I have always, generally, considered myself an optimist but as of late I find myself entertaining pessimistic views. In particular when it comes to our economy. If there is one thing that has become evident over the past several weeks, it is that our economy is not driven by the stock market. Our economy is driven by the more than 28 million small businesses that employ 49% of all private sector workers. It is driven by the daily buying power of these workers. When suddenly these workers disappear from the economy and their buying power with them, the stock market goes into a tailspin.
Big business corporations may have laid off some employees as they weather this storm but small business has laid off 9 million employees in the last two weeks alone. The stock market is reflecting this. Congress passed the CARES Act to combat, in part, this loss of buying power by providing workers and their families a one time check of $1200 per adult and $500 per child. Additionally, they have extended unemployment to four months and will pay the state unemployment compensation pus $600 from the Federal Government. They, also, have provided for a Payroll Relief Program to help Small Businesses to keep employees on the payroll. The PRP provides for 8 weeks of payroll plus 25% of other expenses that includes mortgage or rent, utilities and insurance. The expected outlay of these programs is approximately $300 billion, $260 billion and $350 billion respectively or a total of $910 billion. Under half of the total $2.3 trillion in the CARES Act package.
The balance of the CARES act dollars go to corporations, airlines, state and local governments, healthcare, and coronavirus research. With smaller amounts going to Congress' pet projects.
Small Business the Backbone of the Economy
Small Business is the real backbone of the economy, as can be seen from the immediate impact the closings and subsequent layoffs have had. The impact has been going on for more than a month and has officially been extended through the end of April. There currently no end in sight to the crisis we are undergoing. What has been missed in all of the analysis I hear in the media and the analysis that apparently went into the formation of the CARES Act, the fact most small businesses survive on their revenue from week to week or month to month. Few have large cash reserves to carry them through for 8 weeks or more. With their ability to earn revenue completely destroyed or hindered, even with the government aid many will fail.
All around the country we see some small businesses transitioning to new business models but not every small business can do so. it may be relatively easy for those who sell product to open or expand online sales. Manufacturers of products may be able to transition the manufacturing line to some other product of more value in these times. For others the nature of their business may not permit anything but face to face, hands on contact with clients, and they are completely incapacitated for revenue production. The 9 plus million unemployed in the last two weeks indicates there are a large number of small businesses in the latter category.
For these, bankruptcy will quickly become the most viable way out of the economic crisis. The amount of money they receive from the government is not enough to cover rent or mortgage, utilities and insurance, product loss or other expenses when there just is no revenue stream. What will happen with barber shops, hair salons, nail salons, spas, small restaurants, boutique clothing stores, and businesses not considered essential and forced to close?
Getting out early by declaring bankruptcy may help some preserve capital and allow them to start anew sometime in the future. Trying to stay afloat for several months with no revenue is not a very appealing option when bills continue to mount. Maybe Congress will see its way to another aid package to better assist small business but how far can it go on? Everyone has to see that sooner or later the bill will come due. The United States is already spending more than is brought in, it already has a $23 trillion national debt. To what extent are we prepared to saddle our children, grandchildren and great grandchildren with this debt?
Politicians and others can say as many times as they want that the economy will rebound and things will return to normal, possibly by the end of the year. I for one remain a pessimist on this particular point.
