The Federal Reserve building is located in a blue sky in Washington, USA, May 1, 2020. REUTERS / Kevin Lamarque / File Photo
It is possible that less than 200,000 companies in the United States failed in the first year of the COVID-19 pandemic, a lighter tax than initially feared and one that could have had a relatively small impact on unemployment, according to Federal Reserve research. .
The figure contrasts with early predictions that the pandemic would leave the American “Main Street” deserted, as well as polls that continue to show that large percentages of small business owners in the US are worried about their survival.
Perhaps 600,000 businesses, mostly small businesses, fail in a given year, and U.S. central bank researchers have estimated that from March 2020 to February this year, the figure was likely a quarter to a third higher. .
This included 100,000 “excessive” failures among companies engaged in close contact services, such as hairdressers and nail salons, a sector described by the Fed research group as the most affected by the economic consequences of the pandemic.
Although potentially devastating for the owners and employees of those companies, “in relation to popular discussions … our results may represent an optimistic update of views on the failure of the pandemic business,” the authors wrote.
Compensating for the success of those service-oriented businesses, they noted, restaurants, grocery stores and outdoor recreation companies seemed to suffer fewer failures than usual, with the net result being a smaller-than-anticipated blow to the overall economy.
“Many industries have probably had lower-than-usual exit rates, and leaving companies do not appear to account for much of US employment,” the researchers wrote.
FEDERAL AID
The study was the latest to sound a positive note on a faster-than-expected economic recovery, with top Fed officials confident that much of the potential permanent damage has been averted. Previous research had anticipated widespread business failures due to the pandemic, with 400,000 or more small businesses becoming dark.
The census and other polls continue to reflect stress among companies that continue to operate, and Fed researchers have acknowledged that more failures could occur if, for example, banks, landlords and lenders become less flexible with their tenants as conditions return to normal.
Nor does the study explain the millions of jobs still lost to surviving firms that reduce staff or reduce disproportionate operations or losses felt among over-represented racial or ethnic groups in the most devastated industries.
But it is beginning to put some scope around one of the potential economic scars of the pandemic, and suggests that small businesses appear to have been more resilient than anticipated and have been effectively supported by loans under the Wage Protection Program. and other federal aid.
The Fed and the US government began flooding the economy with loans and direct subsidies to businesses and households last spring, so much so that personal incomes have risen even as unemployment has risen to historic highs.
The funding included $ 755 billion in forgivable PPP loans, spread across more than 9.5 million companies. Although the approximately 30 million small businesses in the United States are diverse, the vast majority involve sole practitioners who have no employees, with the rest employing only one hand. Therefore, the failures of these companies, even in large numbers, are not deeply recorded in terms of overall employment.
Official government statistics on business failures usually delay the actual death of these firms by a year or more. The Labor Statistics Office of the Department of Labor and the Census Bureau of the Department of Commerce have not yet published any formal estimates of the final pandemic number of companies and their workers.
To increase the limited data, Fed researchers coupled available government information with alternative high-frequency measures, such as cell phone location data mapped to retail locations, ADP pay processor records, and other sources.
They found that while early fears of a high-impact COVID-19 could be justified, given the number of companies that closed in the spring of 2020, there was no “evidence of commercial inactivity until the end of August.” excessive, ongoing; the closure was well below normal by the end of 2020 “.
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