America’s small businesses have been bearing the brunt of the economic damage resulting from the lockdowns and other efforts to stem the spread of the COVID-19 outbreak. We saw clear evidence of this in last week’s employment data deluge, and such weakness is confirmed by an updated report from the National Federation of Independent Business. Specifically, the NFIB’s net employment gauge in April posted its largest month-over-month decline on record and turned negative for the first time since 2017.
Some smaller firms, though, have actually tried to add payrolls recently, and even in this current environment a skills shortage remains a challenge for many owners. Roughly one in four survey respondents, for instance, said that there are positions they have not been able to fill, and 41 percent complained about there being “few or no” qualified applicants for job vacancies. Attracting talent has been especially difficult due to the shelter-in-place orders and highly generous (albeit transitory) boost to unemployment insurance, and since many small businesses are unlikely to be in a position to raise worker compensation currently, the coronavirus crisis could accelerate the shift in U.S. labor market share from small to large employers. However, conditions are likely to improve or at least stop worsening in the months ahead if the incoming infection and hospitalization statistics remain constructive. The NFIB researchers added that small businesses are already “starting to rehire laid off employees as states lift business restrictions and small business loans are hitting bank accounts.”
More broadly, the NFIB’s headline optimism gauge fell to the lowest level since 2013 in April but the month-over-month decline was smaller compared to the March survey, and the percentage of surveyed owners who expect the overall economy to improve in the future surged in the latest poll. Such developments support our earlier call that activity will likely have bottomed in Q2, but just because we have a good idea of the depth of the downturn we still lack visibility on the length. Moreover, re-opening America’s small businesses is just one part of the recovery equation, and consumers’ willingness to leave their homes and spend is another key variable. The NFIB researchers similarly stressed that “Consumers must feel ‘safe’ before they come back out with their wallets. The sooner that happens the faster the economy will recover.” We will learn more about this issue on Friday after a handful of reports on consumer spending and sentiment are released.