A Crippling Effect COVID-19 on Small Businesses Across the US

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Small business is a type of business that involves the actions of small companies and firms. Small business provides a large number of jobs to employees, implement a variety of services to consumers, and develop rapidly to overcome competition. However, with the advent of the coronavirus pandemic, it has suffered heavy losses, and in some cases, even small business owners have closed their companies. It is important to note that the country’s economic growth fell, many people lost their jobs, so full employment disappeared, and the prices of food and household goods abruptly increased.

Covid19 has had a crippling effect on small businesses across the nation by minimizing the number of active businesses in the US due to health mandates, logistics regulations impeding the import of products and goods, and economic hardships on the consumer resulting in the decline of goods and services purchased.

Health regulations hit small business activity in the United States. Firstly, scientists have repeatedly claimed that the symptoms of flu and Covid-19 are similar. Consequently, when the symptoms occurred in employees, they and their employers, who are worried about the spread of the virus, began to panic. In this regard, the demand and waiting lists for testing have increased in medical institutions. Such actions caused more precautions that were accompanied by going on sick leave or vacation.

Secondly, at the beginning of the pandemic, people ignored information about the virus and did not trust the government. Therefore, it was difficult for everyone to change their behavior, learn to wear masks everywhere, observe certain precautions, and so on¹. Since the population could not distinguish faithful information from reality, they decided to struggle with political games against the background of the virus. Unfortunately, such behavior led only to the spread of Covid-19 in the United States of America.

Thirdly, the high sickness and death rate of the population has forced the Ministry of Health to change the strategies to overcome the virus. Therefore, they increased the minimum distance between individuals and reduced the number of people per square meter². These restrictions have forced employers to lay off workers and even close their firms. Although many businesses and employees resisted such limitations, in the end, everyone had to give in to the new rules ¹. It is worth noting that most companies have tried to adapt to the conditions of quarantine and go online. Thus, the rational use of technology associated with changes in working conditions helps to maintain competitiveness ¹. Organizations that responded to the crisis conditions in time were able to stay in small business. To conclude, small business has been affected by new health regulations.

Covid19 has had a destructive effect on small businesses due to logistics regulations impeding the import of products and goods in the United States. Initially, the authorities did not know how to react to the import of goods. Therefore, at the beginning of the pandemic, the changes were insignificant, and prices remained the same. However, when the virus began to spread scale, the governments of all countries decided to reduce or suspend this process of logistics between countries. Such decisions of the government brought adverse consequences to small businesses.

There has been a significant reduction in production capacity due to the closure of borders between countries and the self-isolation regime. Therefore, some rules of logistics in the United States have changed and prevented the import of goods. The coronavirus pandemic has disrupted the usual links between producers and consumers and has made major changes in the business of small logistics companies. Due to the closure of the borders of the countries and the isolation of the population, the cargo flow decreased on a global and local scale. Therefore, many small factories and companies are closed for quarantine because there is nothing to transport³. Moreover, another factor is the lack of simple, clear rules of the game in the conditions of quarantine for representatives of the logistics market.

Even at the beginning of the pandemic, the United States established to stop and restrict air connections and air transportation. One of the biggest blows for the states was the suspension and change of the rules of maritime transport. Ports have become slower to accept cargo and with delays in a customs inspection. Moreover, with the fall in demand for transported products, transportation opportunities have decreased. Due to the quarantine, the participants of the flights are forced to stay at sea without the opportunity to return home. Therefore, overcoming the current crisis is a challenge for the management team of all logistics workers⁴. They need to review partnerships with contractors, deadlines, contractual obligations and work carefully with working capital and liquidity.

Accordingly, small companies that are engaged in industrial equipment, retail trade, and logistics were in the most vulnerable conditions⁵. Thus, companies that earned money by importing goods from other countries lost their single income. Companies that operated on spare parts or specific items for their products had to suspend their business or change their concept⁶. In addition, the suspension of the supply of cheaper goods from China led to large losses in small businesses. Accordingly, financial risk has increased among business owners in the United States.

Table 1. U.S. Import Price Indexes response rates.

According to Table 1, the import price indices are reviewed every three months after the initial publication. Response rates improve after more data. Moreover, the indicators for import prices in December 2020 amounted to 68.8 percent, which is 5.4 percentage points lower than in the same period of 2019 ⁷. Response rates varied depending on the end-use category. Consequently, 66.5 percent for food, feed, and beverages, as well as industrial goods and materials, and up to 73.0 percent for vehicles⁷.

Among the main import groups, the response rates for motor vehicles showed the largest difference from December 2019 to December 2020. The response rates for import prices in December 2020 were approximately one and a half percent lower than the response rates at the same time in November 2020 6. Thanks to Table 1, everyone can observe that the percentage of imports from March 2019 to February 2020 fell markedly.

In conclusion, the rules of logistics and import of goods have changed due to the coronavirus that has reduced the productivity and activity of small businesses⁷. The coefficient of imports of products of different categories in early March 2019 and in February 2020 fell by an average of six percent⁸. Such consequences were reflected in small businesses that were correlated to the import of spare parts, retail goods or depended on it directly. Therefore, some companies have suspended or even closed their business.

