More Data Confirms Small Business Stress

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Economic Report Monitor #10
April 7th, 2020

There's been a lot of discussion about small businesses being extra sensitive to the economic effects of COVID-19. The National Federation of Independent Business (NFIB) brings us the latest in its Small Business Optimism Index. The index fell 8.1 pts to 96.4 pts in March making it the largest decline the survey has ever seen. NFIB Chief Economist William Dunkelberg describes recent small business economic data well as he says, "it’s hard to say what the severity of the disruption will be, but we do know they’re feeling the urgency." The abrupt drops are exhibiting how quickly the lockdown effects are taking, but there is still a lot of uncertainty about how bad it will be and for how long.

Small business index Russell 2000 (-28.1%) underperforms Dow Jones Industrial Average (-17.6%) and S&P 500 (-13.3%) over the past 100 days.

Expectations for the economy and real sales were the fastest to fall, down -17 pts to 5 pts and -31 pts to -12 pts respectively. With the expectations of lower sales, most small businesses are not making plans to increase inventories as current inventories were mostly sufficient (it was the only category to increase, up 2 pts to -2 pts). Plans to increase employment fell -12 pts, and current job openings fell -3 pts. According to NFIB, both measures are expected to be underreported since the survey was answered in the first half of March before massive unemployment numbers. In fact, in a more updated survey, data showed that, "92% of small employers are negatively impacted by the outbreak and about half of small employers said they can survive for no more than two months under the current business conditions."

More labor market data came out in the February JOLTS report from the Bureau of Labor Statistics. The numbers were quiet across the board revealing how stable the employment situation was before the crisis. Job openings were at 6.9 million, or 4.3%, ending slightly off highs in late 2018. Hires were flat for the third month in a row at 3.9% with the largest gains coming from a 29,000 boost in durable goods manufacturing. Separations were also little changed at 5.6 million with a large movement in professional and business services seeing its separation level drop -122,000. In the coming months, the JOLTS report should show if industries will shed jobs in sync or if the effect will be isolated in the businesses deemed non-essential. It's also likely that businesses, non-essential and essential, will attempt to survive in low cash flow situations. Because of this, some separations will be delayed in hopes of government stimulus filling the economic void. Whether or not it is able to do that could be the difference between a brief blip and a deep deterioration. 





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