Forgive me for overstating the case in the headline. Small businesses are actually in very bad shape. But their condition is rapidly improving.
In late April, according to a new Census Bureau survey, over one quarter of firms with fewer than 500 employees were shrinking payrolls, while only 4 percent were expanding them. By the end of May, nearly 10 percent were expanding their workforces, and 13 percent were reducing them. That is significant improvement in a short period of time.
Revenue shows the same trends. In late April, three quarters of small businesses reported a drop in revenue in the previous week, and only 6 percent saw their revenue go up. By the end of May, nearly 17 percent saw revenue gains in the previous week, and the share of small businesses with revenue losses dropped to around half.
The 3 recessions that relied most heavily on temporary layoffs — those that began in 1973, 1980, and the 1981 “Volcker recession” — are also the 3 with the fastest labor market recoveries, both in an absolute sense and relative to consensus forecasts. Source: Goldman Sachs. pic.twitter.com/IbwUUZOwDn
— Michael R. Strain (@MichaelRStrain) June 10, 2020
So small business is in bad shape, but is improving rapidly. Why is that? Part of the reason is the heavy use of temporary layoffs, as I discuss in my latest Bloomberg Opinion column. In May, 15.3 million workers were on temporary layoff, compared with the 2.3 million people who lost their jobs permanently. Workers on temporary layoffs can move back into employment swiftly, beating expectations.
And a big part of the answer must be the Paycheck Protection Program. Declarations that PPP had failed were unfounded, driven by mere anecdotes about undeserving borrowers and poor execution by the U.S. Treasury Department. From my column:
As of June 6, a total of $511 billion had been lent to 4.5 million small businesses through PPP. These loans were not going exclusively to relatively large or well-connected companies, as media reports had led many to conclude. The average loan size was $113,000. Over 99.9% of the loans were for less than $2 million, and 79% of the total dollars lent through the program were part of loans of less than $2 million. As of the end of May, a stunning 71.2% of small businesses reported receiving financial assistance from PPP in the new Census Bureau survey.
Economists broadly agree that PPP is supporting employment this spring. Moody’s Analytics estimates it had saved 16 million jobs by mid May. (Of course, its ultimate test will be whether it supports employment and small-business continuity over a longer time period.)
PPP expires this summer. Small business will still be in bad shape. Congress, take note: You have more work to do.
Check out my column for my full argument. Your comments, as always, are very welcome.