LONG BEACH, CA – JULY 16: More than 200 people waited in line, some over night, for the reopening of … [+]
MediaNews Group via Getty Images
Things could be better. They could also be worse—and there is the potential for things to get worse.
That is, I think, the conclusion to be drawn from a review of several surveys and analyses of the current state of small businesses and entrepreneurs in the United States. By some measures, small businesses continue to struggle. Yet there are positive indicators, too, pointing to an economic recovery.
Still, the share of businesses saying they remain uncertain about whether or not they’ll still be around by the end of the year is worrying.
Many of the data points available on small business have a “yes, but” character to them.
- At the end of June, in its last weekly update from the Small Business Pulse Survey, the Census Bureau reported that the share of small businesses saying they were experiencing a “large negative effect” from the COVID-19 was down to 38 percent from 51 percent two months prior. Yes, but: 45 percent were experiencing a “moderate negative effect.”
- In a mid-June survey, the National Small Business Association found that two-thirds of small businesses were experiencing reduced customer demand, down from 80 percent in April. Yes, but: just one-third were “very confident” they would fully recover from the pandemic and downturn—with 99 percent of respondents saying they were “very” or “somewhat” worried about the economic impact from coronavirus.
- The Optimism Index from the National Federation of Independent Business (NFIB) rose sharply in June—for the first time since February, more small businesses said they expected higher sales in the next three months. Yes, but: June was the third straight month with more small businesses reporting lower sales and employment reductions. And one-fifth of respondents had reduced employment by an average of over four workers per firm.
- In a late July survey by the NFIB, 46 percent of respondents said they were back to pre-pandemic sales levels and 56 percent did “not anticipate any near-term problems.” Yes, but: one-fifth of respondents said they were still at 50 percent or less of 2019 sales levels, with another one-third saying they were at 50 to 74 percent of the same.
Disproportionate Impact Continues
Recommended For You
Aggregate data on small businesses continues to show hardship. According to an examination of Bureau of Economic Analysis data by the Small Business & Entrepreneurship Council, “small business income is off by nearly twice the [overall] decline in wages and salaries.” Under the surface, the unevenness of that hardship has been apparent for some time and shows no signs of abating. A survey by the U.S. Chamber of Commerce and MetLife found that 66 percent of minority-owned businesses worried about closing permanently, versus 57 percent of non-minorities.
A survey by the Stanford Latino Entrepreneurship Initiative (SLEI) found that 83 percent of Latino-owned businesses reported a negative impact from COVID-19 in June, down from 88 percent in March. Yet the share of Latino-owned businesses reporting a revenue decline rose from 31 percent in March to 74 percent in June. That is a massive jump.
When Is “Normal”?
Most of the surveys canvassed here also ask about business owners’ outlook: where do they see the economy and their own fortunes over the next several months? Here is where the optimistic signs from above might turn out to be false positives.
- In the June Census survey, 44 percent expected it to be at least six months before resumption of “normal” operations for their businesses.
- In the NFIB survey, 45 percent said they wouldn’t be able to operate past 12 months if current economic conditions failed to improve.
- A survey by Small Business majority during the first week of August found that 46 percent of small businesses expect to have to close for good by the end of the year.
The most concerning part about these surveys is actually what might not be in them—businesses that have shut down for good. In its Q2 analysis, Yelp estimated that 55 percent of business closures were now permanent.
Hearteningly, “high-propensity business applications” have rebounded strongly from the depths of the crisis. Compared to the same time period in 2019, there have now been more high-propensity business applications in 2020. (A “high-propensity” business application means one that is likely to have employees.)
This could be driven by those business owners who closed their companies permanently and are now starting new ones. It could, as someone pointed out to me, be “re-starts” of those closed businesses, but captured in the data as new applications. (This will require some analysis.) And, it could be driven by an onrush of entrepreneurs looking to take advantage of new opportunities exposed by the crisis.
We’re going to need that spike in business formation to be sustained for the rest of the year. Can it continue? The surveys show that, according to small business owners themselves, the next six months will be the crucible. Those still in business have survived the first pandemic wave; they have, however, mostly exhausted their emergency government support. If and when a second wave hits, and if further support is not forthcoming, those small businesses still standing could be in for a rough ride.
(Incidentally, most of the data cited in this column are from private-sector surveys. Only two, the Small Business Pulse Survey and Business Formation Statistics (the source of business application data) are from the public sector, both the Census Bureau. This highlights a key gap in our knowledge infrastructure when it comes to small business and entrepreneurship. There is a huge need—and huge opportunity—for innovations in government data to fill this gap and help inform better policymaking to support small businesses and entrepreneurs.)