WASHINGTON DC: Federal Reserve research indicates that fewer than 200,000 U.S. companies may have failed during the first year of the COVID-19 pandemic, with a relatively small impact on unemployment, contrary to forecasts indicating that the pandemic would leave the American “main street” desolate.
About 600,000 companies, especially small businesses, are likely to fail in a given year, and US central bank researchers estimated that between March 2020 and February 2021 the figure has been 25 to 33. percent higher than normal.
Close contact services, such as hairdressers and salons, which the Fed research group said were hardest hit by the pandemic, included 100,000 “excessive” failures.
While it can be devastating for the owners and employees of these companies, “in relation to the popular discussion … our results may represent an optimistic update of views on pandemic-related business failure,” the authors.
On the other hand, restaurants leading to the grocery store, grocery stores and outdoor recreation companies reported fewer failures than usual, with the net result being a smaller decline than expected. for the economy in general.
“Many industries have probably seen lower-than-usual exit rates, and outgoing companies don’t seem to account for much of the U.S. employment,” the researchers wrote.
The study was the latest to reflect that the economic recovery was progressing faster than expected, with Fed officials confident that much of the possible permanent damage had been averted.
Fed researchers acknowledged that more failures could occur if, for example, banks, landlords and creditors become less flexible with their commercial tenants as conditions return to normal.
While the study does not take into account the millions of jobs lost to surviving firms or the disproportionate losses felt among racial or ethnic groups over represented in the most devastated industries, it suggests that small firms were more resilient than expected and were effectively favored with loans. of the Wage Protection Program (PPP) and other federal aid.
The Fed and the U.S. government flooded the economy with credit and direct subsidies to businesses and households last spring, prompting an increase in personal income, even as unemployment rose to historic levels.
Funding included $ 755 billion in forgivable PPP loans spread across more than 9.5 million companies.
Official government statistics on business failures often lag behind the actual demise of these companies for a year or more. The Labor Statistics Office of the Department of Labor and the Census Bureau of the Department of Commerce have not yet released any formal estimates of the final toll of the pandemic on companies and their workers.
To add to the scarce data, Fed researchers combined available government information with measures such as cell phone location data mapped to commercial locations, payroll processor records, ADP, and other sources.
They noted that while early fears about a great success of COVID-19 could have been justified, by the end of August “there was no evidence of excessive and continued business inactivity; in fact, the layoffs were very much below normal by the end of 2020 “.