Michael Strain of the American Enterprise Institute explores the pandemic’s damage to American small businesses.
To slow the spread of the novel coronavirus, states issued shelter-in-place orders beginning in mid-March that brought a large share of economic activity to a sudden halt. These orders, combined with the concern many Americans have about becoming infected by engaging in normal economic activity, have devastated the economy.The pandemic has brought the longest economic expansion since World War II to a conclusion and caused an acute deterioration in the labor market. …
… Small businesses have been hit very hard by the shutdown orders and decreased demand due to concern about the coronavirus. Many small businesses operate with low profit margins, making it difficult to absorb a large decline in revenue sustained over several months. Cash buffers can allow business operations to continue in the absence of revenue. Research by the J.P. Morgan Chase Institute shows that 50 percent of small businesses have fewer than 15 days of cash liquidity, and only 40 percent of small businesses had more than three weeks of a cash buffer. Small businesses in the services sector have likely been harder hit than manufacturing firms because they face a permanent revenue loss from a long shutdown. Manufacturing companies will suffer due to a decline in the demand for goods and disruptions in supply chains. But unlike manufacturing firms, which may return to partial operations with a partial backlog of orders, services-sector losses will (mostly) never be made up. For example, households will not eat twice as many meals at restaurants in the month of July because they could not eat any meals out in the month of April. …
… The survey shows that the expectations of small business owners are souring, with the share of owners who expect it to take longer than six months for a return to normal increasing significantly. …
