At the onset of the pandemic, restaurants and personal services saw some of the most severe drops in revenue and balances, retail small businesses saw declines that were still large if less so, while health care services firms experienced a more modest decline (Farrell, Wheat, and Mac, 2020a). Figure 2 shows median expenses growth for four industries: restaurants, personal services, retail, and health care services. Table 1: Expense growth varies widely across citiesįinally, our data illustrate that small businesses experienced this overall pattern of expense growth across a wide range of industries. In contrast, from early July until the end of September, median expense growth was often higher than revenue growth, consistent with flattening balance growth and the beginning of a decline in median balances. Between early May and early July, median revenue growth was often higher than median expense growth, consistent with the continued upward trajectory of balances, and small business financial responses after other disasters (Farrell and Wheat, 2018). 3Notably, expenses may be beginning to climb more quickly than revenues. Administrative data from payroll processors indicate similar declines in small business payroll in September, suggesting that small businesses have reduced payments to both employees and other suppliers. Notwithstanding higher levels of cash liquidity, Figure 1 also shows that typical small business expenses remained depressed, down 7 percent by the end of September, and closely tracking the slow recovery in revenues. Specifically, the trajectory of balance growth from early May to late September may be driven both by operational and financing cash flows. However, our most recent data show that median balances continued to climb for several months after that point. As noted in prior research, large increases in cash balances followed just after PPP applications resumed in late April, and the immediate subsequent growth in balances is likely attributable to receipt of PPP funds-it is unlikely that this increase resulted from small businesses generating savings by cutting expenses more than revenues (Farrell, Wheat, and Mac, 2020c). In these data, median balance growth dropped to -15 percent during the week ending April 10 th, reached its peak during the week ending August 21 st at 41 percent, and then gradually tapered to 35 percent by the week ending September 25 th. Figure 1 depicts weekly median balance, revenue, and expense growth for firms in our sample from the week ending March 3 rd until the week ending September 25 th. JPMC Institute data shows that while many small businesses had substantially increased cash liquidity over the summer months, expense growth did not materially outpace revenue growth through September. A more detailed understanding of the progression of expenses is critical to ongoing policy debates around the appropriate provision of cash liquidity to the sector, and the potential for further shutdowns and revenue losses in the future.įigure 1: While small business cash balances were elevated through September, expenses by the end of September 2020 were 7 percent lower than they were at the end of September 2019 Less clear is whether expense growth accelerated after these liquidity increases, or whether they continued to track the slow recovery of revenues. From mid-April to May, cash balances increased sharply, but with a timing that was consistent with the arrival of cash inflows from federal programs including, but not limited to, the Payroll Protection Program and other CARES Act programs (Farrell, Wheat, and Mac 2020c). In the early months of the pandemic, expenses fell sharply along with revenues (Farrell, Wheat, and Mac, 2020a). The trajectory of cash balances and revenues since April raises an important question for policymakers about the extent to which small businesses continue to make payments to employees and other suppliers. 1 Notably, these balance increases occurred while small business revenues remained at levels meaningfully below levels observed prior to the pandemic. However, in subsequent months, cash balances saw substantial increases and remained at levels substantially higher than they were prior to the pandemic (Farrell, Wheat, and Mac 2020c, Census Bureau 2020). These observations are consistent with the view that revenues and cash liquidity are strongly related to small business survival (Farrell, Wheat, and Mac, 2020b). In the early months of the pandemic, the typical small business saw substantial revenue and cash liquidity declines (Farrell, Wheat, and Mac, 2020a, 2020c) moreover, there were high observed rates of small business failures. As the COVID-19 pandemic continues to affect the physical and economic health of the U.S., policymakers continue to have an incomplete view of the financial response of the small business sector.
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