Small Business Labs

About 14 Million Freelancers, Gig Workers and Self-Employed are Getting Unemployment Insurance

The Pandemic Unemployment Assistance program (PUA) is part of the federal CARES stimulus act passed in March. The PUA extends unemployment insurance to the self-employed, independent contractors, gig economy workers, and others who typically don't qualify.

It's clearly been a success, with about 14 million workers receiving aid through the PUA.  

The chart below (click to enlarge) is from CNBC's Job losses remain ‘enormous’: Coronavirus unemployment claims are worst in history. It shows that PUA claims are about 40% of all the current continuing unemployment claims.

Without the PUA program, many millions of self-employed Americans would much deeper financial trouble than are currently are. And the economy would also be in much worse shape.

The program's success - and its importance to the financial health of so many people - lead to two policy implications.

First, the PUA program should be extended until the economic recovery is further along. Otherwise, many gig workers and self-employed are going to face financial difficulties.

And second, the PUA program is a successful example of a portable benefit that's detached from a traditional job.  Going forward, we need to create more portable benefits and make them permanent.  

BTW, Harvard Business Review's Gig Workers Are Here to Stay. It’s Time to Give Them Benefits nicely covers portable benefits.  See that article for more information on this topic.

U.S. White Population Started Falling in 2016

According to U.S. Census data, the number of white Americans fell by close to 100,000 in 2016 and continued falling in 2017 and 2018.  

As the Brookings' chart on this data below (click to enlarge) shows, the white population change in the U.S. has been declining for several decades.  But in the last 3 years, it fell.

Key quote from the Brookings report on this data: 

An important finding in the new census data is the decline of the nationwide white population for the third consecutive year. Between 2016 and 2019, the white population declined from 197,845,666 to 197,309,822, in yearly amounts of -97,507, -212,957 and -225,380. This three-year loss of over a half-million whites was enough to counter gains earlier in the decade, in total yielding a loss of white U.S. residents from 2010 to 2019.

And this change, thanks to the large cohort of aging baby boomers, is expected to continue.  

But while the number of whites declined, other demographic groups increased in number.  Again from the Brookings' report:

The unanticipated decline in the country’s white population means that other racial and ethnic groups are responsible for generating overall growth. Nationally, the U.S. grew by 19.5 million people between 2010 and 2019—a growth rate of 6.3%. While the white population declined by a fraction of a percent, Latino or Hispanic, Asian American, and Black populations grew by rates of 20%, 29%, and 8.5%, respectively. 

We've long covered the changing demographic make-up of the United States.  These changes are, if anything, accelerating.  

Just 6 years ago most demographers projected that the U.S. would become a minority-majority nation sometime around 2040.  

But this new data indicates that it will likely happen sooner, probably around 2035 (whites currently make up about 60% of America's population).  

BTW, it's highly likely 2020 will the be the year when less than half of U.S. children aged 18 and under will be non-Hispanic white alone (49.8 percent of the projected 73.9 million children under age 18).

So our shift to being a minority-majority nation is well underway. 

Our Updated Small Business Closure Forecast is More Optimistic, But Still Grim

In early April, we released a 2020 small business closure forecast. We've updated our forecast and the good news is we're more optimistic about small business survival rates than in our April forecast.  

The bad news is the numbers are still grim with the base case indicating about 1 million (17%) of U.S. employer small businesses will close in 2020. 

As the chart below shows (click to enlarge), the base case closure rate (50% probability) has decreased from 21% to 17% and the optimistic case (probability 25%) from 14% to 12%.  Under the optimistic case, about 700,000 employer small business businesses would close in 2020. 

As a point of comparison, in an average year about 8% of employer small businesses close.  And in 2010, the peak of the last recession, 10% closed. 

So even in our revised optimistic case, we're forecasting a 20% increase in closures compared to the Great Recession.  

The key reasons for the more optimistic view are:

1. After early hiccups and problems, the CARES Act has been more effective in supporting small businesses - and especially very small and micro-small businesses -  than we forecast in our April base case.  
2. The country opened up faster than in our base case.
3. The number of COVID-19 cases declined a bit more quickly than in our base case.

However, our pessimistic case (25% probability) closure rate is still very high at 32%, which equates to about 1.9 million small businesses.   

The pessimistic case remains high - both in closures and probability of happening - because COVID-19 cases are rising in many parts of the country, leading to new business restrictions and reduced consumer confidence.  This is putting another round of financial stress on already vulnerable small businesses.  

