While states have begun easing their restrictions for the Stay-at-Home directive, the metrics on COVID-19 indicate that the U.S. is far from stopping the virus. The latest economic data being released is revealing the tremendous stress small businesses are under. Those numbers tell only a fraction of the story due to most COVID-19 restrictions being initiated at the very end of the first quarter, leaving the coming months to show the full economic impact of the virus.
The latest Alignable Pulse Poll of 9,500 small business owners conducted from April 24-27, 2020 showed that 34% of small businesses with 50 or less employees nationwide will not be able to pay their May rent in full and a dramatic 84% expect to only be able to pay half of their rent or less the following month. While the majority of small businesses have worked out lower or delayed payments with their landlords, 36% were unable to obtain any support of this kind. For those fortunate enough to be being given some relief, just about half were able to delay rent by only one month and about 20% were able to defer rent for three months, with a mere 3% gaining a six month delay.
The challenges being faced by small business were touched upon by Robert Wolf, former CEO and Chair of UBS Group Americas and advisor to President Obama, while participating on a panel recently hosted by Steve Forbes. Wolf touched on the large portion of small businesses that work month to month to meet their obligations and how critical consumer spending is for them to participate in an economic recovery.
“Most of those small businesses have 30 days of runway and we are in the 2nd month of the pandemic,” said Wolf. “The idea that all of a sudden we are going to rewind small businesses and they are going to be vibrant, we are kidding ourselves. We need to get the consumer back, 70% of our GDP as a nation is consumer driven.”
Wolf called the current period a “technical” recession, as opposed to that of 2008 to 2010 which he views as a “financial” recession caused by the over leveraging of financial institutions that contributed to illiquidity.
“The things that are being hurt today is what really has been the most vibrant part of America over the last decades and that is small businesses,” he said, also estimating that of the approximate 30 million small business in the U.S. only 5-10% so far have received stimulus money, but account for 50% of the workforce.
Meanwhile, rent struggles for small businesses are cutting broadly across industries with retail, personal services, travel, and restaurants most affected. Driving this is the more than 44% of small businesses that have already closed due to virus restrictions, according to a separate Alignable poll run April 17-26 with 40,000 respondents.
When reviewed more closely the poll reveals that COVID-19 quarantines have hit women-owned, minority-owned, and veteran-owned businesses particularly hard. More than half of all women-owned businesses (52%) report being closed, while minority-owned businesses hit 48% and veteran-owned companies 44%. The small business sector as a whole in comparison experienced 38% shutting their doors, possibly temporarily but not yet known.
The economic numbers now being released are a portent of what is to come. In a report by well-known think tank The Conference Board US Real Gross Domestic Product (GDP) contracted at an annualized growth rate of by -4.8% during the first quarter of 2020 versus the +2.1% growth rate reported in Q4 2019. That alone is considered a dramatic decline, but it seen as preliminary data that will be revised over the coming months—and with a much greater contraction expected in the coming quarter. The Conference Board estimates overall economic decline to be between -38.8 and -43.7 percent% (annualized) that is contingent upon the progress of the virus through May and June and the level of re-opening that occurs.
Behind the GDP contraction was personal consumption expenditures dropping by -7.6 percent and non-residential investment falling by -8.6 percent in Q1, according to the Bureau of Economic Analysis with US consumers and businesses pulling back their spending in tandem.
Wolf is rather cautious about the economic recovery, stating “It is going to be a longer U-shape, it is going feel like an “L” in the 2nd, possibly 3rd, but hopefully not 4th quarter. For the foreseeable future it is not going to feel like a recovery. The more optimistic V-share recovery is not foreseeable because of the possible 30% drop in GDP to be seen over the coming quarters and the high unemployment rate that skyrocketed in a few short weeks that may go to 20%, possibly higher.
As this all unfolds, the talk of a new normal in the post-COVID-19 world has emerged, but it is very unclear what the long term impact of the COVID-19 pandemic will be.
