Jobs may not come totally back for years, all depending on how small businesses weather this storm - CNBC

Jobs may not come totally back for years, all depending on how small businesses weather this storm - CNBC


Jobs may not come totally back for years, all depending on how small businesses weather this storm - CNBC

Posted: 03 Apr 2020 02:01 PM PDT

A view of an empty restaurant is seen at Grand Central Station on March 25, 2020 in New York City.

Angela Weiss | AFP | Getty Images

Barry O'Donovan opened his Irish pub across from a  railroad station used by Wall Street commuters just five days before Lehman failed. His business survived the Great Recession. 

Then in August, 2011, Hurricane Irene swept the nearby Rahway River straight through his Cranford, N.J. restaurant. Again, his Kilkenny House survived, thanks in part to a $200,000 Small Business Administration Loan. He continues to pay it off. 

Now, the coronavirus has hit, and O'Donovan like thousands of small business owners is hoping to get funds  from the small business lending program, which the Treasury planned to have up and running by Friday. However, as of Friday afternoon, only Bank of America and J.P. Morgan were operating and able to accept applications for the hastily established program.  Business owners like O'Donovan are worried. 

 "I personally gave my business a loan," O'Donovan said. "We're trying to keep people employed."

Economists are worried too. By some estimates, it will take until 2023 or even longer to bring the labor market back to where it was in February, before the shocking layoff of millions of workers by companies that were forced to shutdown or scale back all across the country. 

March's employment report Friday showed a loss of 701,000 jobs, 459,000 of which were related to leisure businesses, such as hotels or restaurants. The unemployment rate jumped to by 0.9 to 4.4%. April is expected to be much worse with jobs declining by 10 million or more, and economists forecasting unemployment at as much as 15% or more.

Several economists told CNBC the speed at which the government can get money into the hands of small business owners, like O'Donovan, the more likely they will be to be to retain workers, and the more likely they will be to weather the weeks of shutdown with a business healthy enough to reopen. Small businesses are the biggest creators of jobs.

Restaurants have been particularly hard hit because many were forced to close as soon as President Donald Trump told Americans to stay away from eating establishments and bars in March. O'Donovan has kept a handful of worker busy with a takeout business. Customers can pull up out front, and the staff loads takeout meals into the back of their vehicles. Delivery services would be a costly overhead.

"I can last maybe a month or so. We're not even breaking even.  It's cheaper to close than to stay open," O'Donovan said. He had run other similar pubs in Brooklyn before moving to New Jersey.

What will the recovery look like?

Economists have had trouble predicting the extent of the economy's decline. Some major firms, like Goldman Sachs and JP Morgan, have revised already scary forecasts with even more  harrowing projections of a 30% or even deeper contraction in the second quarter. As the first quarter ended, the economy has already toppled over, but economists expect a spring back later in the year.

The problem is determining what that spring back will look like, and that will depend on when the virus peaks, and whether it will return. It also depends on the ability of businesses to hang on.

"There is a boatload of stimulus coming, and I do think it is big enough to offset the demand shock," said Mark Zandi, chief economist at Moody's Analytics. "The first quarter was probably down 4 or 5% I think. A lot really depends on what you're assuming for the timing of the lock down and what a lockdown means in terms of output."

Zandi said the economy could bounce back by 11% in the third quarter, then go flat for a period. 

Congress has authorized $2 trillion in aid to fight the coronavirus including the small business program and also expanded unemployment benefits that will reach more people. But economists it is almost certain more help will be needed.

Trump has declared social distancing rules will be in place until April 30, and states covering about 80% of the economy have shelter in place orders. In just two weeks, 10 million workers have filed with states for unemployment benefits, and by the end of the month the number could double. 

"The suddenness with which it slipped off a cliff in two weeks is shocking," said Michael Gapen, chief U.S. economist at Barclays. Gapen said it will take until the end of 2022 for the economy to recover lost jobs. Unemployment was at 3.5% in February and could easily get to 10% or higher in April. "We have it at 5% at the end of next year. To get it back in the 4s will take longer." 

But it will be the road back, and how many businesses fail along the way that determines how quickly the economy can come back. "As soon as businesses reopen, you're going to see this surge in activity," said Zandi. The recovery of the economy could also depend on whether a medical solution is found that would enable people to congregate again, even if it recurred.

"The second half of next year should be strong in terms of growth, and I expect 2022 to be a very good year for growth. But we won't get back to full employment until well into 2023," Zandi said. "By July and August, most of the businesses that haven't failed will be coming back on line. The small business lending is helpful. More helpful in appearance than in practice, I think it's going to be really hard for them to scale and get this money out there fast enough."

Zandi said 10% of small companies with fewer than 500 employees could fail. A new poll of small businesses by the U.S. Chamber of Commerce and MetLife ,conducted in late March, found one in four small businesses say they are two months or less from closing permanently amid the economic downturn caused by the virus. One in 10 are less than one month away from permanently closing.

According to the survey, about one in four have already shut down temporarily, and of those that have not, about 50% say they are likely to close at least temporarily within the next two weeks.

Work at home  - for now

Just as O'Donovan is making his way through the unchartered course of the weeks of virus shutdown, so are the commuters in the homes near his pub. Many work in professional jobs and are now working from home, many with children at home.

How life changes for these workers too will affect the comeback of the economy,

Bhushan Sethi, global people and organization co-leader at PwC, spends a lot of time working with companies in different fields, and he does not anticipate as some expect that the new post coronavirus era means everyone will continue to work from home.

But he did say companies that that been stretched to maintain operations, as the virus hit business, may become more cost conscious.