Also, if we face a 2nd COVID wave in the fall, we could easily see broader and stricter business restrictions across the country.  This would likely be the final straw for many small businesses already weakened by months of COVID related financial struggles.  

So our pessimistic case remains very pessimistic. And if the virus continues to expand at current rates, the odds of our pessimistic cases happening would increase. 

To say the economic outlook remains uncertain is, obviously, an understatement.  

For more on the forecast scenarios and methodology, see our April 7th forecast article.  

75 Must-Know Statistics About Race, Income, and Wealth

Morningstar's 75 Must-Know Statistics About Race, Income, and Wealth covers a wide range of U.S. financial indicators by race. 

Key article quote summarizing these statistics:

"On average, people of color experience significantly lower levels of income, retirement savings, and rates of homeownership than white Americans. Those shortfalls contribute mightily to other ill effects: poorer healthcare outcomes, lower educational attainment, and shorter life expectancies, for example."

The article chart below (click to enlarge) shows the median household net worth by race.  While the data is a bit old (2016), more recent estimates indicate this data is still accurate.

Wealth and income inequality is a major issue facing the U.S.  And it's not just a racial issue.  Generational wealth and income inequality is also a problem.  We'll have more on this topic in the near future.

U.S. Census Pulse Survey Shows Small Businesses Still Struggling

The U.S. Census Small Business Pulse Survey for the week of June 14th to June 20th shows small businesses continue to struggle.  

43% of the small businesses surveyed reported a decrease in revenue from the prior week while only 21% reported an increase. Also, 11% reported decreases in their number of employees while 10% reported increasing employment.

This despite many states ending their lockdowns and opening up their economies.

And the outlook for the future remains cloudy.  As the chart below (click to enlarge) from the Economic Innovation Group's analysis of the survey data shows, the percentage of small businesses expecting the return to normal operations to take longer than six months increased by 3 points over the prior week, reaching a near high of 41%.

Our guess is the data will turn down again next week due to the rising number of COVID-19 cases across the country.

For more on the pulse survey, see the Economic Innovation Group's Taking the Pulse of America's Small Business Sector: June 26th.  It does an excellent job of covering the survey, so we see no need to do so ourselves.

COVID-19's Huge Financial Impact on Cities

According to the National League of Cities (NLC), 65% of cities are being forced to delay or cancel capital spending and infrastructure projects due to COVID-19.  

Unlike the federal government, most U.S. cities are required by charter to run a balanced budget. This means revenue shortfalls have to be met with cost-cutting.

The NLC says cities are projected to lose $360 billion in revenue over the next 3 years due to the economic effects of the pandemic. 

If that happens, it means major cuts in operating expenses in addition to capital spending cuts.

The impact on cities is a good example of the pandemic's 2nd order effects.  

The first set of impacts hit consumer-facing industries, like travel, entertainment and dining.  But we're now seeing firms and organizations further up the value chain from these industries get hit. 

Examples include advertising agencies and marketing firms, professional services providers and cities, which rely in part on sales tax and consumer use fees for much of their budgets.

The NLC survey shows that 74% of cities have started to cut their budgets, with 20% reporting across-the-board reductions. So the budget cuts have already started.

Also, about 1.5 million public sector workers have been laid off or furloughed.  Those numbers are expected to rise in the coming months.

The economic impact of major budget cuts by cities would damage local economies and reduce much needed city services.  How bad it will get depends on whether or not cities are provided with financial assistance in the next round of federal government stimulus spending.

But even if they are provided assistance, many projects have already been canceled or delayed.  So even if cities are given stimulus funding, it will still take time for this sector of the economy to recover.

Almost 7 in 10 Baby Boomers Expect to or are Already Working Past Age 65

Regular readers know we cover retirement and the financial lives of baby boomers a lot here at Small Business Labs. 

The reason is older Americans have the highest rate of self-employment of any age group. So if more people retire later and work longer than in the past, the more self-employed there will be.  

Transamerica's Retirement Security Amid COVID-19: The Outlook of Three Generations study covers a wide range of topics and is loaded with interesting data.

But one finding, in particular, jumped out at us.

As the chart below shows (click to enlarge), 68% of baby boomers are either already past age 65 and still working or plan on working past the age of 65. Only 14% plan to retire prior to age 65. 

