Why The PPP is Going to Create More Volatility in the Job Numbers Over the Next Three Months

The jobs report yesterday indicated that things are bad, and some point out that they are slightly not as bad as expected, just slightly. Although Oxford Economics identifies that the numbers are slightly more bad than expected if you add in the “absent from work for other reasons.”

Oxford Economics goes on with interesting analysis about the rise in wages (due to a higher loss of low wage workers) and the rise of average weekly hours juxtapositioned against the fall of aggregate weekly hours and aggregate weekly payrolls.

The above is very interesting but not our area of expertise, but our ears are on the street, main street, of Queens, epicenter of US pandemic impact, and what caught my attention was the comment on the rehiring of workers due to the PPP. To be clear, they were NOT saying it is going to be rosy, but that in spite of it the labor market is going to be hard to read.

What I want to add, is that as I speak with many business owners about their businesses, not just advising them on how to change or adapt to the new normal, but on how to use, or even accept the PPP funds several themes have come to my attention.

My interaction with dozens of small business owners indicate that this labor market is going to be made even more volatile by the PPP for the reasons I go into below. Basically, IF business owners hire workers back, or keep existing levels of payroll due to PPP support, it will ONLY be a temporary fix for two months UNLESS things return back to the pre-COVID normal. Reject the premise that it will go back to that normal, and any impact of the PPP is just a delay and a false flag if positivity.

First, the PPP is not a bailout for small business, in fact it may actually hurt many of them. This is because it is required, that to be forgiven, the money must be used to maintain prior payroll levels for a period of 2 months after receiving the money or it must be paid back.

The problem with this is multi-leveled: 1) staff already furloughed are resistant to returning as many are making more on unemployment than working (the appropriate takeaway here may not be that the unemployment benefits are too high…); 2) even if staff return to work, there is no guarantee that in two months when the PPP funding runs out, that they won’t be furloughed a second time (the prevention of this would be that in two months everything is going back to the way it was in February, January, or even December); and 3) even if staff continue on the payroll, that doesn’t mean there is work for them as the business itself has no jobs coming in.

There is even more nuance here, but suffice it to say that the level of uncertainty is great, and the risk to business owners is even greater through the administration of the program.

Secondly, a lack of guidance from the SBA or forgiveness and constantly changing guidence from the SBA during the initial phases has created uncertainty and a loss of trust around future administration and decision making. We have been told that next week will provide some more concrete guidence around forgiveness. That will be good, but comes late for many businesses whose two months spending clocks have already started ticking.

Thirdly, and as a result of the above, many business owners are considering foregoing forgiveness and just accepting the 1% loan, as an acceptable way to hedge against a future cash crunch.

My personal take is that expecting the PPP to positively impact the labor market, or most businesses, is in poor judgement. The PPP is more likely to delay and obfuscate the true impact of the pandemic and therefore create more uncertainty. What business owners need and what employees need are not always in alignment, and in relation to financial support, the PPP puts that into relief.

Roy