The return of the ‘Misery Index’
The United States is currently experiencing its fastest rate of inflation, year over year, since mid-1982. Those of you who are old enough to remember that might also remember the…
In April, an NBER working research paper shed light on the financial fragility of small businesses and how uncertain most of them were regarding the duration of virus caused disruptions. According to the survey conducted on 5,800 small businesses, many businesses were found to have more than $10,000 in monthly expenses but less than one month of cash on hand. This means that small businesses have been facing a higher risk of closure compared to big businesses.
Researchers have provided an update on the fate of small businesses in the country. By tracking and taking surveys from small business owners, they estimate that over 100,000 small business have permanently closed due to economic disruptions caused by the coronavirus.
But already, economists project that more than 100,000 small businesses have shut permanently since the pandemic escalated in March, according to a study by researchers at the University of Illinois, Harvard Business School, Harvard University and the University of Chicago. Their latest data suggests at least 2 percent of small businesses are gone, according to a survey conducted May 9 to 11.
This spells far reaching impacts for the future structure of the economy
Analysts warn this is only the beginning of the worst wave of small-business bankruptcies and closures since the Great Depression. It’s simply not possible for small businesses to survive with no income coming in for weeks followed by reopening at half capacity, many owners say.
The result is likely to further shift the balance of power — and jobs — toward big businesses that have a better chance of surviving the uncertain year ahead by borrowing money or drawing on large cash reserves. Emergency actions by the Federal Reserve, backed by the Treasury, have made borrowing money almost free for large companies.
A similar trend is expected in the retail sector where 100,000 retail stores would close by 2025. This would be partly caused by change in shopping trends whereby Americans would opt to shop online. In the case where people do opt for physical retail stores, they may not linger for fear of infection. This is expected to hurt small retailers as well while benefiting large chains.
Smaller retailers would be hurt the most while large chains such as Walmart, Target and Costco might benefit from the shuttering of underperforming retail stores, UBS said. Dollar stores and home improvement retailers such as Home Depot and Lowe’s should also be beneficiaries.