We've reviewed a lot of retirement studies over the years and this is the largest percentage saying they are going to work past 65 by far. It's also the lowest share saying they are going to retire prior to age 65.

It's likely COVID-19 is influencing these numbers. It has even the most financially well prepared baby boomers wondering if they should keep working instead of retiring. 

But this finding confirms the longer-term trend towards working longer that started in the 1990s.  

And it strongly suggests the number of older independent workers will continue to grow.

Academic Study Measures the Pandemic's Impact on Small Businesses

The Effects of the Coronavirus on Hours of Work in Small Businesses, from Yale's Tobin Center for Economic Policy, shows the pandemic's dramatic and ongoing impact on small businesses. 

The study uses data from Homebase, which provides scheduling and time tracking tools for small businesses, to measure the change in overall hours worked by small business employees.

As the study chart below shows (click to enlarge), average hours worked in U.S. small businesses plummeted by 60% in March when the lockdowns began. 

Hours worked since then have recovered, but as of early June were still 35.9% below pre-pandemic levels.

Not surprisingly, the largest drops in hours worked were in firms in the leisure and entertainment, beauty and personal care, and bars and restaurant industries. Also, the Tri-State New York region, which was the center of the early pandemic, was hit harder than the country overall.

This study is another example of cloud-based, digital data being used instead of traditional survey methods - something we are doing with increasing frequency.

We're not suggesting that traditional methods (surveys, interviews, focus groups, etc.) will disappear.

But there are many advantages to using digital data - the speed of use, the breadth and depth of the data, accuracy, etc. - make digital data extremely attractive for many research applications.

Study Shows Most Want to Go Back to Offices, at Least Part-Time

Gensler, a large global integrated architecture, design, planning and consulting firm, recently released its U.S. Work From Home Survey 2020 report.

The survey was done between April 16th to May 4th and the respondents "were required to be working full time for a company of 100 or more people, to have worked in an office environment prior to COVID-19, and to be currently working from home." 

In other words, Gensler's surveyed nicely captured the views of people who typically work in an office who are currently working from home due to the pandemic.

The key study finding, as the report chart below shows (click to enlarge), is only 12% say they want to work from home full-time.

The main reason workers want to return to their offices is to interact with others.  Key quote from the report:

"When asked what they miss most about working from the office, three out of four survey respondents said “the people”. Workers also report that certain activities, such as collaborating and staying informed about what others are working on, are harder to do at home, underscoring the value of physical presence."

The report chart below shows the top 3 reasons the respondents listed for going to the office.

Because of our research focus on small businesses and independent workers, we've long studied remote work and work from home.  And we know from our research - and the research of others- that most people find working from home full-time leads to social isolation and loneliness.  

We also know that because of this, many independent workers and remote workers join coworking spaces to overcome these problems.

We covered another study a few weeks ago with similar results - which is most people want to work from home but don't want to do it full-time.

Because of this, we expect to see most companies adopt a highly flexible, hybrid approach that allows work from anywhere, but includes time spent in the office.  We'll have more on this in the near future.

One Health Advantage of Work Autonomy and Control May be Less Risk of Dying

Independent workers (freelancers, gig workers, independent contractors, etc.) consistently report a major benefit of being independent is the work flexibility, autonomy, and control it provides.

It turns out having work flexibility, autonomy, and control may also mean you are at less risk of dying.

According to a recent study published in the Journal of Psychology, limited work autonomy and control can lead to mental health problems and an increased risk of death.

And while the study didn't specifically look at independent workers, the results are highly likely to apply to them.

Key quotes from the Science Daily article Is your job killing you? Stress, lack of autonomy, ability can lead to depression, death, which covers the study:

"We found that work stressors are more likely to cause depression and death as a result of jobs in which workers have little control ...  job demands resulted in better physical health and a lower likelihood of death when paired with more control of work responsibilities."

We learned from our work on the MBO Partners State of Independence study series that independents workers report being both happier and healthier working on their own than if they worked in a traditional job.

A key reason is most have work autonomy and control.  

This research shows it's not just a perception on the part of independent workers.  Work flexibility, autonomy, and control actually do improve mental and physical well-being.

May's Controversial Jobs Report

May's Employment Situation Summary report (also known as the "jobs report) from the U.S. Bureau of Labor Statistics (BLS) caused quite a stir.  

The BLS reported employment rose by 2.5 million and the unemployment rate fell to 13.3% from 15.7% in May.

