwindling as the pandemic is forcing many to close forever. Most small businesses lack the cash reserves to weather a month-long interruption, and forecasts indicate more than 2 million workers could lose their jobs in just one week as a result of the coronavirus pandemic. There’s also the possibility of a startup depression, wherein entrepreneurs don’t start new companies due to the pandemic.
The burden on small businesses is high even without a pandemic as under 50% of businesses make it to their fifth year and 33% of startups make it to the 10-year mark. So you can probably make an educated guess that the pandemic is hitting these entrepreneurs very hard.
For qualitative measures, 58% of small business owners say they’re worried about permanently closing. For quantitative measures, the Yelp review site, which has been tracking announcements of closings posted on its site, listed 132,580 businesses remain closed (as of July 10) according to its latest Economic Average report. Although there is a slight decrease from 140,000 the previous month of July, the number of businesses that have permanently closed is rising. 55%, or 72,842 businesses, will never reopen again (all business closures since March 1). This is 41% greater than what Yelp reported just last month. Another 15,742 businesses Yelp reported permanently closed between July 15 and July 10.
Effects of a Conservative Spending Mentality
What worsens the economy is the mentality of the people who choose to reserve their money based on reigning uncertainty. The pandemic has even caused individuals and families with ostensibly stable employment to limit their purchases in case the crisis isn’t contained. The mentality is that if you’re in a stable financial position, it’s still prudent to spend conservatively as the pandemic unfolds in an unpredictable matter. That mentality is having a detrimental effect as it discourages spending, and one person’s spending is another’s income. In the US, for instance, retail sales dropped by 8.7% in April, the greatest monthly drop since the Census Bureau started recording data.
Adding more unease, the Federal Reserve released a data report revealing the worst dip in manufacturing output since the 1940s. Additionally, the rise in unemployment is devastating: nearly 22 million Americans have lost their jobs in March 2020, breaking previous records, and many of them included workers for small businesses. The question is not just how worse can these economic effects get but also how long they will last.
Cannot Compare COVID-19
The impact of the coronavirus is relatively uncertain because this pandemic is unique, which makes it difficult to predict the repercussions of any crisis. Any economic prediction is simply just educated guesswork, not exact science. Since this is the most massive pandemic of the century, there is no recent example that the coronavirus can compare. The closest comparison is the Spanish Flu — an unusually deadly influenza pandemic originating from the H1N1 influenza A virus that lasted from February 1918 to April 1920. The lack of economic data from the 20th century makes comparison redundant.
Additionally, technology wasn’t a factor back then like it is today. Still, an analysis by the Federal Reserve Bank of St. Louis estimated that many businesses like entertainment industries suffered over “double-digit losses in revenue.” The economic setbacks of the Spanish Flu lasted a short amount of time, as the underlying health emergency subsided in 1919.
The coronavirus, however, already has a substantial economic toll even with a lower mortality rate than the Spanish Flu. Financial experts can estimate the economic fallout from setbacks such as a pandemic. But the precise impact of the coronavirus will vary based on the number of cases per day, the severity of it, and the precautions to contain it.
The significant drop in economic output is inevitable. However, keeping the infections under control and limit that impact. On Friday, March 27, 2020, the President signed into law the CARES Act, which contains $376 billion in relief for American workers and small businesses. The CDC has recommended a plan for businesses to adapt to the pandemic, such as evaluating your essential functions and the reliance that others and the community have on your services or products. In the meantime, individuals can help themselves not only by social distancing but by analyzing their financial situation and planning for the worst.