Markets
Mapped: The State of Small Business Recovery in America
Mapped: The State of Small Business Recovery in America
In the business news cycle, headlines are often dominated by large corporations, macroeconomic news, or government action.
While mom and pop might not always be in focus, collectively small businesses are a powerful and influential piece of the economy. In fact, 99.9% of all businesses in the U.S. qualify as small businesses, collectively employing almost half (47.3%) of the nation’s private workforce.
Unfortunately, they’ve also been one of the hardest-hit sectors of the economy amid the pandemic. From the CARES Act to the new budget proposal, billions of dollars have been allocated towards helping small businesses to get back on their feet.
Small Business Recovery in 50 Metro Areas
During the pandemic, many small businesses have either swiftly pivoted to survive, or struggled to stay afloat. This map pulls data from Opportunity Insights to examine the small business recovery rate in 50 metro areas across America.
So, has the situation improved since the last time we examined this data? The short answer is no—on a national scale, 34% of small businesses are closed compared to January 2020.
San Francisco is one of the most affected metro areas, with a 48% closure rate of small businesses. New York City has spiralled the most since the end of September 2020.
| U.S. Metro Area | % Change in # of Small Businesses Open (As of Sep 25, 2020) | % Change in # of Small Businesses Open (As of Apr 23, 2021) | 7-month change (p.p.) |
|---|---|---|---|
| Albuquerque | -23% | -34% | -11 |
| Atlanta | -26% | -35% | -9 |
| Austin | -32% | -38% | -6 |
| Bakersfield | -31% | -35% | -4 |
| Baltimore | -28% | -35% | -7 |
| Boston | -33% | -47% | -14 |
| Charlotte | -18% | -28% | -10 |
| Chicago | -27% | -38% | -11 |
| Cleveland | -26% | -34% | -8 |
| Colorado Springs | -23% | -28% | -5 |
| Columbus | -21% | -28% | -7 |
| Dallas-Fort Worth | -21% | -28% | -7 |
| Denver | -25% | -29% | -4 |
| Detroit | -28% | -38% | -10 |
| El Paso | -25% | -26% | -1 |
| Fresno | -26% | -30% | -4 |
| Honolulu | -41% | -25% | +16 |
| Houston | -30% | -34% | -4 |
| Indianapolis | -25% | -34% | -9 |
| Jacksonville | -18% | -28% | -10 |
| Kansas City | -15% | -26% | -11 |
| Las Vegas | -22% | -30% | -8 |
| Los Angeles | -27% | -34% | -7 |
| Louisville | -23% | -35% | -12 |
| Memphis | -21% | -24% | -3 |
| Miami | -23% | -34% | -11 |
| Milwaukee | -22% | -27% | -5 |
| Minneapolis | -21% | -29% | -8 |
| Nashville | -21% | -26% | -5 |
| New Orleans | -45% | -39% | +6 |
| New York City | -21% | -42% | -21 |
| Oakland | -32% | -35% | -3 |
| Oklahoma City | -26% | -35% | -9 |
| Philadelphia | -24% | -31% | -7 |
| Phoenix | -19% | -31% | -12 |
| Portland | -34% | -36% | -2 |
| Raleigh | -16% | -29% | -13 |
| Sacramento | -33% | -34% | -1 |
| Salt Lake City | -18% | -23% | -5 |
| San Antonio | -34% | -40% | -6 |
| San Diego | -28% | -38% | -10 |
| San Francisco | -49% | -48% | +2 |
| San Jose | -35% | -44% | -9 |
| Seattle | -28% | -30% | -2 |
| Tampa | -22% | -40% | -18 |
| Tucson | -27% | -28% | -1 |
| Tulsa | -23% | -32% | -9 |
| Virginia Beach | - | -36% | 0 |
| Washington DC | -37% | -47% | -10 |
| Wichita | -15% | -28% | -13 |
Data as of Apr 23, 2021 and indexed to Jan 4-31, 2020.
On the flip side, Honolulu has seen the most improvement. As travel and tourism numbers into Hawaii have steadily risen up with lifted nationwide restrictions, there has been a 16 p.p. increase in open businesses compared to September 2020.
Road to a K-Shaped Recovery
As of April 25, 2021, nearly 42% of the U.S. population has received at least one dose of a COVID-19 vaccine. However, even with this rapid vaccine rollout, various segments of the economy aren’t recovering at the same pace.