The stir was caused because other economic data showed U.S. employment fell in May and the consensus among economists was that May's unemployment rate would be significantly higher.  

These stark differences led many to wonder if the numbers were intentionally tilted by the Trump administration to make the economy look better.   

We've long worked with the BLS and can say with 99.999% confidence that the numbers weren't tampered with.  The highly professional career civil servants at the BLS wouldn't allow this to happen. And if someone even tried, it would become public knowledge very quickly.  

So we can safely dismiss statistical subterfuge.  But that doesn't mean the BLS data is perfect.

The Washington Post's A ‘misclassification error’ made the May unemployment rate look better than it is. Here’s what happened. explains one issue with the May report.  Key quote:

When the U.S. government’s official jobs report for May came out on Friday, it included a note at the bottom saying there had been a major “error” indicating that the unemployment rate likely should be higher than the widely reported 13.3 percent rate. ... The special note said that if this “misclassification error” had not occurred, the “overall unemployment rate would have been about 3 percentage points higher than reported ...” 

There are other issues with how the BLS collects employment and unemployment data that lead to confusion about the rate of unemployment.

Most of these are covered in the New York Times article The Economic Pain That the Unemployment Rate Leaves Out.  Key quote:

“The unemployment rate itself is significantly going to understate the drop in economic activity,” said Stephanie Aaronson, the director of economic studies at the Brookings Institution. “It also is underestimating the amount of distress that Americans are facing right now because it understates how many people have lost jobs.”

One of the major reasons the unemployment rate is understated (beyond the misclassification error listed above) is the BLS only consider those who who don't have a job but are actively looking for work as being unemployed.

But because of the COVID-19 shutdowns and health concerns, there are many who would like to have a job that are choosing not to look at this time.  This means in the eyes of the BLS, they aren't unemployed. Instead, they are considered out of the workforce.

The New York Times estimates that adding this group of unemployed people back in would increase the unemployment rate by 3.7%.

So we have a 3% misclassification error and a 3.7% omission error.  Adding them back means the unemployment rate is around 20%.  

We think it's even a bit higher - in the 21%-23% range - when you adjust for other issues that lead to the undercounting of unemployment by the BLS.  

None of this is meant as a criticism of the BLS or how they do their work. Measuring employment and unemployment on a monthly basis is challenging even in the best of times. 

But the COVID-19 related shutdown of the economy means the BLS is faced with sampling, data collection and reporting issues they've never faced - or even anticipated facing.  So problems are to be expected.

Despite these issues, the BLS data shows the extent of the economic problem we're facing. 

The chart below (click to enlarge) is from the Calculated Risk blog. It uses BLS to data to show job losses in percentage terms for all the post World War II recessions.

As the chart clearly shows, even with May's numbers we have a long way to go to recover from the current downturn.

The Online Talent Marketplace Behind the Hit Show "Some Good News"

Fast Company's Meet John Krasinski’s secret weapon that helped make ‘Some Good News’ a hit covers how Krasinski used Communo, an online creative talent marketplace, to find and engage his post-production team.  

Key quote from the article on the team:

On post-production were the New York-based shops Senior Post and Leroi. Nashville’s Made In Network handled video distribution across other platforms. Calgary’s Arcade ran social media. And Giflytics in New Haven, Connecticut, did the GIF analytics.

"Some Good News" started with a tweet on March 25th asking people to submit stories and the first episode was March 30th (see below). 

There are now 8 episodes and the series was sold to ViamcomCBS for a reported $100 million +.  Pretty good for a couple of months' work, although many fans are unhappy that Krasinski sold the show. 

A couple of things jumped out at us about this story:

1.  Krasinski was able to scale up a very successful, professionally produced TV show is in just weeks using distributed nonemployee labor.  

2.  "Some Good News" bypassed the traditional media gatekeepers by using YouTube and going directly to consumers.  

3.  All the players involved are very small geographically distributed firms or independent workers who collaborate on this project. 

Of course, the show's success would have been much less likely - and probably not possible - without the talent and star power of John Krasinski. 

But the show's success still illustrates how teams of distributed, independent workers and small firms can quickly form and produce world-class results.  

And this is not just happening in creative fields. It's happening in almost all industries and professions.  

Number of U.S. Nonemployer Businesses Continued to Grow in 2018

According to the  U.S. Census, the number of nonemployer small businesses increased to 26,485,532 in 2018, up 3% from 2017. 

