jpm_asset_mgmt
  • Investment Strategies

    Investment Options

    • Alternatives
    • Beta Strategies
    • Equities
    • Fixed Income
    • Multi-Asset Solutions

    Capabilities & Solutions

    • Pension Strategy & Analytics
    • Global Insurance Solutions
    • Outsourced CIO
    • Sustainable Investing
  • Insights

    Market Insights

    • Market Insights Overview
    • Eye on the Market
    • Guide to the Markets
    • Guide to Alternatives
    • Market Updates

    Portfolio Insights

    • Portfolio Insights Overview
    • Alternatives
    • Asset Class Views
    • Currency
    • Equity
    • Fixed Income
    • Long-Term Capital Market Assumptions
    • Sustainable Investing Insights
  • Resources
    • Center for Investment Excellence Podcasts
    • Insights App
    • Library
  • About Us
  • Contact Us
Skip to main content
  • English
  • Role
  • Country
  • Client Reporting
Search
Menu
CLOSE
Search
  1. Home
  2. Insights
  3. Market Insights
  4. Market Updates
  5. On the Minds of Investors
  6. Will American small business fire its workers?

  • Share
  • LinkedIn Twitter Facebook
  • Email
  • Print
  • Actions
  • LinkedIn Twitter Facebook
    Email Print

Will American small business fire its workers?

2020-04-01

Jack Manley

An economic report out of the St. Louis Federal Reserve (Fed) last week made waves in the investing community, suggesting that the impending recession could see 47 million layoffs, resulting in a 32% unemployment rate, worse than during the Great Depression. This is not a hard number to reach: as of February 2020, there are roughly 35 million employees in transportation, leisure and hospitality and retail trade, all industries in the crosshairs of “social distancing.” Other industries, like energy, will suffer as well.

The author of the report acknowledges that this projection is based on some “back-of-the-envelope” calculations: for example, it does not account for those who may drop out of the labor force. But ultimately, how high the unemployment rate gets is dependent on one key question: will American small business fire its workers?

There are roughly 65 million “small business” employees in the U.S.1; the CARES act, a 2.2 trillion USD stimulus package passed last week, is at least partially aimed at protecting them. Struggling businesses may take out loans up to the value of eight weeks’ worth of operating expenses (rent, utilities, interest and payrolls), which become forgivable to the degree that businesses do not lay off their workers, suggesting that many otherwise-imperiled employees may not lose their jobs.

However, despite these incentives to employers, unemployment among many small business employees may still skyrocket. Employees of industries most vulnerable to “social distancing” are some of the lowest paid in the workforce, with both low average hourly earnings and low weekly hours worked. Between normal state unemployment benefits and the supplemental 600 USD per week unemployment check from the Federal government – another component of the CARES act – many workers may find themselves with a higher income while unemployed than during their employment and, paradoxically, want to be laid off. Small businesses may be happy to oblige: ceasing operations would result in savings on utilities and payroll, and with payments to landlords likely negotiable during this period of stress, minimized expenses could be covered through bank loans without government intervention.

For now, though, it is still too early to tell. In the meantime, investors should keep an eye on future jobless claims to get a sense of the scale of mounting unemployment. But perhaps more importantly, it is worth remembering that any disruption, no matter how severe, will likely be short-lived, and when an effective vaccine arrives, the labor market will tighten quickly again.


1 Defined as an employee of a firm with fewer than 500 employees. Data are as of 1Q 2019.

0903c02a82866b6f

EXPLORE MORE

On the Minds of Investors

What investment questions are on the minds of investors? Explore the questions investors ask frequently and find answers at J.P. Morgan Asset Management.

Read more

Guide to the Markets

The J.P. Morgan Guide to the Markets illustrates a comprehensive array of market and economic histories, trends and statistics through clear charts and graphs.

Read more

Asset Class Views

Get quarterly commentary and in-depth analysis on equities, fixed income and other asset classes, written by our senior investment teams.

Read more
Federal Reserve US economy Markets Economy
J.P. Morgan Asset Management

  • About us
  • Investment stewardship
  • Privacy policy
  • Cookie policy
  • Binding corporate rules
  • Sitemap
Opens LinkedIn site in new window
J.P. Morgan

  • J.P. Morgan
  • JPMorgan Chase
  • Chase

READ IMPORTANT LEGAL INFORMATION. CLICK HERE >

The value of investments may go down as well as up and investors may not get back the full amount invested.

Copyright 2021 JPMorgan Chase & Co. All rights reserved.