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Big Government COVID-19 Economy

Governors Lockdowns Are Killing 1 in 5 Businesses

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A lot has been made of the post “first wave of Covid” miracle economic recovery. The tremendous rally in the stock market is the generally accepted sign that we are well on the way to bigger and better things. 

This may be true for a relatively small handful of super large companies, but the reality of the situation is actually quite different for the vast majority of American businesses. Let’s look at the facts to understand how draconian lockdowns are great for big business while destroying entrepreneurs and the middle class.

Looking at general unemployment trends, the numbers are still quite high. I reference BLS labor tables. The alternate table of labor utilization, shown below, is always an interesting place to look.

U.S. BUREAU OF LABOR STATISTICS

The “U4” number is generally what we hear about and it has trended down considerably from its peak, however, the “U6” number, which also includes workers that are so discouraged they have stopped looking remains at 12.1%. A year ago it was 6.9%.

Layoffs continue as well as large segments of the hospitality industry struggle to deal with the resurgence of positive covid testes and the accompanying state restrictions. Airlines have been decimated with 50,000 layoffs year to date. 68% of all casinos have laid off more than half their employees and a similar percentage do not expect to survive another year without substantial relief. Just this weekend, bellwether company Walt Disney announced over 30,000 layoffs. And the longer this continues, the worse it will get. 

Yelp does a very good job of tracking these failures in realtime. It issues a periodic report that illustrates the damage state lockdowns inflicts on small businesses.

Of the restaurants they track, 32,109 have closed, with 61% closed on a permanent basis. With an almost total ban on indoor dining amplified by weather not conducive to outdoor service, it would appear that the environment for foodservice will continue to get more difficult. 

30,374 retailers have already closed with 42% not reopening. Having just seen how disastrous the foot traffic was in stores for the Thanksgiving holiday, I suspect that number will jump materially in the next few weeks. 

It would not appear that there is any appetite in congress to create a stimulus bill at this time which will only serve to accelerate the decline. Sadly, a large portion of the second round of PPP loans went unused because so few businesses were around to claim them. 

It seems to be worse in states that have relied on now-discredited draconian “lockdown” strategies. Just The News reported that “blue” states have endured a more prolonged recovery. It is a fact that the unemployment rate in democrat led states is 37% higher. Illinois Policy released a report that 11,200 retailers are open and 17,600 fewer bar and food service establishments. This is heartbreaking.

In New York, 27.8% of all businesses failed to reopen, and in New Jersey, 31.2%. One in three small businesses is now gone forever.

In California, 19,000 business have failed so far. This number will greatly increase with the new round of strict lockdowns Gavin Newsom is mandating over the Thanksgiving and Christmas holidays.

Nationally, 97,966 small businesses have failed, and it is estimated that if there is no relief, 1 in 5 won’t survive the first quarter of 2020.

The idea of a “v” shaped recovery is further dampened by the new dangers an entrepreneur faces. What businessman, knowing they could be instantly put out of business by an illegal executive order would risk his savings to start a new enterprise, or more than that, what bank would loan under those conditions, and these actions are what an economy needs, more than anything else, in order to recover.

Small businesses make up:

  • 99.7 percent of U.S. employer firms
  • 64 percent of net new private-sector jobs
  • 49.2 percent of private-sector employment
  • 42.9 percent of private-sector payroll
  • 46 percent of private-sector output
  • 43 percent of high-tech employment
  • 98 percent of firms exporting goods
  • 33 percent of exporting value

Their health is critical to the economy, and Washington D.C. has no apparent interest in helping them at this time.

A complication that will result from this is that states with a high degree of business failures will have the accompanying gap in revenue. Elementally, a sale has to take place in order for a tax to be generated. Imprudent states have been betting that the federal government will be willing to commit more generational theft to bail them out, but it remains to be seen if some of the worse states will be able to remain solvent. 

Focusing on Illinois for a moment, (the poster child) the state faces a $6 billion shortfall. Also noteworthy is that the state is spending $2.4 billion more than last year, which, given the environment, seems absurd. Much of the money Illinois borrows is at “junk” levels so the interest carry is enormous, and the residents are being taxed to the point that many are leaving. New York and California are in similar condition. 

What is apparent with very little thinking is the economy has been bifurcated into “deemed survivors” who will thrive, and the unfortunate majority, who will not. It is becoming increasingly clear that a byproduct of the Covid panic is the largest transfer of wealth in history and it is in the direction of the largest companies on earth. Nevertheless, the actual recovery will take some time, regardless of what Amazon.com share prices tell us.