Covid-19's Toll on U.S. Business? 200,000 Extra Closures in Pandemic's First Year
By Ruth Simon
The economic toll from the Covid-19 pandemic has been tough to
measure, but new estimates from the Federal Reserve suggest it
wasn't as bad as feared for smaller businesses.
The pandemic resulted in the permanent closure of roughly
200,000 U.S. establishments above historical levels during the
first year of the viral outbreak, according to a study released
Thursday by economists at the Fed. In recent years, about 600,000
establishments have permanently closed per year, or about 8.5%,
according to the study.
Individual companies account for about two-thirds -- or roughly
130,000 -- of the extra closures if historical patterns hold,
according to the Fed economists, who examined businesses with
employees. Other closed establishments are units of major companies
-- say, a Gap or Pizza Hut -- that closed some locations while
remaining in businesses.
Barber shops, nail salons and other providers of personal
services appear to be hardest hit, according to the Fed study,
accounting for more than 100,000 establishment closures beyond
historically normal levels between March 2020 and February
Many small businesses continue to struggle to stay afloat, but
the new estimate suggests that U.S. business failures have been
fewer than some economists expected. One earlier study estimated
that more than 400,000 small businesses had closed in the first
three months of the pandemic.
"Actual exit is likely to have been lower than widespread
expectations from early in the pandemic," the Fed researchers said
in their report.
The new estimates are preliminary. In addition, some businesses
that have hung on could eventually collapse under the weight of
back rent, unpaid loans and other expenses.
The Fed estimates don't include the roughly 26 million U.S.
businesses without employees. Business failures traditionally have
been highest among the smallest firms, those with fewer than five
The study doesn't explain why small business failures have been
lower than anticipated, but some economists point to extensive
government aid, including the Paycheck Protection Program, which
provided $525 billion in forgivable loans to small businesses last
year, and reopened in January with an additional $284 billion in
"The PPP allowed small businesses to ride things out," said
Scott Stern, a management professor at the Massachusetts Institute
of Technology's Sloan School of Management who studies business
formation. "Not only are things less bad than we thought, but they
are less bad by an order of magnitude."
State and local governments also have provided more than $14
billion in grants, forgivable loans and other aid to small
businesses to help alleviate the pain, estimates the Institute for
Local Self-Reliance, a Minneapolis-based nonprofit. Many landlords
and creditors have allowed small-business owners to defer rent,
loans and other obligations.
"The supports have been pretty strong," said Kenan Fikri,
research director for the Economic Innovation Group, a think tank.
"Throughout the pandemic, we have seen over and over again that
many aspects of the U.S. economy are more resilient than we have
given them credit for," he added. "That includes households and
businesses, small and large."
Figuring out how many businesses have failed has been
particularly challenging because of lags in official government
data. The number of establishments that permanently closed in the
second quarter of 2020 won't be available until later this year;
information on failures of actual businesses will take even longer
Distinguishing between temporary closures, which soared in the
early stages of the pandemic, and permanent closures has been
another challenge. Multiple closings and reopenings became almost
commonplace over the past year for owners of restaurants, bars,
gyms, beauty salons and other establishments grappling with
shifting government directives as well as employee illnesses tied
to the Covid-19 pandemic.
In developing their estimates, the Fed economists analyzed
information from payroll provider Automatic Data Processing Inc.
and SafeGraph Inc. cellphone geolocation data. They also reviewed
Census Bureau survey data on business expectations and information
from small business vendors.
In some hard-hit sectors, such as leisure and hospitality, the
picture appears to be more mixed, with above-average closures of
full-service restaurants offset by increased spending on fast-food
restaurants and outdoor recreation.
Write to Ruth Simon at firstname.lastname@example.org
(END) Dow Jones Newswires
April 16, 2021 09:58 ET (13:58 GMT)
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