A Post-Pandemic Outlook for Main Street America
This article originally appeared on Franchising USA magazine
By: Christopher Johnson, Senior Vice President and President, Pitney Bowes Financial Services
The economy is showing signs of recovery, with macro conditions favourable to business growth. Driving this is a series of measures and actions which support a fertile business environment: first, the progress made against the pandemic, including the vaccination program, along with the easing of some of the business restrictions is starting to lift the economy. Second, the unprecedented stimulus support over the past twelve months including the PPP program, economic impact payments (aka ‘stimulus checks’), and enhanced unemployment benefits, has helped businesses and consumers to weather the disruption of the pandemic.
As one data point, the personal savings rate in the U.S. remains higher than it has been since we began tracking over 60 years ago. And with talks ongoing regarding the The American Jobs Plan proposal focused on rebuilding the U.S. infrastructure, the economy is poised for further economic expansion. Last, but important, the Federal Reserve has committed to keeping interest rates close to zero, while it buys $120 billion of monthly asset purchases as part of its quantitative easing program. These measures are also helping to strengthen the employment outlook, with nonfarm payrolls rising and unemployment falling.
The shift from goods to services
These measures are helping to fuel a resurgence across the services sector, which was hit especially hard by the pandemic.
Services are a critical part of the US economy, it’s the biggest contributor to GDP, accounting for around 70 percent. In April, US service providers expanded at the second-fastest rate on record. We should see further expansion across the sector as we continue to resume everyday experiences that we’ve missed over the past year: dining out with family and friends, watching sports or live music events, visiting movie theatres and booking vacations. As an example, cruise line bookings for 2021 are not just higher than 2020, they are surpassing 2019 figures as pent-up demand boosts reservations.
Slowly, we are welcoming back the joy from our ‘old lives’, as it becomes clear that what we’ve missed is experience-led, real-life interactions. This demand is reigniting the service industry and navigating us toward an economic inflection point, which should see the services industry incorporated into the already jump started economy.
While the services sector strengthens, there are risks to watch that could potentially impact small businesses including broken supply chains and an inability to meet surging demand. As an example, production capacity has been hit, and the global shortage of semiconductor chips used widely across the electronics manufacturing and automotive industries is expected to last at least until the second half of the year. Transportation costs are also on the increase, and rising competition for workers is fuelling an increase in labor costs. At the same time, we have seen the strength of the dollar weaken, all while the looming threat of inflation has increased.
The impact on franchisees and small businesses
All these risks impact the business community at large, the most vulnerable of which are small businesses. America’s 780,000 franchises and 30 million small businesses will continue to feel the economic aftershock of the pandemic as the cost of doing business rises and they compete for talent with larger organizations. They must shoulder the burden of likely tax increases while working hard to maintain healthy cashflow, and ensuring the safety of their employees and clients.
These pressures follow a year which has tested their resilience, but during this time their ability to adapt and respond to changing demand has stood firm. Many businesses pivoted and refocused, shifting business models seamlessly with skill and agility. This ability to swiftly adapt sets small businesses apart from many of their larger competitors. Even more remarkable is the consideration that 51 percent of small business owners fall under the ’50 and over’ category – also the category most at risk from COVID-19. In the face of this risk, the small business community demonstrated immense strength and entrepreneurialism.
71 percent of Americans believe the pandemic will have a lasting effect on the country
Risk factors aside, it could become boom-time for many small businesses, with an influx of consumers heading to Main Street to support their favorite businesses that have suffered over the past year. But there are some more precautionary points to note here. Few American citizens have remained untouched by the pandemic. People are still cautious. This caution could impact their capacity to head to Main Street and spend. After the first round of stimulus checks last spring, consumers spent 29.2 percent of their checks and saved 34.5 percent, reported CNBC. This time around, a report from the New York Federal Reserve found stimulus recipients expect to spend 24.7 percent of their check, and save 41.6 percent.
A HuffPost/YouGov poll found 71 percent of Americans think the pandemic will have a lasting effect on the country while 87 percent admit it is continuing to influence their lives currently. Some of our buying habits during the pandemic will stay in place. The consumer research tool BOXpoll™ from Pitney Bowes found 42 percent of consumers questioned said they would shop online more once the threat of the pandemic has ended, and one in four said they will shop in-store less.
The vaccine is accelerating recovery
The vaccine rollout is beginning to alleviate concerns about re-engagement. BOXpoll™ found those consumers getting vaccinated say they are more likely to engage in in-person activities, suggesting they expect to feel safer doing things like dining out (13 percentage points higher than consumers not planning a vaccination) and attending concerts (14 percentage points higher). This should buoy franchises and small businesses, boosting their optimism for growth in 2021.
One truth economists like to cite is that the road to recovery is rarely smooth. While the word ‘unprecedented’ has been overused, there is no like-for-like comparison of this global economic situation. To help franchises and small business, we need to do all we can to drive people to get vaccinated where they are able to. We must be mindful of the different variants of COVID-19 and how they respond to vaccines around the world: we are part of a connected global economy, and we can support and learn from each other. We need to ensure that smaller companies have access to credit beyond stimulus pay checks – diverse sources of lending to help them invest and grow in the long-term. And we need to remember that, with time, our economy will stabilize and Main Street will emerge stronger.