Small business recovery lags the broader economy

The U.S. economy has staged a remarkable recovery from the Covid-19 lockdowns that devastated many businesses in 2020, aided by unprecedented fiscal and monetary support. The vaccine rollout and the 92% decline in cases since January have allowed the reopening of most of the economy. Though broad economic numbers have recovered, we are beginning to see the toll the lockdown caused for pockets of the economy. For example, while mobility data shows that time away from home has recovered to just 5% of the pre-pandemic level, small business revenue remains roughly one-third below that threshold. Large businesses were able to withstand the pressure from last year due to balance sheet flexibility and economies of scale, but many small businesses have closed permanently.

The devastation to small business reflects this often-overlooked part of the economy. Employment remains stubbornly weak despite the strong economic rebound. In part, this can be blamed on the continued weakness experienced in small businesses. Per the Census Bureau, over 99% of America’s 28.7 million companies are small businesses, with the overwhelming majority with less than 20 employees. Firms with less than 500 workers account for nearly 50% of all those employed and accounted for nearly two-thirds of new jobs created between 2000 and 2018. While the equity market and economic data suggest the pain from the lockdown is largely behind us, struggling small businesses reflect the damage that may permanently alter the economy.