Small Business Optimism Rises Amid Coronavirus Woes: 5 Picks
Zacks Investment Research | Jul 15, 2020 06:29AM ET
Small business organizations’ confidence climbed in June for two successive months as the reopening of the U.S. economy outpaced concerns about the second wave of the deadly cornavirus and heightened geopolitical conflict between the United States and China.
Meanwhile, in the past month, several small-cap (market capital
Small Businesses Optimism Rises in June
On Jul 14, the National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index rose to 100.6 in June from 98 in May. The index came in at 90.9 in April. However, the index is yet to reach its pre-pandemic level of 104.5 in February.
Eight of the 10 components of the index improved last month while two declined. Per the report, the majority of owners is optimistic about future business conditions and expects the ongoing recession to be short-lived.
Notably, real sales expectations for the next three months increased 37 points to a net 13%. Outlook for business activities for the next six months grew 5 points to 39%. Present situation expansions index rose 8 points to a net 13%. Plans for the hiring index grew 8 points to a net 16%.
Small Businesses Are Vital
Small corporates create a significant amount of jobs in the U.S. economy. More than 50% of the newly created jobs in the private sector originate here. These people constitute a large part of customers for big businesses.
Moreover, small companies are a major part of the supply chain management systems of large companies for innovative and technologically superior inputs. Additionally, small businesses more often than not form a vital cog in corporate America's customer base.
Finally, owing to their predominantly domestic-focused business strategy, small business organizations are generally immune to any external shocks like geopolitical conflicts.
Unprecedented Fiscal and Monetary Stimulus
The Trump administration's decision to provide a massive restructuring package to small businesses greatly helped in reviving this space from coronavirus-led economic devastations. On Mar 27, the government released a relief package of $349 billion in forgivable loans to small businesses, provided the firms maintain their payrolls.
Moreover, in April, the U.S. government approved a $480 billion coronavirus relief package with funding earmarked for devastated small businesses and overwhelmed hospitals, and to ramp up testing nationwide during the pandemic.
On Jun 15, the Fed initiated a lending program of up to $600 billion to small and mid-sized businesses. Under this program, businesses with up to 15,000 employees or revenues up to $5 billion will get loan in the range of $250,000 to $300 million for five years in floating rate. The central bank will encourage retail banks to lend out to struggling companies and will purchase 95% of each loan extended under the facility.
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