Many Yelp Business Closures Are Permanent, Denting Hopes of Sharp Recovery

A new report from the directory Yelp says 41 percent of the nearly 140,000 current business closures are indicated by the owners to be permanent, adding to doubts about the prospect of a V-shaped economic recovery from the pandemic-induced crisis.

Yelp's Local Economic Impact Report, published on Thursday, said around 20 percent of the 175,000 businesses that closed in March as the pandemic took hold have reopened. The retail sector was hardest-hit and restaurants suffered amid strict lockdown rules in many states.

"Our data shows the largest spikes of permanent closures occurred in March, followed by May and June, indicating that the businesses that were already struggling had to permanently close right away and the businesses that were trying to hold on, but unable to weather the COVID-19 storm, were forced to shutter in recent months," the Yelp report said.

Early on during the pandemic, many economists were optimistic about the chances of a sharp recovery. There was hope of businesses and workers essentially picking up where they left off once the pandemic subsided, with stimulus packages helping to bridge the gap between.

But weaknesses in the early federal and state government responses to the unfolding pandemic aided the spread of infection, and the U.S. has struggled to get on top of the disease, becoming the global epicenter of the health crisis and causing more than 126,000 deaths so far.

Now, during a period of reopening, which health experts warned was happening too soon, infections are on the rise again sharply in some states, such as Texas and Florida, causing officials to pause their efforts to return to some sense of normality.

The search for a COVID-19 vaccine is making progress, but the various trials are still some distance from having a market-ready product lined up for approval by regulators. That may not happen until next year⁠—if at all.

China, where the new strain of coronavirus was first reported in its central city of Wuhan, has put its capital Beijing back under lockdown after the emergence of dozens of new cases, sparking concern that the much-feared second wave had arrived.

As daily case numbers accelerate in some areas of the U.S., there is also talk of a second wave arriving before the first has even finished. If the situation worsens significantly over the coming days and weeks, a return to lockdowns is likely⁠—and more economic pain would follow.

This week, the number of new jobless claims came in at 1.48 million, worse than analysts were expecting. More than 47.3 million Americans have filed unemployment claims since March after losing jobs due to the pandemic.

Mark Hamrick, Bankrate.com's senior economic analyst, said the American job market is "mired in uncharted and heartbreaking territory" and the number of unemployment claims shows millions are "still in dire straits."

"While the financial crisis and Great Recession over a decade ago was considered the worst since the Great Depression, the recent economic shock and continuing fallout have left it in the proverbial dust in terms of horrific benchmarks," Hamrick said.

"As we prepare to put the disastrous second quarter and its expected annualized contraction of an estimated 30 percent behind us, an uncertain outlook remains.

"Among the variables: The slippery mix of the mysterious behavior of the COVID-19 virus and uneven responses at the national, state and local levels across the country."

Yet some still believe there will be a V-shaped recovery⁠—with caveats.

"I do think we're going to see a sharp V to start with, but it's very open-ended as to what kind of economic friction we're going to see as we get through the end of the year and into 2021," Goldman Sachs CEO David Solomon said at the Bloomberg Invest Global conference on Wednesday.

"I think it's going to take quite a while for us to get back to where we were before this started."

Larry Kudlow, director of the White House national economic council, told Fox Business Network on Thursday that he still sees a strong V-shaped recovery. "First point is, the unemployment claims, which is important, that's down for the 12th straight week. It's down 12 straight weeks," Kudlow said.

"And also I would say, continuing claims, which is a very good leading indicator of what the jobs report's gonna be, those fell by 767,000. So, on those two points, I think the strong-V recovery is right still there and I'm pretty hopeful once we get the next set of jobs reports, based on these weekly numbers."

Research published by State Street and MIT, however, puts a U-shaped recovery as the likeliest outcome, followed by a "shallow V" and then a V.

They gave a U-shaped recovery a 30.1 percent likelihood, and described it as: "An economy spends a longer time at the bottom of the recession, then gradually rebounds over two years."

The shallow-V had a 24 percent likelihood and V had 21.5 percent. The researchers reportedly looked at real GDP growth and inflation over the past three years, then applied the Mahalanobis distance metric to calculate the probabilities.

Coronavirus New York Pandemic Economy Recovery
People walk on a street near Herald Square on June 25, 2020 in New York City after businesses opened their doors to returning waves of workers. Angela Weiss/AFP/Getty Images