As the effects of the COVID-19 pandemic ripple through local economies, city governments find themselves on the front lines of the response, providing guidance for residents and supporting small business. Local officials have introduced more stringent measures to reduce interaction including “shelter in place” orders, with at least 248 million Americans now under orders to stay home. The current climate will severely disrupt the activities of many small businesses, with a particularly large impact on those that lack a sufficient cash buffer. Cities like New YorkSan FranciscoLos Angeles, and Seattle have delayed tax collections and made low or no-interest loans available to small businesses in order to provide more liquidity, but as consumers revise their consumption patterns and reduce travel, small businesses will be affected.

JPMorgan Chase Institute Take:

Policy responses from local governments won’t be able to match the scale of federal relief, but local officials have the advantage of being able to target their efforts to the communities they serve. JPMorgan Chase Institute research has identified city- and community-level differences in the financial health of the small business sector that may help local officials more effectively target their responses. While most small business lack a sufficient cash buffer (50 percent of small businesses have less than 15 cash buffer days), low levels of liquidity are even more pronounced for businesses in some communities. Those with few college graduates or low home values have only 11 cash buffer days, and in 89 percent of majority Hispanic communities and 95 percent of majority Black communities, most small businesses operate with a cash buffer of two weeks or less. Impacts on local businesses are also likely to be uneven across the socioeconomic spectrum. JPMorgan Chase Institute research shows that low-income residents typically travel farther from home when shopping. Businesses that serve these low-income customers may be more severely affected as travel is curtailed. Greater job losses among these residents would likely further constrain their spending.

Moreover, local businesses near downtown and other business districts may be disproportionally impacted as people stop going to work. While JPMorgan Chase Institute research generally shows that lower-income residents travel farther to make purchases than higher-income residents, purchasing patterns can differ meaningfully by neighborhood. For instance, on the South Side of Chicago, higher-income residents make purchases farther away than their lower-income neighbors, likely reflecting shopping near workplaces downtown. This will decrease as people stop going into the office. In contrast, overall changes in travel patterns have the potential to shift demand from these businesses near workplaces towards those near home. Consumers often shop at multiple stores on the same trip to minimize the time and travel costs of shopping. Recent research using JPMorgan Chase Institute data shows that breaking a trip-chain further shifts remaining local spending to businesses near customers’ homes. However, even when shopping near home, consumers may maximize one-stop-shopping at bigger businesses rather than shopping at smaller specialized stores.

This reinforces the need for local policymakers to target their relief efforts to small businesses and neighborhoods that require more support due to COVID-19’s impacts on the willingness or ability of consumers to travel. Essential efforts to limit social distancing could be paired with technical assistance for small businesses regarding the organization of remote work, online service delivery, contactless goods delivery, or other best practices that are responsive to these changes in consumer demands. Additionally, local officials should consider targeting efforts to business in majority-minority and low home value communities, as small businesses in these communities have the least liquidity and may be more significantly impacted by COVID-19. Federal policymakers also have the opportunity to channel resources through CDFIs, small business support organizations, and other institutions that have capacity to respond to these local needs. Finally, policy choices that support microbusinesses in addition to larger small businesses may be especially helpful in ensuring that small business relief efforts reach the broadest range of communities.


Chris Wheat

President, JPMorganChase Institute