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Small businesses are stuck in a rut despite overall rise in economic optimism

Optimism is rising as coronavirus cases recede, vaccinations increase and economists price in a strong recovery for the U.S. economy through 2021 — but beneath blowout retail sales reports and rising GDP expectations, many Americans are still struggling to stay afloat.

Driving the news: A report released today surveying more than 11,000 small business owners and thousands more employees and consumers by Facebook finds that things had only improved slightly in December for most since its last survey in the throes of the coronavirus pandemic in April.

  • Small business closure rates remained high, with 25% still shut in December, down from 31% in April.
  • 52% reported that they had lower sales in the last 30 days compared to last year, a decrease of just 4 percentage points from April.
  • Of those with lower sales, 44% reported that their sales were lower by at least half in December from the month before, down from 53% in April.

Why it matters: Small businesses "are widely considered the backbone of the U.S. economy," the analysts note in the survey, and the slow recovery in their return to normal is likely a major reason for the depressed U.S. labor market and malaise in consumer confidence.

Watch this space: The January U.S. retail sales report showed a historic 7.4% year-over-year increase in sales, but that was largely concentrated in online sales, sporting goods and cars and furniture, with nonstore retailers seeing a 22.1% gain from January 2020.

  • Conversely, restaurants and bars and clothing stores both saw double-digit annual declines in sales.
  • Electronics stores, gasoline stations, electronics and department stores reported negative readings as well.

Be smart: Large stores, especially those with a strong e-commerce presence, have benefited from the changing nature of shopping during the pandemic, but Walmart CEO Doug McMillon says what he's seen at his stores recently makes clear that Americans are struggling.

  • “We can see in our customer behavior that some customers — as they received this most recent stimulus — are spending it more on basics, more on private brands, smaller pack sizes, things like that as opposed to some of the stimulus dollars that came out earlier last year that were spent more like tax rebate checks, where people were buying televisions and things to entertain themselves at home,” he told CNBC.
  • “There’s a bit of a mix shift now and we think it reflects the fact that customers out there do need some help.”

The bottom line: Of businesses closed in December, the most cited reasons for closure were government restrictions (33%), financial reasons (30%) and reductions in demand (26%).

  • This contrasts to April, when 62% of businesses were closed due to government and health authority orders.

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