The impact of COVID-19 (coronavirus) on the economy will be longstanding. Broad-based unemployment (both temporary and permanent), a drop in consumer confidence, and lower business spending have caused ended the longest economic expansion in American history. However, the impact of COVID-19 has been felt differently in various industries.
Just as 70% of Americans have less than $1,000 stashed away for emergencies, many businesses were unprepared for the pandemic and the government measures to slow its spread. As a result, many industries felt a severe shock that some businesses in those industries might never recover from.
At the same time, other businesses expect to rebound later this year or, in some cases, might even thrive in the new business environment.
Here are ten examples of the economic impact of COVID-19 on industry:
Accountants are Busy
Accountants were fortunate in a few respects during the pandemic. As a result, the impact of COVID-19 on accountants has been positive in a few ways:
- The stay-at-home orders occurred right before the normal income tax deadline. As a result, the income tax deadline was pushed back by three months. This gave accountants additional time to prepare clients’ taxes.
- Accounting is suited to work from home. This allowed many accounting firms to remain at work during the stay-at-home orders.
- To support the economy during the lockdown, Congress passed the CARES Act which included a number of loan programs for small businesses. Many of these programs required businesses to consult their accountant to prepare the applications.
- One of these programs, the Paycheck Protection Program (PPP), was set up as a loan program that was forgivable as long as the loan funds were used to avoid laying off workers. The problem was that the PPP loan forgiveness process was excessively complicated and required the assistance of an accountant to execute properly.
- The other program, the Economic Impact Disaster Loan (EIDL) was administered by the U.S. Small Business Administration to provide low-interest loans to businesses suffering during the pandemic. Again, the difficulty was that the loan application required a high level of detail that often required an accountant’s assistance.
- With the income tax deadline set for July 15, accountants will have a late push to complete clients’ taxes on time.
Essential Services Continued Operating
Industrial sectors that did not suffer from the impact of COVID-19 included essential services. Many businesses were classified as essential including:
- Healthcare, including doctors, nurses, therapists, social workers, and dentists, were considered essential. Administrative support for healthcare workers was also considered essential.
- Commercial and residential repair and maintenance workers were essential. This included plumbers, electricians, and HVAC service.
- Banks and other financial service businesses did not shut down because they were essential.
- Residential leasing businesses were allowed to continue showing and renting apartments and homes.
- Retail shops providing food, hygiene products, medical supplies, and home repair materials continued in business.
Although these businesses were allowed to continue operating, they had to adapt to safety precautions, such as social distancing and disinfecting. Although some essential businesses suffered a drop off in business due to stay-at-home orders, some businesses found the quarantine helpful in carrying out their business.
For example, some non-essential businesses underwent repair and maintenance while workers were away from the business location. This allowed maintenance technicians to work undisturbed.
Self-Employed Workers Were Hit Hard
Small businesses, particularly self-employed workers and independent contractors were hit particularly hard. In fact, so many workers fall into these categories that Congress included unemployment benefits for them in the CARES Act.
Normally, so-called 1099 workers are not entitled to unemployment benefits because they do not contribute to the unemployment insurance fund. However, Congress subsidized unemployment benefits for these workers and distributed the benefits through the states’ unemployment programs.
For self-employed workers and independent contractors who lost business due to the impact of COVID-19, the CARES Act provided unemployment benefits of $600 per week. To qualify for these benefits, most states required tax filings or other paperwork substantiating the worker’s normal income and a declaration stating that the worker’s current income had fallen below that level.
These benefits supported workers from many industries that are typically operated as sole proprietorships. Nail technicians, hairdressers, personal trainers, and even plumbers are usually employed as independent contractors. As such, they would normally be ineligible for unemployment benefits.
However, these professions were shut down by restrictions that limited contact with customers. In acknowledgment of this impact of COVID-19 and the stay-at-home orders, they were provided with limited unemployment benefits to keep their businesses afloat.
Home Sales Slowed
Another predictable consequence of the stay-at-home orders was that home sales slumped. This occurred for a few reasons:
- Sellers needed their homes so they delayed putting their homes on the market.
- Many states restricted travel and interstate movement. This prevented residents from relocating during the pandemic.
- Buyers were reluctant to enter other people’s houses to shop for a new home.
As a result, real estate agents saw a slowdown in their business. However, other businesses relating to home sales also slumped including:
- Home construction: From HVAC installation to drywall services, home construction was temporarily suspended until new home sales could resume.
- Mortgage brokers: Financial service providers like mortgage lenders and title insurance companies saw slow business as home sales fell.
However, for these businesses, there is a silver lining. During the pandemic, the Federal Reserve lowered interest rates. As a result, mortgage rates fell to their lowest levels in nearly 50 years. When the impact of COVID-19 has passed, home buyers will be able to find some of the best deals for mortgages in over a generation. This will potentially prime the home sales market for a big rebound.
Importers Had, and Will Have, Supply Chain Problems
It is important to remember that the pandemic is a global problem and has affected many countries that businesses regularly deal with. Exporters had trouble accessing their normal markets because many hard-hit countries shut down transportation and strictly curtailed businesses. This meant that many retailers and distributors in other countries did not need, and could not use, American exports.
On the other side of the coin, American importers were unable to source their products and materials from their usual overseas suppliers. For example, heavy equipment, chemical products, and even bicycles became scarce as foreign factories and transoceanic transportation shut down.
This scarcity had a ripple effect through all the business units of a company. For example, if a garage door manufacturer uses circuit boards from Asia in its safety mechanism, it cannot complete any orders even if it has all the other parts to assemble garage doors.
