Local Economist: Temporary economic shutdown hit hard

About two-thirds of the firms reporting say they could survive three months or less before closing
Published: Jul. 16, 2020 at 7:33 PM CDT
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BRYAN, Texas (KBTX) - First News at Four sat down with the Director of the Texas A&M Private Enterprise Research Center, Dennis Jansen, to talk about a recent join survey conducted in tandem with the Bryan-College Station Chamber of Commerce.

Read the findings here.

Here’s a look at that conversation:

Kathleen Witte: According to your data, less than 1/5th of all businesses in the B/CS area closed due to the pandemic. How much does that factor in to the relatively low impact the economic shutdown had on our area?

Dennis Jansen, Director of the Texas A&M Private Enterprise Research Center: Yes, our responding firms report about 17% closed, but only 3% remained closed by mid-June. Still, our respondents also report that 69% of firms (344 of 498) had a decrease in revenue as a result of the pandemic, and 12% of firms report a decrease of 80% or more, with another 17% reported a decrease in the 60-80% range, and another 27% reporting a decrease in the 40-60% range. These are huge revenue losses, losses that cause grave difficulty to almost any business. So the shutdowns are important, but so are the partial openings and the lost business from customers avoiding certain businesses even if they were not shut down, such as hotels and airline travel.

KW: Of the nearly five-hundred responses received a majority of businesses reported their businesses to be operating at or above 60-percent capacity.Was that number higher or lower than you expected?

DJ: Well, revenue decreased at 61% of responding firms, and the median reported decrease was in the 40-50% range. Further, 43% of firms reported a decrease in the 50-100% range. So a business can be operating at 60% or more of capacity and still be strongly negatively impacted.

KW: 69% of respondents say their employee count did not change due to COVID-19. But employment dropped by about ten-percent. How can that be?

DJ: Good question. Yes, only 31% of firms report reducing their employee count. But 14 firms report a reduction of between 80 – 100%, 18 a reduction of 60 – 80%, and 13 a reduction of 40-60%. Of 152 responses, 58 reported increases in employment, although most of these were low percentage increases, and 94 reported decreases, including all the way to 100%. So those reporting decreases were reporting on average large decreases in employment. Finally, our respondents are not all the same size, so the impact on overall employment cannot be judged just from the number saying they increased or decreased employment.

KW: On the more negative side of things, roughly 2/3′s of all businesses say they could survive only three months or less before closing. How have the recent re-application of restrictions affected that timeline?

DJ: Our survey was distributed during the week June 8 – 12, before the Governor’s latest restrictions on bars, restaurants, and certain other businesses. We don’t have any survey evidence to answer your question, but I am not surprised that many businesses, many small businesses, would have a hard time surviving long if completely closed. The recent restrictions will have a big impact on those affected. I suspect that bars, especially non-chain establishments, will be experiencing terrible difficulties during this second shutdown. Restaurants will also be impacted, and a 50% limit on dining room occupancy constrains operations to levels that are for most restaurants well below the level at which they are profitable. Finally, employees are hard hit too. For these businesses they were called back to work for about three weeks and then sent home for a second time.

KW: Almost every business that applied for a PPP loan got one. Was that true of regions outside of B/CS?

DJ: Yes, we were a bit surprised at the overwhelming success rate of local businesses in obtaining the Payroll Protection Program loans. I have heard local businesses attribute this to a combination of cooperative local banking establishments and the support of the Bryan-College Station Chamber of Commerce and Brazos Valley Economic Development Corporation in getting the word out and in providing advice and assistance to businesses seeking such loans. I have seen survey evidence from Paychex indicating 64% success rate among small businesses, and Forbes had an article indicating a 47% success rate in mid-May. I must also admit that our survey respondents may be drawn from firms that were more likely to be successful in applying for these loans. Our survey was voluntary, and while we certainly were open to responses from all businesses we did not obtain responses from all BCS firms.

KW: And business owners were split pretty evenly into three categories of forecasting the future of their businesses with roughly a third saying business will be better, another third saying it will be worse, and the last third saying about the same. In your opinion, will our local economy grow in the next year?

DJ: I think our economy will grow in the next year, certainly from where we are now. But that is an easy prediction. I think that the current situation will improve somewhat, especially if Texas A&M is open and if we can figure out how to have big events, big sporting events, occur in our local community. I am less certain that we will return to where we were in 2019. So to be clear, I am predicting continued gradual improvement, with fits and starts, from where we are now. But getting back to where we were in 2019, that might take a while. I’ve been saying for quite a while that the return to normality probably only occurs with a safe and effective vaccine, and one that is widely available worldwide.

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