62 Finance & economics The EconomistNovember 14th 2020
21further revive the labour market. Before
the pandemic over a fifth of workers were
in jobs involving close proximity to others.
There are other reasons to think Ameri-
ca’s recovery may be faster than after previ-
ous recessions. History suggests that re-
coveries are sluggish when downturns
leave deep economic scars. The financial
crisis of 2007-09 cast a long shadow over
subsequent years in part because of its
chilling effect on bank lending, for in-
stance. This time around, the effect of
school closures on children’s education
will be felt for decades to come. But in
many other respects there is less evidence
of lasting economic damage. A wave of
bankruptcies and permanent closures has
been avoided—especially of small firms,
which employ half the workforce. And
families’ finances have been resilient.
Start with small firms. At one point in
April nearly half of them were closed, ac-
cording to data from Opportunity Insights,
a research team based at Harvard Universi-
ty, as shelter-in-place orders forced clo-
sures and fear of the virus prompted people
to stay at home. Six months on, many firms
are still struggling. In early October nearly a
third of small firms reported that the pan-
demic had a large negative effect on busi-
ness, according to the Census Bureau. One
quarter of small businesses remain closed.
But these closures may not become per-
manent. Total commercial bankruptcy fil-
ings are running below their pre-pandemic
trend, not to mention the levels of the last
recession. Such data are not perfect, be-
cause not every firm that closes down files
for bankruptcy. A new paper by economists
at the Fed brings together many different
measures of “business exit”, and finds
“somewhat mixed” evidence that more
businesses have gone bust in 2020.
But these unlucky outfits do not appear
to represent a large share of employment.
In addition, this bankruptcy ripple seems
unlikely to turn into a wave. The share of
small firms very late on their debt repay-
ments is currently about half its level in- Moreover, although the number of
active businesses fell during the first wave
of the pandemic, it has recovered almost all
the lost ground, suggesting that new firms
may have come up in place of exiting ones.
Firms’ resilience helps explain why un-
employment has dropped much faster
than expected. The share of unemployed
Americans who say they have lost their job
temporarily remains unusually high. Such
workers expect to be recalled to their old
employer, pointing to further declines in
the unemployment rate.
What explains small firms’ surprising
resilience? It seems hard to credit Ameri-
ca’s business-focused stimulus measures.
So far less than $4bn (or 0.02% of gdp) has
been doled out by the Fed’s Main Street
Lending Programme, which is supposed to
channel funds to small and midsized en-
terprises. Economists are also under-
whelmed by the Paycheck Protection Pro-
gramme (ppp), which provided loans to
small businesses that are turned into
grants as long as recipients do not sacktheir employees. A paper by David Autor of
the Massachusetts Institute of Technology
and colleagues found that “each job sup-
ported by the pppcost between $162,000
and $381,000 through May 2020”. But this
money was poorly targeted: a lot of it was
lapped up by firms that planned to contin-
ue operating, come what may.
Other factors are more important. Many
small firms have managed to trim their
outgoings. A recent paper from Goldman
Sachs, a bank, finds that in May rent-col-
lection rates fell to 10% or less for firms
such as cinemas and gyms. A growing
number of landlords now set rent as a per-
centage of tenants’ revenues, an arrange-
ment that was uncommon before covid-19.
But perhaps the biggest reason for the
lack of small-business carnage relates to
consumer spending. In September retail
sales were more than 5% up on the previ-
ous year. Americans appear to have tilted
their spending towards small firms over
large ones, on the premise that they are less
likely to catch covid-19 in places with fewer
people. The latest figures from JPMorgan
Chase, a bank, show that credit-card
spending in early November was only mar-
ginally lower than it was a year ago.
This relatively sturdy consumption in
turn reflects the second factor behind the
lack of scarring this time around: resilient
household finances. Compared with other
rich countries, America has directed more
of its fiscal stimulus towards protecting
household incomes. The federal govern-
ment sent out cheques worth up to $1,200
per person and temporarily bumped up un-
employment benefits by $600 a week. That
is not to say that the disadvantaged have
not been badly hit: some measures of de-
privation have risen sharply. But viewed inOn the mend
United StatesSources:GoldmanSachs;DepartmentofCommerce;FederalReserveBankofStLouis;BureauofLabourStatistics2129630
1996 2000 20151005Activesmallbusinesses,mRECESSIONRECESSIONIncorporatedUnincorporatedTo t a l806040200
1996 2000 20151005Temporary lay-offs, % of total unemployedA dose of optimism
United StatesSources:Bloomberg;USDepartmentoftheTreasury *Nov6th-11th 2020 †Jan2nd-Nov6th 20202.01.51.00.50
5Y 7Y10Y20Y30Y
By maturity1M 3M2M 1Y6M 3Y2YGovernment-bond yields, %Nov 6th 2020Nov 11th 2020200150100500-50-100
Before Pfizer vaccine announcement†S&P 500 companies, 2020
% change in share price Since Pfizervaccine
announcement*
40200-20-40AmazonBoeingBiogenEtsy
NVIDIA
AmazoneBayCarnivalKimcoRealty
Wynn Resorts
PfizerBoeingShareprice fell
in 2020, but rose
post-vaccine
newsShare price fell
in 2020, but rose
post-vaccine
newsPrices rose for much of
the year, but fell after
the vaccine newsPrices rose for much of
the year, but fell after
the vaccine newsAfter news of an efficacious vaccine broke on November 9th, investors bet on a partial
return to economic normality. Cruise and casino stocks leapt, and e-commerce firms
skidded. The yield on ten-year Treasuries climbed to almost 1%.Booster shot