Nonemployers are businesses that have an owner but don't have paid traditional full or part-time employees (W2 employees).

The data comes from tax records and you can think of nonemployers as solopreneur businesses (some exceptions apply - see below). The data includes anyone reporting $1,000 or more in self-employment income, so it includes a lot of part-time businesses.  

From 2010 to 2018 the number of nonemployer businesses has grown at an average annual rate of 2.53%. This is a bit more than 3 times the growth rate in traditional employment. 

Nonemployers are businesses that have an owner but don't have paid traditional full or part-time employees (W2 employees). The data comes from tax records.

One of the more interesting nonemployer data sub-trends is that the number high earning nonemployers - those who report earning revenue of $100,000 or more per year - is one of the fastest growing segments.  

Higher earners have been growing at an average annual rate of 3.7% between 2010 and 2018 and reached 3.1 million in 2018. 

The Forbes article Growth Of Million-Dollar, One-Person Businesses Accelerates goes into detail on an even higher earning segment - those reporting revenue of $1 million plus.  Key quote:

The number of nonemployer firms—those with no employees except the owners— that hit $1-$2.49 million in revenue in 2018 rose to 41,666 in 2018, according to just-released Census data, up from 39,494 in 2017 and up from 26,744 in 2011—a nearly 48% increase. 

Nonemployer data gets less attention than other government data on self-employment.

This is because the dataset is messy and includes a hodgepodge of business entities - passive businesses, firms no longer in business, LLCs owned by major corporations, etc. - that aren't active solopreneur businesses. 

But despite these issues, we find the nonemployer data to be a useful indicator of the overall size and growth of U.S. self-employment.  

Most People Want to Continue Working From Home, Just Not Full-Time

Lots of work from home (WFH) surveys have been conducted over the past month. 

And one of the most consistent findings of these studies is most people want to continue to work from home, but most of those only want to work from home part-time.

For example, the Global Workplace Analytics Work from Home Experience Survey found that "U.S. employees want to continue working from home an average of 2.5 days a week (2 days/week globally)."

And as the Harris/Zapier survey chart below shows (click to enlarge), 66% of the respondents prefer working at the office.  

We've long researched the advantages and disadvantages of working from home.  And consistent with the recent surveys, we've found most people want to work from home, but don't want to work from home full-time.  

The biggest reason for this is loneliness, which is why we wrote a Harvard Business Review article - Coworking Is Not About Workspace — It’s About Feeling Less Lonely - on this topic.

Other reasons people like offices include they tend to have fewer distractions than home (except for coworkers) and they tend to have better work tools.

People also like interacting with coworkers, both socially and to work together.  And while remote technology has made interacting with others much better than in the past, being face to face is still preferred in many cases.

So what does this mean?

It likely means "the office", in some form, will continue to be a popular place to work post-pandemic.

We'll have more on this topic in the near future.  

Facebook Announces Facebook Shops

This week Facebook announced Facebook Shops, which it describes as "a mobile-first shopping experience where businesses can easily create an online store on Facebook and Instagram . . ."

Businesses will be able to create a Facebook Shop for free and upload their catalog, product pictures, and details like prices, delivery terms, etc.  Customers can then browse and order products.

Some store examples are illustrated below.

Facebook is going to charge a small fee for each sale, but they say their primary revenue model for Stores is advertising.  

Facebook is working with commerce partners like Shopify, BigCommerce, ChannelAdvisor, and others so small businesses can integrate their current backend and logistical systems with the Stores application.

Facebook had already ventured into the commerce arena with Marketplace, which mostly is a Craigslist competitor.  Shops is, obviously, a move upmarket into the traditional small business space and into competition with eBay and Amazon.

Millions of small businesses actively use Facebook for marketing and advertising and we've often wondered why they didn't have a service like Stores. 

Now they do.  

U.S. Census Pulse Survey Finds Small Businesses Getting Slammed

The U.S. Census has created a Small Business Pulse survey to track and measure how small businesses are faring during the COVID-19 pandemic.

They released their first set of findings last week (the data was collected between April 26th and May 2nd) and, not surprisingly, they found small businesses are struggling.  

As the Census chart below (click to enlarge) shows, 51% of the small businesses surveyed reported that the pandemic was having a large negative effect on their business.  Another 39% reported it has had a moderate negative effect.

