Fewer than 200, 000 U.S. businesses failed during first year of COVID - 19

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The Federal Reserve building is built against a blue sky in Washington, U.S. May 1, 2020. Kevin Lamarque File Photo Fewer than 200,000 businesses in the US may have failed during the first year of the COVID-19 Pandemic, a lighter toll than initially feared and one that could have had relatively little impact on unemployment, according to Federal Reserve research.

The figure contrasts with the early forecasts that the pandemic would make America's Main Street desolate as well as with polls that continue to show large percentages of US small business owners are worried about their survival.

Maybe 600,000 businesses, most of which small companies, fail in any given year and the U.S. central bank researchers estimate that from March 2020 through February of this year the figure has been perhaps one quarter to a third higher.

That included 100,000 excess failures among firms engaged in close-contact services such as barbershops and nail salons, a sector described by the Fed research group as the sector hardest hit by the economic fallout from the pandemic.

Although potentially catastrophic for the owners and employees of these companies, relative to the optimistic discussion our results may represent an enthusiastic update to views about pandemic-related business failure, the authors wrote.

Offsetting the hit to those services-oriented businesses, they noted, outdoor restaurants, grocery stores and other recreation companies seemed to suffer fewer failures than usual, with the net result a smaller-than anticipated blow to the overall economy.

Many industries have likely seen lower exit rates than usual, and exiting businesses do not seem to represent a large share of U.S. employment, the researchers wrote.

The study was the latest to sound a positive note on an economic recovery that proceeded faster than expected, with top Fed officials confident that much of the potential permanent damage had been avoided.

Earlier research had predicted widespread business failures due to the pandemic with 400,000 or more small businesses going dark. Census and other surveys continue to reflect stress among some firms that continue to operate and the Fed researchers acknowledged that more failures could occur if, for example, banks, landlords and creditors become less flexible with their business tenants as conditions return to normal.

The study does not account for the millions of still lost jobs at surviving firms that cut staff or reduced operations or for the disproportionate losses incurred among ethnic groups overrepresented in the most devastated industries.

However, it does start to build some scope around one of the potential economic scars from the pandemic and suggests that small businesses appear to have been both more effective than anticipated and were favored by loans from the Paycheck Protection Program and other federal aid effectively.

Actual government statistics on the business failures typically precede the official demise of those firms by a year or more.

The Bureau of Labor Statistics and the Census Bureau of Commerce have not released any final estimates on the pandemic's formal toll on companies and workers yet. To supplement the scarce data, the Fed researchers combined available government information with high-frequency, alternative measures such as phone location data mapped onto retail locations, records from payroll processing ADP and other sources.

They found that while the early fears of a large COVID 19 hit may have been justified given the number of businesses that shut down in the spring of 2020, by the end of August there was no evidence of excessive, ongoing business inactivity.

In fact, the shutdown was well below normal by late 2020.

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