Due to Covid-19, small businesses and their consumers suffered economic hardships resulting in the decline of goods and services purchased. The coronavirus has affected the budget of the United States population. Most of the products have increased in price several times. Consequently, inflation occurred everywhere, but especially it affected such things as household items, medical masks, antiseptics, personal hygiene products. Nevertheless, in some cities, residents bought up such things and long-term goods on a large scale. Therefore, some supermarkets and stores experienced a shortage of goods. It is worth mentioning that on the one hand, customers purchase the necessary things, but on the other, they stop using and buy unnecessary ones. One of the results of this food crisis was the withdrawal of some secondary goods from the use of Americans.

The rising prices of goods and services have led to the fact that many consumers have not had the opportunity to purchase them. Figure 1 shows a contrast in real GDP from the peak of a business cycle when GDP returned to the level of the previous peak for recent recessions⁹. Since the fourth quarter in 2019, the US has experienced a decline in GDP for two consecutive quarters. At this time, experts recorded the sharpest quarterly drop in economic production in history⁹.

Another factor that affected the economic difficulties of the population was the decline in employment and the reduction of employees in the United States. In spring 2020, employment at firms with fewer than 20 employees declined more than 16 percent; for firms with up to 49 employees, the decrease was about 22 percent⁹. Moreover, in the period from August 30 to September 5, 50 percent of respondents did not hire any employee⁹.

Another significant element is the financial situation of families with children. Moreover, many families with minor children have a low income. Accordingly, many people reported a so-called income shock caused by a lot of material difficulties, food insecurity, and difficulty paying bills ⁹.

Food insecurity is especially high among households with children, and it has doubled since before the pandemic ⁹. Residents claim that the situation with paying bills has not improved even after receiving insurance and unemployment benefits. To conclude, unemployment, the poor financial situation of families with children, and the rising prices of goods have created a number of business difficulties. Therefore, the coronavirus affected small businesses and degrade the economic situation of customers, which led to a reduction in the volume and purchase of products and services.

The macroeconomic analysis of small businesses during Covid-19 helped me do a little research, observe the American economy during the pandemic, and make some predictions for myself for the future. Figure and table showed clear changes in imports and GDP in the States. A positive macroeconomic analysis of the small business case has defined and explained the behavior of the American economy and created the basis for economic forecasts for the future. I took a closer look at the reasons for the deterioration of small business activity. For example, it became clear to me why and how the rules of logistics changed, or how the recommendations of doctors and the Ministry of Health affected the working relationship. In addition, I found out what economic difficulties have appeared for residents since the beginning of the pandemic.

I was interested in studying the figures and data of economic research to assume how this will affect the state and its economy in the future. While writing the analysis, I asked myself such questions such as what will happen if the coronavirus continues for another year or two? How will this affect small businesses in the future? How many companies have closed down and gone out of business forever? What methods will the owners have to come up with in order not to lose property and income? I think this study demonstrates well that small businesses and their activities have been affected by Covid-19. Therefore, the importance of analysis is to analyze and take certain methods to improve the economic condition of the United States. Moreover, not lose such an essential element that brings about half of the revenue to the state budget.

Bibliography

Bartik AW, Bertrand M, Cullen Z, Glaeser EL, Luca M, Stanton C. The impact of COVID-19 on small business outcomes and expectations. PNAS. Web.

Bauer L, Broady KE, Edelberg W, O’Donnell J. Ten facts about COVID-19 and the U.S. economy. Brookings. Web.

Collection. U.S. Bureau of Labor Statistics. Web.

Craven, Matt, Linda Liu, Matt Wilson, and Mihir Mysore. “COVID-19: Implications for Business.” McKinsey & Company. McKinsey & Company, 2021. Web.

Fairlie RW. The Impact of COVID-19 on Small Business Owners: The First Three Months after Social-Distancing Restrictions. NBER. Web.

Footnotes

1. Matt Craven et al., “COVID-19: Implications for Business,” McKinsey & Company (McKinsey & Company, 2021). Web.
2. Robert W. Fairlie, “The Impact of COVID-19 on Small Business Owners: The First Three Months after Social-Distancing Restrictions,” NBER, 2020. Web.
3. Alexander W. Bartik et al., “The Impact of COVID-19 on Small Business Outcomes and Expectations,” PNAS (National Academy of Sciences, 2020). Web.
4. Robert W. Fairlie, “The Impact of COVID-19 on Small Business Owners: The First Three Months after Social-Distancing Restrictions,” NBER, 2020. Web.
5. Matt Craven et al., “COVID-19: Implications for Business,” McKinsey & Company (McKinsey & Company, 2021). Web.
6. Matt Craven et al., “COVID-19: Implications for Business,” McKinsey & Company (McKinsey & Company, 2021). Web.
7. Matt Craven et al., “COVID-19: Implications for Business,” McKinsey & Company (McKinsey & Company, 2021). Web.
8. “Collection,” U.S. Bureau of Labor Statistics (U.S. Bureau of Labor Statistics, 2021). Web.
9. Lauren Bauer et al., “Ten Facts about COVID-19 and the U.S. Economy,” Brookings (Brookings, 2021). Web.

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