Only 2.5% reported the pandemic has had a positive effect on their business.  

The industries with the highest percentages of businesses reporting a large negative effect are:

• Accommodation and food services - 83%
• Arts, entertainment and recreation - 75%
• Educational services - 74%
• Healthcare and social assistance - 70%
• Retail trade - 53%
• Transportation and warehousing - 52%

The data also shows that 74.9% of small businesses applied for loans from the Payroll Protection Program (PPP).  However, only about half (38%) received funding from the program. 

Given how liberal the PPP qualification rules are, this is a surprisingly small approval percentage. This likely means the PPP will not be as effective as hoped.

The pulse survey is scheduled to run weekly through June, so the survey will be very useful in tracking how small businesses are doing over that time period.

The survey respondents are employer small businesses with 1-499 employees and at least $1000 in revenue.  

The Growing Army of Freelancers Providing Services to Businesses

MBO Partners recently released its 2020 Client of Choice study results, which found that 7.6 million independent professionals (freelancers, independent consultants, etc.) provide their skills to business clients.  

And as the report chart below (click to enlarge) shows, the number of independent professionals in this space has grown rapidly over the past decade - increasing at almost 4 times the growth rate of overall employment during this period. 

Independent professional service providers work in a variety of fields. The top three professions are consulting, coaching, and research (17 percent), creative services (16 percent) and information technology (13 percent). Other popular professions include education and training (8 percent), sales and marketing (7 percent), and healthcare and sciences (8 percent).

The common denominators among these roles are that the work is knowledge-based and that the skills they represent are often difficult to source through traditional labor markets.

Another important study finding is between 2017 and 2019, the proportion of independent professionals who said they have a lot of choice in picking their clients jumped from 48 percent to 58 percent.

This is due to the growing "war for talent" during this period and the difficulty corporations are having in finding and attracting specialized talent.  

The study was done before COVID-19, which has obviously changed things.

But the trends driving both the growth of the number of independent professional services providers and their increasing ability to choose who they work for are strong and will likely continue.

And as we pointed out in last week's article Staffing to the Valley's, Not The Peaks, the demand for independent workers - and especially those with specialized skills - will likely grow even faster post-pandemic.

For those interested in learning more, MBO Partners is holding a webinar this Thursday (May 21st) from 2:00 PM to 3:00 PM EDT.  Click here to register for the webinar.  

MBO Partners is an Emergent Research client.  

The Recession's Economic Damage is Widespread

Yesterday we covered a series of recent articles saying it will take 2-3 years for the economy to recover to pre-pandemic levels.

One reason for this view is almost all industries are being negatively impacted by the recession.

Illustrating this is the BLS's employment diffusion index.

This index is calculated by adding the percentage of industries with employment increasing plus one-half of the industries with unchanged employment. A score of 0 would mean all industries lost jobs and a score of 100 would mean all gained jobs. 

As the chart below from Marketplace's Here’s one way to tell how widespread April’s job losses were shows, April's diffusion index was a very low 4.8. 

This means almost every industry lost jobs in April.

Early in the pandemic, there was hope that economic damage would be limited to industries with high customer contact such as airlines, restaurants, retail, etc.

But as this index shows, almost all industries are getting hurt.

This means it will likely take at least a few quarters, and probably longer, for the economy to recover fully.

The 90% Economy

There's been a recent flurry of articles suggesting that the economic recovery will not be V-shaped or quick. 

Instead, the articles suggest it will likely take 2-3 years to fully recover from the pandemic induced recession. 

For example, The Economist's April 30th cover story is called The 90% Economy because they think it will take a long time for the economy to get back to 100%. 

Key quote:

Measures to control the virus while either keeping the economy running reasonably smoothly, as in South Korea, or reopening it, as in China, are associated with a GDP reduction in the region of 10%. That chimes with data which suggest that if Americans chose to avoid person-to-person proximity of the length of an arm or less, occupations worth approximately 10% of national output would become unviable.

The Financial Times article Life after lockdown: welcome to the empty-chair economy covers the same ground.  Key quote:

But in most places, it will be anything but business-as-usual. Instead, the next few months are going to feel like an empty-chair economy, with new shift patterns at factories, half-full buses and trains, staggered opening hours and unusually roomy restaurants ... The once hoped-for V-shaped economic recovery now looks more like — at best — a stretched U, even if financial markets, supported by massive central bank firepower, have been on a tear. 