"We're not all going to 100% remote. There will be more management trust in working remote," he said. "There may be more challenges about the cost of travel."

Sethi said companies have spent a lot of money in commercial real estate. Many view their work spaces as important for generating creativity or reinforcing their culture, and they want workers to return.

"I think the firms are needing to look at their costs and the extent where large firms are saying layoffs are going to be a last resort, they're going to look at their cost structures and they're going to manage away costs in some way." 

He said spending on big conferences is likely to fall off along with business travel.  Many conferences were the first things to be canceled as companies pulled back to stop the spread of the virus. "I would see a lot more creative options, especially for the larger firms, other than layoffs," Sethi said.

Morongo Basin business owners look for the light at the end of the tunnel - Hi-Desert Star

Posted: 03 Apr 2020 08:00 AM PDT

MORONGO BASIN — The order to stay home and isolate has hurt small businesses, with many forced to close if not "essential," and those able to stay open unable to rally the customer base as people tighten their budgets.

Sissy Smith, owner of That T-Shirt Place in Yucca Valley, says her business is now closed except for online orders, which are few at the moment.

Prior to the coronavirus fallout, business was "fantastic" and sales were booming.

"It's the not knowing what's going to happen next that is the scariest," said Smith, who has operated her business for the past seven years.

She lost four large orders once the stay-at-home orders went into effect. Her once action-packed weeks have dwindled, leaving her with more mundane, but necessary projects: cleaning, organizing and doing finances.

"We hope to be that much closer to opening once it lifts," Smith said. "We're all in this together. We got to do what we've got to do."

Smith and many other local small-business owners and nonprofit leaders are trying to stay positive and hold out hope for a return to normal once the worst of the pandemic passes.

"My hope is it gets back to normal again," said Rebecca Zavala, owner of Rodeo Pest Control. "Bugs aren't going anywhere."

Zavala runs the family business with her husband, Carlos, and their two adult sons. They started it seven years ago and this year was looking to be the best to date, Zavala said.

Pest control is considered an essential business so the Zavalas can continue operations, but on a smaller scale as many clients are canceling.

"We have a lot of elderly afraid to have anyone around," Zavala said.

She and her family are doing the best they can to help their senior customers and others in the community by delivering food, prescriptions or other needed items at no charge.

"When you give, it goes right in circles and comes back to you," she said.

Zavala understands losing customers in these uncertain times.

"I'm cutting off everything I don't need," she said. "I don't know what tomorrow is going to bring. There's no room for extras!"

Artists Kathy and Mitch Miller opened a small business in Joshua Tree less than a month ago called Kathy Miller Art & Gifts. Now, the couple is faced with closing their business with bills and rent still mounting and sales declining.

"We're trying to transition to take orders online," Kathy Miller said during a phone interview this week. "I was only there for three weekends before we had to close the doors."

Nonprofits are also suffering.

The Boys & Girls Club of the Hi-Desert had to lay off five staff members in the wake of the coronavirus crisis. Club CEO Shawn Moon said he is hopeful it is only short-term.

"It's temporary and we're looking at all the resources for small businesses and nonprofits," Moon said during a recent phone interview.

Forgivable loans can help businesses make payroll

Some small businesses may be able to survive with the help of government loans.

•The $2 trillion federal Coronavirus Aid, Relief and Economic Security (CARES) Act includes $349 billion for the Paycheck Protection Program. It offers federally backed loans of up to $10 million to help employers make payroll for eight weeks.

"This legislation provides small-business job retention loans to provide eight weeks of payroll and certain overhead to keep workers employed," Secretary of the Treasury Steven Mnuchin said in a press release.

Employers with fewer than 500 workers are eligible, but larger hotel and restaurant chains can still get loans if each location has fewer than 500 employees.

The loans will be forgiven as long as the proceeds are used to cover payroll costs and most mortgage interest, rent and utility costs — and as long as a business does not lay off any employees or reduce their pay during the eight weeks after the loan is made.

The program will be available retroactive from Feb. 15, so employers can rehire their recently laid-off employees as long as they keep working through June 30.

Applications should open Friday, April 3.

Businesses can go to a participating SBA lender, bank or credit union to apply.

Visit SBA.gov/Coronavirus for more information.

•Earlier in March, Congress and the Trump administration authorized $7 billion in economic injury disaster loans for small businesses affected by COVID-19. The program helps businesses in states that have declared emergency status, as California has, borrow as much as much as $2 million and repay it over 30 years with an interest rate of less than 4 percent.

All businesses, nonprofits, veterans organizations, tribal concerns, sole proprietorships, self-employed individuals and independent contractors who have 500 or fewer employees may apply.

The SBA will forgive the portion of the loan proceeds that are used to cover the first eight weeks of payroll costs, rent, utilities and mortgage interest.

To apply visit covid19relief.sba.gov/#.

•In California, Gov. Gavin Newsom signed an executive order allowing a 90-day extension for tax returns and tax payments for all businesses filing a return for less than $1 million in taxes. That means small businesses will have until the end of July to file their first-quarter returns.

Additionally, the order extends the statute of limitations to file a claim for refund by 60 days to accommodate tax and fee payers.

For information, visit www.cdtfa.ca.gov/services/covid19.htm.

•California is allocating $50 million for loan guarantees to small businesses to help eliminate barriers to capital for individuals who do not qualify for federal funds, including low wealth and undocumented immigrant communities. The state is also allowing small businesses to defer payment of sales and use taxes of up to $50,000, for up to 12 months.

For information, visit https://www.ibank.ca.gov/small-business-finance-center.

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