U.S. Workers, Businesses Lack Funds to Tide Them Over Until Help Comes

The American economy is in a race against time.

With measures to halt the spread of the novel coronavirus intensifying, the U.S. is embarking on its sharpest downturn since at least the end of World War II. The states where nonessential businesses are shut down, including California, New York and Ohio, account for more than 40% of U.S. gross domestic product.

Many of those workers and businesses will face severe constraints quickly, surveys suggest. In two weeks time—the period of a typical paycheck—many workers will struggle to make ends meet. After a month, more than half of them could be in trouble. At that point, a fifth of small businesses with lost sales could be on the brink.

The stimulus the Federal Reserve announced Monday, including its planned program to support lending to small and midsize businesses, will help. So, too, will the fiscal spending package Congress is hammering out—when it comes.

For the economy, the most important questions are how soon help will arrive, how ample it will eventually be and, above all, how long the coronavirus crisis will last. Between the big stimulus likely to come out of Washington and plans by lenders to extend loans or offer grace periods on payments, consumers and businesses can manage a shutdown lasting several weeks.

Beyond that is uncharted territory, and with the crisis at an intense point right now, few people are thinking that far out. Most economists think the economy will shrink more than 10% in the second quarter, at an annual rate, a larger decline than that at the start of the financial crisis and one that would mark the worst contraction since quarterly measurements began shortly after World War II. But most are assuming that by the start summer, the spread of the virus will have been contained and activity will begin to bounce back. That is no sure thing, with many epidemiological models suggesting containment won’t occur until later.

Govs. J.B. Pritzker of Illinois, Andrew Cuomo of New York and Gavin Newsom of California are among those who have told residents to stay home.


Small businesses, which account for about half of U.S. employment, according to the Small Business Administration, are among those most at risk. In a 2016 study, researchers at JPMorgan Chase Institute, the bank’s think tank, found that the median small business had a cash balance that would last just 27 days. Some were operating closer to the edge. The median retailer had a cash buffer that would last 19 days. The median restaurant’s would last 16.

In a 2018 survey conducted by software and business-services provider Womply, 21% of small businesses said they would fail after a month without any cash flow. An additional 34% said they couldn’t last more than one to three months.

“Time is just ticking,” says Brad Plothow, who coleads Womply’s research group. “If it takes 90 days to get an SBA loan, for example, it may not be useful to you. You might be out of business by then.”

Many consumers can’t last very long without a paycheck, either. In a survey conducted last year by research organization NORC at the University of Chicago, 31% of working adults said missing a single paycheck would mean that they couldn’t cover necessities. An additional 20% said they couldn’t miss more than one paycheck.

Many households also carry substantial debt. Earlier this month, the Federal Reserve reported that overall household debt stood at a record $16.1 trillion at the end of the quarter. While overall debt to income ratios are down, that is because mortgages have fallen since the financial crisis. Lower-income households, which are less likely to have mortgages, have higher levels of debt than before the crisis, mostly made up of student and auto loans and credit cards.

While lower interest rates help homeowners, most working-class workers rent their home. Fed data show that as a share of income, non-debt financial obligations—a category that includes rents and lease payments—are higher than before the financial crisis.

Lower-income workers also lack the means to face periods of lost income. Among respondents to a survey conducted by the TIAA Institute and George Washington University making less than less than $25,000, 54% said they would be unable to come up with $2,000 in an emergency. Even among people earning in excess of $100,000 a year, 10% said they wouldn’t be able to raise the money.

“Ten years after the financial crisis, a quarter of people can’t deal with a shock,” said George Washington University economist Annamaria Lusardi, who designed the survey question. “They need help sooner rather than later.”

Industries employing low-wage workers play a big role in the U.S. economy. Food and beverage stores have seen a surge in sales and won’t be affected by a shutdown. But they employed a seasonally adjusted 3.1 million workers as of February. Restaurants and bars, many of which have been ordered closed, employed 12.3 million.

Even a giant stimulus might not quickly temper the downturn because government payments could take significantly longer to arrive than the two weeks the Treasury Department has optimistically forecast. Evercore ISI strategists and former White House and Treasury officials Sarah Bianchi and Ernie Tedeschi suggest six weeks is more realistic—and by that time many will have missed several paychecks.

‘Closed’ signs proliferated last week on stores, bars, restaurants, institutions and in Dayton, Ohio, a polling station.


Even then, consumers may use the cash to keep up with bills, or put it into emergency savings, rather than spend like they normally would. “If people are idle and businesses are closed, what are people going to do with the money?” asked economic consultant Joseph Carson.

Government efforts to support small businesses need to happen quickly both to keep them from failing, but also to maintain links between them and their employees, said Harvard University economist Lawrence Katz. Consumers are less likely to spend their stimulus checks if they fear they are facing long periods of unemployment.

Mr. Katz says the scope of what the government may need to do if the epidemic drags on may need to be unprecedented in most living Americans’ memory. When the U.S. economy entered World War II, government spending went into overdrive. Federal spending represented as much as half of gross domestic produce, but it kept the economy going.

“This is, I think, our World War II,” he said.