Small Businesses Continue to Struggle Amid Pandemic: How Bad Is It?

Well, we’ve finally gotten some good economic news lately. After having seen the economy, more or less, implode since the coronavirus made landfall and the government implemented unprecedented lockdowns across the country, things are moving in the right direction.

Unemployment is down from a high of 14.7 percent in April to a bad-but-not-catastrophic rate of 7.9% in September. The third quarter also saw GDP increase by an astounding 33%!

Although as Jason Scott has noted, GDP fell by 31% in the second quarter, and an economy that goes down by a third and then up by a third is not back to where it was to begin with.

Here’s the math:

Down by 30%: 100 X 0.7 = 70
Up by 30%: 70 X 1.3 = 91
Result: 91 is 9 less than 100

So, we’re still down about 9%. But given where we were in April and May, that’s huge progress!

Unfortunately, that progress has not been evenly distributed—and small businesses have taken the brunt of the impact.

An Uneven Recovery

A devastating analysis by Visual Capitalist shows just how much damage has been done (and is still being done) by COVID-19 and the lockdowns.

“Small businesses are the backbone of the U.S. economy, employing nearly half of the private sector workforce.

“Unfortunately, lockdown and work-from-home measures brought about by COVID-19 have disproportionately affected small businesses—particularly in the leisure and hospitality sectors.

“As metro-level data from Opportunity Insights points out, geography makes a great deal of difference in the proportion of U.S. small businesses that have flipped their open sign. While some cities are mostly back to business as usual, others are in a situation where the majority of small businesses are still shuttered.”

Of course, being shuttered now does not mean these businesses are permanently closed. Unfortunately though, many are—and many others have taken a giant step back.

Furthermore, “mostly back to business as usual” is not fully back. All 52 of the biggest metro areas have seen a substantial percentage of small businesses stay closed from the beginning of the pandemic until now. But it has differed substantially by region.

Here’s how it looks nationally:

Current stats range from the worst of -49% in San Francisco to the best of -13% in Omaha. Kansas City, where I live, has also done pretty well and is the second-best, only down 15%.

As the report notes, “Small businesses in the leisure and hospitality sector have been particularly hard hit, with 37% reporting no transaction data.”

As such, New Orleans comes in last at -72%, and San Francisco is at -65%. Meanwhile, Omaha is once again doing the best at -14%.

As of now, small business income is down 21% from the beginning of the crisis, and small businesses in the leisure and hospitality industry are down a full 47%. While this is a substantial improvement from the beginning of the pandemic, the rate of improvement has all but leveled out. We seem to have hit a plateau in the recovery for small businesses as the following chart shows.

As Visual Capitalist sums up,

“At present, it’s hard to predict when, or even if, economic activity will completely recover. Though travel and some level of in-office work will eventually ramp back up, the small business landscape will continue to face major upheaval in the meantime.”

Coronavirus: A Boon for Big Business

At the same time small businesses struggle, big business has rapidly expanded. According to a piece in The New York Times,

“The essence of the problem is that during the extended economic crisis created by the coronavirus pandemic, many large companies—and especially their stock market values—have been growing rapidly while their small business competitors have faced something of an apocalypse. More than 400,000 small businesses have already closed and millions more are at risk.

“Indeed, the death of these competitors may be part of why the stock market is up so much from its low point in March.”

Just look at Amazon’s stock performance over this year and compare it to the chart above for small business revenue to get an idea of the problem we’re facing.

Many other large firms have had similar results.

Capitalism is great but an extreme concentration of wealth is not. An economy ran by a few huge firms is certainly not a desirable thing. And if you believe (like many do) that the stimulus package was heavily tilted toward benefiting large firms, it becomes even more clear that this is a concern everyone—from real estate investors to politicians—needs to take notice of.

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Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.