- A Fed survey found that 200,000 extra US businesses have permanently closed in the past year.
- That’s on top of the estimated 600,000 businesses that close in a given year.
- Small businesses were not hit as hard as expected, which could be because of government aid.
- See more stories on Insider’s business page.
In recent years, Federal Reserve economists have estimated that 600,000 US businesses have permanently closed each year. But a Fed study released on Thursday found that the pandemic has resulted in an additional 200,000 permanent closures of businesses over prepandemic levels – or about a quarter to a third above normal.
Individual companies account for about two-thirds of the closures, while personal service providers, like hair and nail salons, were the hardest hit, accounting for 100,000 permanent closures between March 2020 and February 2021.
“Business exit implies permanent job destruction, potentially detaching workers from the labor market and limiting the speed of the employment recovery,” the study said.
The study also said that small businesses had lower exit rates than expected from early on in the pandemic, and while the Fed economists did not provide a reason for this in the study, many small businesses have managed to stay afloat with the help of government aid.
The expectations early in the pandemic were dire for small business. For instance, the National Federation of Independent Business found in a July survey that 23% of small businesses expected to be closed within six months unless economic conditions changed.
Government aid may have accounted for some of this upside surprise. Insider reported on March 16 that most small businesses continued to pay their bills during the pandemic through the Paycheck Protection Program, which gives loans to small businesses.
On top of stimulus aid, Biden’s infrastructure plan could also help mitigate the toll the pandemic has had on US businesses. The president proposed a $400 billion investment to strengthen and protect America’s businesses, which would encourage and promote domestic production of goods.
But the aid can only last so long, and The Wall Street Journal reported that businesses that have not yet permanently closed could soon collapse under the burdens of back rent and unpaid loans.
Insider also reported on Friday that the situation remains challenging for businesses that are open – they’re struggling to hire because of a labor shortage caused by a number of things, including unemployment benefits disincentivizing people to work and fear of contracting COVID-19.