The COVID-19 pandemic has had wide-reaching impacts across the world. In addition to the tragic loss of life, the pandemic has created economic hardships for many. Among establishments, small businesses have been disproportionately impacted by the pandemic. The majority of small businesses fall into the service sector, which includes industries such as accommodations and food services; real estate; and retail trade. For reference, the accommodations and food services industry accounted for approximately 40,000 jobs in the Tucson Metropolitan Statistical Area (MSA) in 2019 and has been one of the hardest-hit industries by the pandemic. The Tucson MSA is considered the same geographic region as Pima County.
A recent report by the Brookings Institute notes that revenue for small businesses across the nation has plummeted because of the pandemic. The article shows that between mid-March to the end-of-April small business revenue declined by 25 to 60 percent depending on the location. The loss in revenue for small businesses in Arizona during this time fell near the bottom of the range, but even the low range is a tremendous decline in such a short period.
The Census Small Business Pulse Survey reports weekly data on revenue loss for small businesses, defined as those with less than 100 employees. The latest data reported for the week of September 27th indicated that 27.8% of small businesses in Arizona reported a decline in revenue. The map in Figure 1 highlights the recent declines in revenue for the western states. Arizona small businesses outperformed those in California and Washington during the week and was also slightly better than the national average (-28.9%).
For the Phoenix MSA, 27.8% of small businesses reported declining revenues during the week. Unfortunately, the Small Business Pulse Survey does not include data for the Tucson MSA.
Figure 1: Percent of Small Businesses Experiencing a Decline in Revenue/Sales/Receipts (Week of 09/27/2020)
The Small Business Pulse Survey provides insight into the challenges small businesses are facing during the Coronavirus pandemic. The survey contains detailed information on the sentiment of small business owners in regards to their daily operations. It may prove to be useful to compare the responses over time to gauge the health and recovery of small businesses. Data for Tucson is not available, but exploring the Phoenix MSA and state-level data may provide some insight into what to expect in Southern Arizona. Arizona and the Phoenix MSA posted an improvement in the overall effect of the coronavirus pandemic on small businesses between the weeks of April 26th and September 27th (Figure 2). The overall sentiment index measures the overall effect of the pandemic on businesses. The index ranges between -1 and +1. The more negative the value the larger the negative effect of the pandemic. A value of zero indicates little to no effect, while positive values indicate a positive effect. Note that no data was collected between 06/27/2020 and 08/09/2020.
Figure 2: Overall Sentiment Index
The Federal Reserve Bank of New York reported in an article released in April that only one in five healthy firms had sufficient cash reserves to continue normal operations if they experienced a two-month revenue loss. Further, the Small and Medium Business (SMB) Group found that the smaller a business the harder it was hit by the pandemic and that companies with fewer than 20 employees were most affected. They report this is due to many businesses with fewer than 20 employees lacking capital and cash flow.
The SMB found that not all small businesses have been impacted equally by the coronavirus pandemic. The smaller the business the less likely they are to have the capital and cash reserves to weather multiple months of declining revenue. Figure 3 highlights the percentage of total establishments in Tucson by size. In Tucson, over half the establishments had less than five employees, while nearly 20% of establishments had 5 to 9 employees. An additional 14.6% of establishments had 10 to 19 employees. That means 84.3% of all establishments in Tucson during 2018 had less than 20 employees. In comparison, 85.3% of all establishments in the U.S. had less than 20 employees. The Phoenix MSA had a slightly lower share of establishments with less than 20 employees when compared to Tucson or the nation at 83.6%. The share of establishments with more than 500 employees was incredibly small for the U.S., Phoenix, and Tucson at less than 0.2%. To view the exact share you can hover over the employee range, just above the axis, and the tooltip will appear.
Figure 3: Total Establishments by Size (2018)
Businesses with fewer than 100 employees made up 97.6% of total establishments in Tucson during 2018. That was consistent with the U.S., which had a small business share of 97.5% (Figure 4). There was little variation in the share of small businesses among the western MSAs. Colorado Springs had the highest share at 98.0%, while San Antonio and Phoenix the lowest at 97.0%.
Figure 4: Share of Total Establishments that are Small Businesses (<100 employees)
We find slightly more variation in the share of small businesses among different industries. In Tucson, just over 94% of arts, entertainment, and recreation establishments employed less than 100 workers. That was followed by the manufacturing industry at 94.8%. For the nation, 97.1% of arts, entertainment, and recreation establishments were considered small, while 91.2% of manufacturing establishments had less than 100 employees.
In contrast, nearly all establishments in the real estate and other services sectors employed less than 100 workers in 2018. Other services include establishments that provide services not classified in another industry such as automotive repair and maintenance; personal care services; dry-cleaning and laundry services; pet care services; religious organizations; and grantmaking and giving services, to name a few.
Figure 5: Share of Total Establishments that are Considered Small by Industry (<100 employees)
Stay tuned for a more in-depth MAP article exploring the Small Business Pulse Survey data for Arizona and Phoenix.