Economic Death Spiral Hits America & Your Job Could Be Lost Forever

Posted in: Market NewsOp-ed
May 8, 2020 7:00 PM UTC

We could be looking at a very different America post-lockdown.

  • U.S. unemployment hit a postwar record 14.7% in April, as the economy lost a decade of job growth in a single month.
  • Fifty-two percent of U.S. small businesses could close their doors in six months, according to a new industry survey.
  • Before the Covid-19 crisis, small businesses employed nearly 60 million people.

The U.S. economy experienced unprecedented pain in April, as employers shed a historic 20.5 million jobs following government-mandated lockdown orders. For many small businesses, months of lost revenue could mean shuttering their doors permanently this year.

The April nonfarm payrolls report is one for the record books:

Lockdown Leads to Permanent Shutdown

To say that coronavirus has devastated U.S. businesses would be an understatement. New data from the Society for Human Resource Management (SHRM) show 42% of small business owners have closed their business due to the pandemic. Sixty-two percent have cited a decrease in revenue; among those, 41% have reported losses above 30%.

As Bloomberg reports, 52% of businesses surveyed by SHRM expect to be out of business within six months. The figure is based on the percentage of businesses that say they can keep going during Covid-19:

For small businesses, the post-lockdown environment will be bleak. | Image: SHRM

SHRM collected the data from 375 businesses surveyed between April 15-21.

As the lifeblood of the U.S. economy, small businesses with fewer than 500 employees employed 58.9 million people in 2019. At the time, they accounted for roughly 47.5% of the country’s workforce.

In 2014, small businesses accounted for 43.5% of U.S. GDP, according to the Small Business Administration. That’s a decline of about 4.5 percentage points over 16 years. (“Yes, the big corporate giants dominate our society today, but there are still lots and lots of small businesses out there.“)

No ‘V-Shaped’ Recovery

That the U.S. economy will enter a steep recession in the second quarter is a foregone conclusion at this point. Where the contention lies is just how quickly the economy will recover post-pandemic.

The destruction of small businesses will likely rule out a quick ‘V-shaped’ recovery, leaving more dire scenarios in play.

One such scenario is an ‘L-shaped’ recovery that sees a protracted recession followed by a slower recovery that could take years to materialize.

As ZeroHedge reported Friday, April nonfarm payrolls reflect a 40% contraction in GDP. The latest estimates from U.S. investment banks Morgan Stanley and Goldman Sachs see a full recovery only in 2022.

That’s only the base-case scenario, too. The bear case will see double-digit unemployment lasting through 2022 and beyond.

On an annualized basis, U.S. GDP contracted 4.8% in the first quarter:

The destruction of small businesses and persistent unemployment suggest April’s job losses could be permanent. If President Trump’s motion to end China dependence comes to fruition, we could be looking at an entirely different America in the decade to come.

An “all of government” approach to repatriating supply chains could be a net positive for U.S. workers in the long run. But it’s all about incentives–not to mention all the years it would take to pull off.

Disclaimer: The opinions expressed in this article do not necessarily reflect the views of CCN.com.

This article was edited by Josiah Wilmoth.

Last modified: May 8, 2020 10:28 PM UTC

Sam Bourgi @forgeforth87

Financial Editor of CCN.com, Sam Bourgi has spent the past nine years focused on economics, markets and cryptocurrencies. His work has been featured in and cited by some of the world's leading newscasts, including Barron's, CBOE, Yahoo Finance and Forbes. Sam is based in Ontario, Canada and can be contacted at sam.bourgi@ccn.com

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