Take for instance the stark difference between professional services and the leisure and hospitality sector. Though small business revenues in both segments have yet to return to pre-pandemic levels, the latter has much more catching up to do:
This uneven phenomena is known as a K-shaped recovery, where some industries see more improvement compared to others that stagnate in the aftermath of a recession.
The Entrepreneurial Spirit Endures
Despite these continued hardships, it appears that many Americans have not been deterred from starting their own businesses.
Many small businesses require an Employer Identification Number (EIN) which makes EIN applications a good proxy for business formation activity. Despite an initial dip in the early months of the pandemic, there has been a dramatic spike in EIN business applications.
Even in the face of a global pandemic, the perseverance of such metrics prove that the innovative American spirit is unwavering, and spells better days to come for small business recovery.
Markets
3 Reasons Why AI Enthusiasm Differs from the Dot-Com Bubble
Valuations are much lower than they were during the dot-com bubble, but what else sets the current AI enthusiasm apart?
3 Reasons Why AI Enthusiasm Differs from the Dot-Com Bubble
Artificial intelligence, like the internet during the dot-com bubble, is getting a lot of attention these days. In the second quarter of 2023, 177 S&P 500 companies mentioned “AI” during their earnings call, nearly triple the five-year average.
Not only that, companies that mentioned “AI” saw their stock price rise 13.3% from December 2022 to September 2023, compared to 1.5% for those that didn’t.
In this graphic from New York Life Investments, we look at current market conditions to find out if AI could be the next dot-com bubble.
Comparing the Dot-Com Bubble to Today
In the late 1990s, frenzied optimism for internet-related stocks led to a rapid rise in valuations and an eventual market crash in the early 2000s. By the time the market hit rock bottom, the tech-heavy Nasdaq 100 Index had dropped 82% from its peak.
The growing enthusiasm for AI has some concerned that it could be the next dot-com bubble. But here are three reasons that the current environment is different.
1. Valuations Are Lower
Stock valuations are much lower than they were at the peak of the dot-com bubble. For example, the forward price-to-earnings ratio of the Nasdaq 100 is significantly lower than it was in 2000.
| Date | Forward P/E Ratio |
|---|---|
| March 2000 | 60.1x |
| November 2023 | 26.4x |
Lower valuations are an indication that investors are putting more emphasis on earnings and stocks are less at risk of being overvalued.
2. Investors Are More Hesitant
During the dot-com bubble, flows to equity funds increased by 76% from 1999 to 2000.
| Year | Combined ETF and Mutual Fund Flows to Equity Funds |
|---|---|
| 1997 | $231B |
| 1998 | $163B |
| 1999 | $200B |
| 2000 | $352B |
| 2001 | $63B |
| 2002 | $14B |
Source: Investment Company Institute
In contrast, equity fund flows have been negative in 2022 and 2023.
| Year | Combined ETF and Mutual Fund Flows to Equity Funds |
|---|---|
| 2021 | $295B |
| 2022 | -$54B |
| 2023* | -$137B |
Source: Investment Company Institute
*2023 data is from January to September.
Based on fund flows, investors appear hesitant of stocks, rather than overly exuberant.
3. Companies Are More Established
Leading up to the internet bubble, the number of technology IPOs increased substantially.
| Year | Number of Technology IPOs | Median Age |
|---|---|---|
| 1997 | 174 | 8 |
| 1998 | 113 | 7 |
| 1999 | 370 | 4 |
| 2000 | 261 | 5 |
| 2001 | 24 | 9 |
| 2002 | 20 | 9 |
Many of these companies were relatively new and, at the peak of the bubble in 2000, only 14% of them were profitable.
In recent years, there have been far fewer tech IPOs as companies wait for more positive market conditions. And those that have gone public, the median age is much higher.
| Year | Number of Technology IPOs | Median Age |
|---|---|---|
| 2020 | 48 | 12 |
| 2021 | 126 | 12 |
| 2022 | 6 | 15 |
Ultimately, many of the companies benefitting from AI are established companies that are already publicly traded. New, unproven companies are much less common in public markets.
Navigating Modern Tech Amid Dot-Com Bubble Worries
Valuations, equity flows, and the shortage of tech IPOs all suggest that AI isn’t shaping up to be the next dot-com bubble.
However, risk is still present in the market. For instance, only 33% of tech companies that went public in 2022 were profitable. Investors can help manage their risk by keeping a diversified portfolio rather than choosing individual stocks.
Explore more insights from New York Life Investments.
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