Let’s talk about Economics

Macro Economy

Source: U.S. Bureau of Labor Statistics

By Jennifer John

April 23, 2020

While COVID-19 was initially considered a public health crisis, its fallout has sparked another crisis of unprecedented proportion: economic turmoil. As the United States shut down all but essential industries, the resulting pay cuts, job losses, and bankruptcies have wreaked havoc upon small businesses, the largest enterprises in the country, and everything in between. In this post, we’ll look at the data to understand the nuances of the economic impacts of COVID-19 in the US.

The numbers on unemployment paint a grim picture of economic impact: Over 26 million Americans have filed initial unemployment claims over the past five weeks, since regional shutdowns began. According to Pew Research Center, 43% of adults report that they or someone in their household has lost their job or have seen their wages reduced. The extent of wage loss is especially pronounced for low-income and Hispanic or black individuals and millennials. Among the most impacted industries are transportation, restaurants, retail, and entertainment. 

The start-up world is also reeling from economic uncertainty. Facing an expected loss of $1 billion for the first half of 2020, Airbnb laid off most of its temporary workers — over Zoom. Mindbody, a SaaS company for the wellness industry, has laid off or furloughed a third of its employees, and the electric scooter start-up Bird laid off 406 of its employees in late March. In total, the job loss tracker on Layoffs.fyi estimates that about 30,000 employees have been laid off from over 300 start-ups. There have been exceptions: sextech start-ups, Netflix, and Zoom, which has been deemed “king of the quarantine economy.”

The federal government has responded to these impacts with aid packages, with so far limited success. Last month, President Trump signed a $2.2 trillion stimulus bill that gave direct payment to individuals, suspended student loan payments, increased unemployment benefits, and established a $500 billion lending program, among other initiatives. While the bill promised relief, it has fallen short of its goal. Individuals have reported facing error messages on the IRS website, receiving less funding than expected, and seeing their payments sent to the wrong accounts, including those of deceased relatives.

Meanwhile, the Paycheck Protection Program offered loan forgiveness for small businesses that kept paying their employees. The initial funding to the PPP was $350 billion which was exhausted as of April 16. The definition of a small business used by the program led to confusion among start-ups, as in some cases start-ups under the same venture firm would be considered as one entity, thus exceeding the maximum number of employees. Later, this policy was clarified, allowing a start-up to be considered independently if the investor irrevocably gives up its rights to block an action by the board of directors or shareholders. 

Following the depletion of funding for the Paycheck Protection Program, the House approved an additional $484 billion aid package – $310 billion of which will be used to replenish the funding for PPP; it also allocated funding for hospitals and coronavirus testing, and created a committee that would investigate the presidential and federal pandemic response. As the effects of the bill trickle down to small businesses across the country, we may begin to get a better picture of practicality of planning for a recovering economy.