President-elect Biden promises a very different set of policies for 2021. However, Covid-19 will drive policy decisions in practice. As virus infection rates surge or recede, policies to deal with it will be determined by 50 state governors and mayors across the country, absent an act of Congress that demands conformity and compliance with a particular policy. Technology will also shape policy choices as progress is made on multiple vaccines. However, vaccines will take several months to produce and distribute to the entire population.
The flow of government income supplements to those out of work has declined about 50% since August. Congress was unable to reach an agreement on extending the payments to dislocated workers and those businesses most negatively impacted. However, the economy did turn in a remarkable performance in the third quarter, GDP increased 33% at an annual rate. This supported improvement in the labor market as well, reducing the unemployment rate to 6.9%. It will take double-digit growth in the fourth quarter to restore the economy to where it was pre-pandemic.
Forty-two percent of small business owners are “very” or “moderately” concerned about their employees catching the virus. Half of these firms (50%) have 5 or fewer employees, so the loss of even one worker can present major problems. Forty percent are “very” or “moderately” concerned that they themselves might contract the virus, a major risk for the firm. One-in-four (25%) have had an employee take Covid-19 related paid sick leave or family leave as mandated and offered through the Families First Coronavirus Response.
In late October, over 80% of small businesses reported sales still below pre-Covid levels. Twenty percent say they will be unable to survive more than six months under current economic conditions, 5% only a few months. Even if Congress were to pass a new stimulus package soon, it is unlikely to provide actual financial support to small businesses until 2021. The other hope is that the economy continues to open up, increasing foot traffic and travel, boosting sales revenues. This will continue to depend on the Covid-19 infection rates and policies promulgated in the 50 states. There are good reasons to expect strong growth in the fourth quarter, including record high levels of plans to increase inventory holdings by small firms in October, a strong housing market, and very optimistic small business owners (SBET).