The Federal Reserve building is located against a blue sky in Washington, USA, on May 1, 2020. REUTERS / Kevin Lamarque / File Photo
Less than 200,000 U.S. companies may have failed during the first year of the COVID-19 pandemic, a lighter toll than initially feared and which may have had a relatively low impact on unemployment, according to a study by the Federal Reserve.
The figure contrasts with early forecasts that the pandemic would devastate the U.S. “Main Street,” as well as with surveys that continue to show large percentages of small U.S. business owners worried about their survival.
Perhaps 600,000 businesses, mostly small businesses, fail in a given year, and U.S. central bank researchers estimated that from March 2020 to February this year the figure has been perhaps a quarter to one. upper third.
This included 100,000 “excessive” failures between companies engaged in close contact services such as hairdressers and nail salons, a sector described by the Fed research group as the sector most affected by the economic consequences of the pandemic.
While it can be devastating for the owners and employees of these companies, “in relation to the popular discussion … our results may represent an upbeat update of views on pandemic-related business failure,” the authors.
They made up for the success for those service-oriented businesses, noting that restaurants leading to the grocery store, grocery stores, and outdoor recreation businesses seemed to suffer fewer failures than usual, being the net result once again smaller than expected for the economy as a whole.
“Many industries have probably seen lower-than-usual exit rates, and outgoing companies don’t seem to account for a large portion of U.S. employment,” the researchers wrote.
FEDERAL AID
The study was the latest to give a positive note on the economic recovery that has proceeded faster than expected, with top Fed officials confident that much of the possible permanent damage had been averted. Previous research had predicted widespread business failures due to the pandemic, with 400,000 or more small businesses plummeting.
Censuses and other surveys continue to reflect stress among some companies that continue to operate, and Fed researchers acknowledged that more failures could occur if, for example, banks, homeowners and creditors become less flexible with their tenants as conditions return to normal.
The study also does not take into account the millions of jobs still lost in surviving companies that reduce staff or reduce operations, nor the disproportionate losses that were felt among racial or ethnic groups over represented in the most devastated industries.
But it is beginning to put some scope around one of the possible economic scars of the pandemic and suggests that small businesses appear to have been more resilient than expected and were effectively favored by the Program’s loans. wage protection and other federal benefits. .
The Fed and the U.S. government began flooding the economy with loans and direct subsidies to businesses and households last spring, to the point that personal incomes rose even as unemployment rose to historical levels.
Funding included $ 755 billion in forgivable PPP loans spread across more than 9.5 million companies. While the roughly 30 million small U.S. businesses are diverse, most are unique professionals who have no employees, and the rest only hand in a handful. Therefore, the failures of these companies, even in large numbers, are not deeply recorded in terms of global employment.
Official government statistics on business failures often delay the actual demise of these businesses 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 released any formal estimates of the final toll of the pandemic on companies and their workers.
To augment the scarce data, Fed researchers combined available government information with alternative high-frequency measures, such as cell phone location data mapped to commercial locations, payroll processor records, ADP, and other sources.
They found that while the first fears of a great success of COVID-19 could have been justified given the number of companies that closed in the spring of 2020, at the end of August there was no “evidence of “excessive and continued business inactivity; the closure of the events was much lower than normal at the end of 2020”.
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