And the New York Times article Why Economic Pain Could Persist Even After the Pandemic Is Contained points out"

In this downturn, there is the looming collapse of many small businesses; potential losses in the commercial real estate sectors; a crisis in the funding of state and local governments that will most likely take years to play out; and a collapse of energy prices that could slow capital investment.

Some sources are even more dire in their economic assessment. A recent study by economists at the University of Chicago suggests that 42 percent of recent layoffs will result in permanent job loss.

This would mean unemployment rates well above 10% could last for more than a year, which would meet most definitions of an economic depression.  

Whatever happens, it seems clear the recovery will not be as fast as originally hoped.  

We're in the process of updating our small business closure forecast from last month and will release the update in the near future.

But based on what we're seeing so far, we expect far more small business closures this year than occurred during the recession of 2008-2009. 

Staffing to the Valley's, Not the Peaks

Campaign's How will adland's freelance industry and gig economy change due to COVID-19? covers how a group of advertising industry executives think the gig economy and freelance work will evolve in the aftermath of the coronavirus pandemic.

All of the answers are interesting, but one really jumped out at us.

According to Karen Kaplan, CEO and Chairman of Hill Holliday:

"Moving forward, we’re all going to have to run a little leaner and start staffing to the valleys, not the peaks, which should bode well for freelancers. This experience is also teaching us all how to collaborate better with people, both inside and outside our agencies."

This succinctly sums up what we also think is going to happen post-pandemic.  

We'd just add it won't just be ad firms that do this. 

We think organizations of sizes and types will use more nonemployee labor to increase their business flexibility and agility.

 

Will COVID-19 Cause Older Small Business Owners to Close Their Businesses?

According to the research firm Barlow Research Associates, the average small business owner is 60 years old. And as the Barlow chart below shows (click to enlarge), almost 40% are aged 65 or older. 

This raises an interesting question.  How will older small business owners react to the pandemic? Will they continue operating their businesses, or will they shut them down?

Because so many owners are near or past the traditional age, what this cohort decides will likely have a major impact on the recovery.  

We're hearing two things in our interviews and conversations with older small business owners on this topic.  

The majority of older owners (about 60%) we've talked to are telling us they plan on continuing to operate their businesses (although many in this group are concerned they may have to close due to bankruptcy). 

This group gave two reasons for this. Most said they simply don't want to retire or quit their business, so they plan to continue.  

A smaller share said they don't have the financial resources to retire, so they planned on keeping - or at least trying to keep - their businesses going.

But a sizable minority, about 40%, said they are considering closing their businesses permanently. 

This group gave 3 main reasons for this.

First, it's going to take a lot of time, effort and energy to rebuild their businesses.  Given their age and circumstances, they don't want to take this on.  

The second reason is many felt keeping their business going would require them to make additional financial investments in the business.  Again, given their age and circumstances, they don't want to do this.  

The third reason is more psychological.  Many simply are saying "now is a good time to close".  

By this, they mean several things.  Closing due to the pandemic is seen less like a failure, which is important given the competitive nature of most small business owners. 

Also, most owners have already gone through the trauma of laying off employees.  This is something they don't want to do again.  

And several told us they've held on too long already.  So it's time.

Of course, many who choose to retire or leave their small business will try to sell them. 

But according to Barlow, even in good times about 1/3rd of small businesses shut down completely when the owner retires.  This percentage will no doubt be higher due to the pandemic.

And if a large share of older owners shut their businesses down, the negative impacts on the economy would be quite large in terms of lost jobs and economic output.

FYI:  Barlow Research Associates is a great resource for those interested in small businesses.  We've been following them for years and find them and their insightful research for years.

What's Next for Digital Nomads?

It’s clear remote work, and especially working from home, are trends that are being amplified and accelerated by the COVID 19 pandemic and related economic shutdown.  

But one group of remote workers are mostly not benefiting from the pandemic - digital nomads.   

These are people who embrace a location-independent, technology-enabled lifestyle that allows them to travel and work remotely, anywhere in the world that has decent Internet connections. 

But being nomadic is challenging when the world’s locked down due to a pandemic. 

And because of a variety of factors – virus fears, concerns about access to and the quality of developing world healthcare systems, travel restrictions, etc. – nomadic life will continue to be challenging even after countries open back up.  

But the desire to travel, experience other places and cultures, and have new adventures isn't going away.  

