A Q&A with Holly Wade about the economy
Holly Wade is the executive director of the NFIB Research Center, where she conducts original research and studies public policy effects on small businesses. She produces NFIB’s monthly Small Business Economic Trends survey and surveys on topics related to small business operations. Wade is also a member of the board of directors of the National Association for Business Economics. Hardware Retailing spoke to Wade about the state of the economy and what is ahead in 2021.
Hardware Retailing (HR): What impact has the pandemic had on the overall economy compared to the independent sector specifically?
Holly Wade (HW): The small firms we represent were impacted dramatically at the onset of the health crisis. The second quarter was decimated by COVID-19 due to shutdowns, and consumer spending slowed dramatically. Since then, we have had a sizable third quarter, GDP wise. The economy has started building back up again, as businesses were able to resume operations.
However, it’s diverged between those businesses that are able to operate more or less normally from where they were pre-pandemic and those businesses that are not. Either because of dramatic shifts in consumer spending or continued restrictions on activity. While there has certainly been a strong recovery, there are still many businesses that are continuing to struggle.
The Paycheck Protection Program that benefited most small employer businesses by providing financial assistance offered financial certainty through the first few months. Many businesses have largely recovered, but there is still a population of small businesses that continue and will continue to struggle until the crisis is resolved because they depend on more foot traffic of consumers coming into their stores, like bars or restaurants or travel and entertainment businesses.
HR: How does consumer confidence compare this year to other years?
HW: Consumer confidence plummeted in April, according to the University of Michigan consumer sentiment survey. Their measure was around 101 in February and plummeted to 71 in April. We’re still a long way from pre-pandemic consumer sentiment.
Consumer confidence is still much lower than it was, but improving, and that’s certainly a good sign. I don’t know that we’ll see major improvements until there is far more control over the health crisis. Small business sentiment and consumer sentiment were incredibly high over the last few years, right up until March. The health crisis was entirely responsible for the crash of both.
Retailers should know that lead times and cycle times have lengthened, and that has to do with ongoing capacity constraints and logistic challenges.
We have a monthly survey of a random sampling of NFIB members, which measures small business optimism. It has been at record level highs over the last four years as the economy kept building and growing stronger, and then it crashed in March and April.
But the Paycheck Protection Program helped stabilize much of the small business sector, and the index started to improve. We are largely back to where we were before, but a lot of that is forward-looking sentiment. More small business owners are anticipating better conditions and more sales. They continue to remain optimistic of what things will look like going forward even as sales aren’t where they want them to be.
The fundamentals of a strong economy are there, just waiting for a vaccine or better therapies to get the virus under control. Small business owners are certainly optimistic. In the same survey, we also constructed an uncertainty index, and the most recent was the second highest it’s been in the survey’s 46-year history. While they are optimistic, there is still a lot of anxiety. Many small business owners aren’t able to determine whether things will get better or worse.
HR: Are there specific factors that contribute to that uncertainty in addition to the pandemic?
HW: The trend for online sales has increased year over year, and this year has just pushed that trend much further and faster than anticipated. Many businesses are having to adapt very quickly in creating an online presence to compete.
Many small businesses have had a limited online presence or didn’t have one at all, and that has been one of the most important ways to find customers and allow customers to purchase and navigate products online.
Those are some adjustments that will be permanent going forward. Consumer spending shifts will probably moderate and readjust to where they were before, but the retail sector and how consumers shop is going to be notably different.
It is certainly a steep learning curve and very stressful to move up the timeline of adjusting to these trends more quickly than anticipated.
HR: What are some possible effects retailers may see regarding consumer spending if the pandemic continues as it is right now? Do you think this boost in home improvement spending is sustainable?
HW: Even those businesses that are seeing increased consumer demand, they’re still having challenges in absorbing increased consumer spending in those areas.
Budgeting is a huge challenge, navigating what it looks like six to 12 months from now. Businesses that sell durable goods are looking at uncertainty in the near future because those are largely products you buy once every five to 10 years. So those operators are asking, “What does that look like as far as trying to navigate large fluctuations in sales?”
Because of the pandemic and the uncertainty of how it will be resolved, it’s one of the biggest challenges small business operators have, trying to figure out what sales look like and how to budget for their business. We’re still seeing low levels of capital spending. Business operators are still very hesitant about spending money, expanding their business or replacing equipment because of this enormous level of uncertainty going forward about how the pandemic will impact their business and shifts in consumer spending.
HR: The pandemic obviously upset so many projections economists were making at this time last year about what 2020 would hold. Are there any projections you can make about what the economic recovery will look like over the next six to 12 months? How will this period in history impact how economists make projections moving forward?
HW: This has put economic projections into a tailspin. In the best of times, forecasting is difficult. In the current situation, it’s nearly impossible. There are so many variables coming up, the biggest one being weather related, how that impacts COVID-19 infection rates and decisions to further restrict business activities.
I think this health crisis is hopefully a one-off event where we can return to normal ways of looking at the economy, what will impact it going forward without so much uncertainty attached to it