Although our investment holdings at Covington consist mainly of large multinational corporations, small businesses make up the backbone of the US economy. The most effective policies for defeating the virus are also the worst for small businesses (absent a vaccine). The mandatory shutdowns created a record number of “temporarily unemployed” workers who were laid off but expected to return to work quickly. To help small businesses deal with this the government developed the PPP program to maintain their employment levels. This program was certainly not without its flaws, but all things considered, helped cushion the blow at least partially. The $600 additional unemployment benefits was also established. This did help buoy consumer spending but not in a proportional way to benefit small businesses as in lockdown most spending had to go through online shops. The $600/week supplement also created the problem of trying to rehire workers quickly as some low wage workers were now making more from unemployment benefits than they were while working.
The good news is that these conditions are starting to dissipate as the economy slowly reopens. The NIFB recently released their June print for the Small Business Optimism showing a quick snap back from its plunge in March and April. This is encouraging but small businesses will continue to be dictated by the course of the virus and responses by our government.
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Covington Investment Advisors, Inc. uses reasonable efforts to obtain information from sources which it believes to be reliable. Any comments and opinions made in this correspondence are subject to change without notice. Past performance is no indication of future results.