In fact, without products available, the company has hit a bottleneck in all its operations including garage door sales, installation, and repair. This means that its supply chain problems could result in a total shutdown even for business units that are not directly responsible for manufacturing garage doors.
These supply chain problems were not temporary or theoretical. To the contrary, retailers have already been unable to stock many of the products that shoppers needed or wanted. Thus, one of the strangest ways the U.S. felt the impact of COVID-19 was a severe bicycle shortage. A surge in bicycle demand as spring arrived combined with a supply chain that manufactures primarily in Asia in factories that had been shut down during the pandemic to create empty racks at bicycle shops.
Weak Businesses Got Weaker
Businesses that were on the brink before the pandemic felt the impact of COVID-19 and the stay-at-home orders particularly hard. As a result, many of the weakest businesses sought out a bankruptcy attorney to try to protect the business assets from creditors so they could attempt a reorganization or liquidation.
Bankruptcy occurs when a business or individual lacks the revenue and assets to pay all of its debts. When the pandemic hit and businesses were ordered to shut down, their revenues dropped to zero. However, many businesses, like restaurants and retail shops, use current sales to pay for past orders. Their thin margins and continuous turnover of inventory mean that many businesses use revolving credit to cover payments to their suppliers.
Worse yet, many had already signed supply contracts for new inventory. Not only had sales for current inventory stopped, but shutdowns prevented sales of new inventory for the duration of the stay-at-home orders. Suppliers needed to be paid, but these businesses could not take delivery of this additional inventory because its retail operations had ceased selling to customers.
For some businesses, this was a recipe for disaster that forced them into bankruptcy. These include furniture stores, shoe stores, restaurants and bars, and grocery store chains. These were not merely small mom-and-pop stores. It also included some of the most recognized retail names like JC Penny, Neiman Marcus, and Pier 1.
Bankruptcy does not necessarily mean that these businesses will disappear. Bankruptcy reorganization is used to renegotiate agreements with creditors to reduce payments or extend repayment schedules. If a business has a viable plan to recover from the impact of COVID-19, it may survive bankruptcy and thrive going forward under revised debt agreements.
Support Businesses Were Also Hit
Businesses that provide support and supplies to other businesses felt the impact of COVID-19 when their customers shut down or shifted their work. Digital printing, for example, relies heavily on a B2B model supplying business cards, direct mail advertising, signs, and print marketing to businesses. When their customers closed their doors, their services were no longer needed, at least temporarily.
Other support businesses that suffered as their customers shut down included:
- Restaurant suppliers: Both farmers and restaurant equipment suppliers felt the impact of restaurant shutdowns.
- Office supply businesses: Without businesses constantly churning, the office supply businesses had no customers for toner, paper, ink, and other consumable office supplies.
- Conference centers: Many trade shows and conferences were canceled due to the pandemic. This left conference centers and the support services for these shows and conferences, like concessionaires, paid parking lots, and booth dressers, out of work.
New Business Formation Has Slowed
Unfortunately, the business environment for new business formation will be harsh for a while. According to economists, the U.S. entered a recession in February 2020. This reflects the slowdown in consumer spending, hiring, and business spending that resulted from the turmoil caused by COVID-19 both in the U.S. and abroad.
This does not necessarily mean that no new businesses will be formed in the short term. On the contrary, businesses that start now to fulfill a pressing need may find a ready market. For example, in 2019, a small business making cloth face masks would have faced headwinds. In 2020, however, demand for cloth face masks has skyrocketed.
For businesses starting during this recession, however, there will be a number of issues to navigate:
- Tight credit: Even though the Federal Reserve lowered interest rates, banks always tighten credit requirements during recessions to reduce the risk of default. New businesses could have difficulty getting loans.
- Liability: Service businesses may face liability if their practices fail to protect the health of employees and customers. New businesses will need to carefully examine the trade-offs of various entity types under business law, such as corporations, limited liability companies, and limited partnerships, to minimize their owners’ exposure to liability lawsuits.
- Liquidity: The pool of investors willing to take the risk of investing in a new business may be smaller during a recession.
Remote Work Helped Some Businesses and Hurt Others
As the pandemic started, there was hope that remote work could minimize the impact on many businesses. While many businesses were able to make the transition to a work-from-home model, many will return to an office-based workforce once the stay-at-home restrictions are lifted.
However, some digital businesses were boosted by the full transition to remote work because they already used, or were moving toward, a work-from-home system. For example:
- IT support: With so many businesses setting up employees for remote work, IT support was in great demand. However, IT support can now be provided remotely without technicians entering employees’ homes to set up their systems.
- Digital marketing services: Digital marketing became critically important during the pandemic. Since customers were not able to leave home except for specific reasons, most of them could only be reached via social media platform, search engine, or in-app advertising. The benefit to digital marketing firms is that many of their employees were already working from home developing content and marketing strategies to reach customers.
- Software development: Programmers were needed to develop applications and websites to assist home-bound people during the pandemic. Governments needed to reach residents and deliver services and businesses needed to shift many in-person services to online. Fortunately, software developers have long provided remote services and were ready and able to help.
Business Changes Going Forward
As states being to lift their restrictions and businesses reopen, they will continue to feel the impact of COVID-19. Unfortunately, new outbreaks will occur until a vaccine is developed. This means that businesses, from amusement parks to vet services, will need to take steps to minimize community spread. These measures are necessary to minimize business liability for COVID-19 and prevent further health-related shutdowns.
Although 2020 has been a rocky year for many industries, businesses will adapt. Businesses have already begun encouraging social distancing and wearing of face coverings. After a vaccine is developed, most of these measures will not be necessary and life will return to normal.