Fed estimates fewer businesses failed during pandemic than feared

The economic toll from the COVID-19 pandemic has been tough to measure, but new estimates from the Federal Reserve suggest it wasn’t as bad as feared for smaller businesses.

The pandemic resulted in the permanent closure of roughly 200,000 U.S. establishments above historical levels during the first year of the viral outbreak, according to a study released Thursday by economists at the Fed. In recent years, about 600,000 establishments have permanently closed per year, or about 8.5%, according to the study, The Wall Street Journal reports

Individual companies account for about two-thirds—or roughly 130,000—of the extra closures if  historical patterns hold, according to the Fed economists, who examined businesses with employees. Other closed establishments are units of major companies—say, a Gap or Pizza Hut—that closed some locations while remaining in businesses.

Barbershops, nail salons and other providers of personal services appear to be hardest hit, according to the Fed study, accounting for more than 100,000 closures beyond historically normal levels between March 2020 and February 2021.

One earlier study estimated that more than 400,000 small businesses had closed in the first three months of the pandemic.

The new estimates are preliminary. In addition, some businesses that have hung on could eventually collapse under the weight of back rent, unpaid loans and other expenses.

The Fed estimates don’t include the roughly 26 million U.S. businesses without employees. Business failures traditionally have been highest among the smallest firms, those with fewer than five employees. Read the full story.