It has been a tough year for small business owners, and the future remains uncertain. January and February promised a continuation of the longest expansion in U.S. history. But March brought Covid-19, and April the widespread shutdown of businesses and consumers staying home, producing the largest decline in Gross Domestic Product in modern history. The economy has improved since then as states “open up” at varying rates. States with the largest populations remain among the laggards at re-opening. GDP growth for the third quarter is expected to grow at a 20% annual rate or better. However, remember how low the denominator is due to the steep decline in the second quarter as this exaggerates quarter over quarter growth rates. Even with solid fourth quarter growth, GDP for the year will likely be below that for 2019. The shutdown lowered sales at virtually every small business and produced a surge of 20 million unemployed workers, a third of the increase in unemployment accounted for by California and New York. Construction, transportation, and manufacturing did a bit better than others. Many small businesses have been disproportionately impacted by shutdown policies as they are more reliant on regular foot-traffic than larger businesses. Our ability to recover depends on the economic policies of 50 states and their cities.

NFIB’s Uncertainty Index now stands at 90, the 4th highest reading since the record high reading of 100 in November 2016, two of the four highest readings occurred this year. In 2019, as many as 30% of small business owners planned to make capital expenditures. In April, that percentage had declined to 18%. Capital spending not only contributes to GDP growth but also drives labor productivity which determines employee compensation in the long run. Uncertainty is the enemy of investment (new building, equipment, technology). Investment spending is all about the future, and when that future looks “iffy’, owners are more reluctant to spend money. The uncertain political climate is likely also contributing to the contraction in business capital investment plans. The election will resolve soon, but government Covid-19 policy and consumer spending behavior have more uncertain futures.

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