So over the next 3-5 years, we expect the digital nomad trend to re-emerge as strong, if not stronger, than before.

In the shorter term, we expect two types of digital nomads to come back the fastest and likely increase in numbers. These are longer stay nomads and Vanlifers. 

Longer stay nomads are people who choose to live in new locations but do so for several months or more at a time. 

This was already a sub-trend of digital nomadism, with “living as service” firms starting up to serve this small but growing group.

And their numbers have significantly increased recently due to people sheltering in place away from their primary residence. 

Airbnb’s CEO nicely sums up this trend. Key quote from his recent interview in the business travel magazine Skift:

“A whole new generation will look for multi-month stays so they can work for a San Francisco company, for example, but engage in extended stays in other cities …”

We also expect Vanlifers to return to the road relatively quickly and for their numbers to grow. 

Vanlife travel is done relatively close to home (mostly within a few days’ drive) and limits exposure to airports, airplanes, and other places with tight quarters. 

So while the digital nomad trend is down, it's not out.  And like so many other aspects of daily life, it will return. But the form will be changed.  

Barclay's 150 Trends for Investors to Watch

Barclays, a large global financial firm, recently released a report and chart covering 150 trends that they think investors should watch over the next decade.

The trends cover six broad categories and they rank all 150 trends by their likelihood of happening and their potential impact. 

The six trend categories are: 1) Technology & Innovation; 2) Consumer, Food & Retail; 3) Industrials, Manufacturing & Transportation; 4) Health & Modern Science; 5) Energy & Environment and 6) Society & Culture.

Below is their Technology & Innovationchart for  (click to enlarge).

We really like that "smart dust" appears on this trend list.  It's a technology that's been discussed and experimented with since the early 2000s.  Some technologies remain 5 or more years away for decades.

Somewhat unfortunate for Barclays they released the report on March 13, just as the COVID 19 pandemic was gaining steam.  This likely why we - and probably many others - missed it when it first came out.

It's also likely their 150 trends would be somewhat different if they pulled them together today. 

But we still think it's a useful and excellent trend analysis piece and if you're interested in trends this report is well worth reviewing. 

Site Covers How the Economy is being Impacted by the Pandemic by Industry

Vertical IQ is a leading provider of Industry Intelligence for those advising small- and medium-sized businesses such as bankers, accountants, and other SMB advisors.  

They've put together a set of industry by industry analyses covering the impact of the pandemic and related recession.  

The chart below shows their high-level industry sector coverage.

They also go into industry detail, as shown by Vertical IQ's chart below (click to enlarge).  This chart shows just a small subset of the hundreds of industries they cover.

Very useful for those interested in tracking how businesses are faring during the pandemic.

Tracking Our Unemployment Forecast Scenarios

On April 2nd we released a set of scenarios with estimates of how high the unemployment rate may go in 2020 due to the pandemic induced recession. 

As our chart below (click to enlarge) shows, already the current estimated unemployment rate (18%) has likely reached our optimistic case (18%).  

Last week's unemployment claims came in at 5.2 million, which brings the total unemployment claims over the past 4 weeks to 22 million. 

22 million is a bit over 13% of working Americans. Adding them to the 6+ million who were unemployed prior to the pandemic means about 17%-18% are likely currently unemployed. 

This is a low estimate because some people who lose their jobs choose not to apply for unemployment and others have been unable to because state unemployment systems are overloaded.  

Given many more will be laid off before hiring rebounds, our optimistic case is off the table.

Our base case (22% unemployment) is still in play but at this point, we wouldn't be surprised if it too turned out to be low. 

Our unemployment forecast was one of the higher ones when we released it on April 2nd.  And just 2 weeks later it appears it may be a bit low.  

Others are also quickly raising their unemployment forecasts.  JP Morgan, for example, bumped its unemployment forecast for April to 20% last week. They also lowered their Q2 GDP forecast from -25% to -40%.  Their earlier forecasts came out 2 weeks ago.

Since we're in uncharted economic waters, it's not surprising that quick, major forecast revisions are happening.  Due to a lack of historical precedents and data, the truth is everyone is just guessing at this point. 

As we pointed out in our article on our forecast scenarios, the official unemployment rate may not reflect the actual unemployment rate during the pandemic. 

Quartz's New research suggests the US unemployment rate is about to become useless goes into detail on why this will likely be the case.