Rising optimism. Lingering fear and pessimism. Growing focus on workers not dollars.
Those are the high-level takeaways from a quick scan of recent small business surveys.
One year ago, most of the United States was well into lockdown. School had moved online. Offices had closed. Many retail stores were shut down. Only “essential” businesses were allowed to operate. As is well known by now, small businesses were hit especially hard by all this. By the end of April 2020, 22% of small businesses that had existed in February 2020 had disappeared. Those business losses were uneven across demographic groups.
This column provides the next in a series of occasional updates on how small businesses are faring—and how they say they’re feeling about their prospects. New data and analysis also provide more detail on the impact of the pandemic on small businesses.
In mid-February 2021, nearly half (45.6%) of small businesses surveyed in the Census Bureau’s Small Business Pulse Survey said they expected resumption of “normal” operations to take longer than six months. By mid-April, that figure had fallen to 36.8%.
This is an enormous improvement, from the largest sample of small businesses, in their economic outlook. The improvement is particularly impressive when you consider that, from August 2020 to early 2021, the pessimistic share had not fallen below 44%.
Increasing optimism is also found in results from a Goldman Sachs survey in mid-April of participants in its 10,000 Small Businesses program. There, 89% of small businesses were confident their business would survive. Similarly, in a report on the latest survey by the National Federation of Independent Business of its members, overall optimism and near-term sales expectations had risen compared to February. The NFIB “optimism index” is at its highest reading since November. The Small Business Index produced by the U.S. Chamber of Commerce and MetLife, released in mid-March, also showed improvement from the end of 2020.
Nevertheless, many small businesses appear reluctant to completely shake off concerns about the pandemic and its continuing impact. The headline summary of the Goldman Sachs survey, for example, reads “Doors Opening But Not In The Clear.” Likewise, the US Chamber-MetLife headline is, “small businesses’ health improves as economic concerns linger.”
In the Goldman Sachs survey, despite high levels of overall optimism, just 26% of small businesses were confident they could maintain payroll in the absence of additional government relief. Many face imminent exhaustion of funds from their Paycheck Protection Program loans.
The NFIB survey, despite improvement in the outlook for general businesses conditions, still shows a negative reading overall. More small businesses expect a worsening economy than an improving one—the overall outlook is still net negative and has been for four consecutive months.
It’s also clear from the surveys that workforce concerns might be part of what’s weighing on the confidence of business owners. In early January, 24% of small businesses in the Census survey said identifying and hiring new employees was their top need. By mid-April, that had risen to 32%. In the meantime, the share saying that additional financial assistance was their top need fell from 33.5% to 17.5% over that same period.
Hiring expectations in the U.S. Chamber-MetLife index rose compared to Q4 2020. And the share of small businesses telling the Census Bureau they increased employment rose five percentage points from January to April. (It remains small, rising from 3.4% to 8.5%.)
Finding workers, however, appears to the obstacle. The NFIB survey shows 42% of small business owners with job openings they can’t fill. That’s a record high.
One last note. While there have been various analyses and estimates of the economic hit that small businesses took during the pandemic, a new Federal Reserve report and QuickBooks survey contain some of the most detailed findings so far.
The new Fed report is an analysis of business owners of color, based on the Small Business Credit Survey that was fielded in Q3 2020. It sheds more light on just how disproportionate the impact of Covid-19 has been. Firms owned by people of color “reported more significant negative effects on business revenue, employment, and operations.” Despite rapid growth in business ownership by people of color before the pandemic, they entered the crisis in a generally disadvantageous position based on sales, employment, and credit access.
The QuickBooks survey was accompanied by analysis of small business bank accounts. This offers a look at ground-level impact. They found, for example, that as of March 2021 annual revenues for bowling alleys have fallen by $250,000 per business compared to pre-pandemic levels. That’s a 33 percent decline on average. For just the businesses in the QuickBooks sample, revenues fell by $4.6 billion in just one month, April 2020.
This sharp contraction has been followed by “sustained recovery” in many sectors: “for many small businesses, the recovery began almost immediately,” the report states. Monthly revenue growth has been particularly rapid since the beginning of this year. Monthly revenues in the seven hardest-hit industries had fully recovered, or close to it, by March 2021: hotels & lodging, museums and attractions, and movies were above pre-pandemic levels by March 2021.
Still, according to the Fed SBCS data (again, gathered several months before the QuickBooks data), business owners of color hold generally more pessimistic outlooks about the economy and their firms. As PPP is exhausted and policymakers look forward, they should take heart in the growing optimism among small businesses—yet remember that many still struggle.