Apr 9, 2021 - Economy

Half of small businesses unlikely to hire back workers they let go

Data: Facebook Global State of Small Business Report; Chart: Axios Visuals
Data: Facebook Global State of Small Business Report; Chart: Axios Visuals

Nearly a third of small- and medium-sized businesses have had to lay off workers as a result of the COVID-19 pandemic, and half say they don't plan to rehire employees in the next six months, per Facebook's Global State of Small Business Report out Friday.

Why it matters: Small businesses have been pummeled in the past year, and small businesses owned by people of color faced higher closure rates, lower sales and bigger staff reductions.

By the numbers: 22% of U.S. businesses reported they were closed in February 2021, an increase from 16% in October 2020, per Facebook's survey of more than 35,000 small- and medium-sized businesses.

  • "Businesses have reduced their costs and payroll which is horribly painful and could be really harmful to the business long term," Urban Institute Senior Fellow Brett Theodos tells Axios.

Between the lines: The fact that 51% of global and U.S. small- and medium-sized businesses aren't planning to rehire in the near future suggests lower levels of optimism about the economic recovery, even as vaccinations become more widespread and states begin to open up.

  • States with high shares of businesses that reduced staff are New York (38%), Illinois (36%), Michigan (36%), California (33%) and Florida (32%), per Facebook's research.

Yes, but: While small businesses may not be planning on scaling rapidly in the second half of the year, some sectors are doing better than expected in terms of keeping up with loan payments and maintaining their credit standing, said Theodos, who analyzed data from Dun & Bradstreet on 1 million businesses between September 2019 and January 2021.

  • Small businesses are nimble and many were able to quickly cut costs by shedding employees and physical space to save on rent when revenues plummeted at the start of the pandemic, he said.
  • The Paycheck Protection Program and flexibility from lenders significantly helped provide some financial float for small businesses over the past year.

Yes, but, but: That doesn't mean their recovery will be quick or easy, and many businesses that closed may not be able to reopen.

  • Theodos found that past-due payments owed by small businesses as a share of each company's total trade activity rose slightly nationwide — from 17.7% in February 2020 to 18.3% percent in January 2021. (Check out the city-specific data).
  • Companies that are in loan forbearance may not be in great financial shape, "but it means lenders still have some confidence they'll be able to pay," he said.

The bottom line: Even the businesses that managed to maintain operations thanks to PPP payments and emergency lender flexibility will likely be conservative in hiring and spending for some time.

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