Jobs Report, Shutdowns Raise New Red Flags For Economy

The urgent need for a fresh round of federal aid for small businesses was reinforced Thursday by another troublesome government report on the economy, as Congress neared agreement on a new relief package.

The number of weekly applications for unemployment benefits rose to 885,000 in the second week of December, the Labor Department reported, up from 862,000 the previous week.

It was another sign that the economy's recovery is in danger amid rising cases of COVID-19 and states imposing more restrictions on businesses. Consumer confidence is falling and spending is down, just at the time of year that typically is make-or-break for small businesses.

"Heading into 2021, consumers do not foresee the economy nor the labor market gaining strength," said Lynn Franco, senior director of Economic Indicators for the Conference Board. "In addition, the resurgence of COVID-19 is further increasing uncertainty and exacerbating concerns about the outlook."

Federal Reserve Chairman Jerome Powell said the crisis is hurting "small businesses all over the country that have been basically unable to really function.

"They're just hanging on, and they're so critical to our economy," Mr. Powell said on Wednesday. "Now that we can see the light at the end of the tunnel, it would be bad to see people losing their business — their life's work in many cases, or even generations worth of work — because they couldn't last another few months, which is what it amounts to."

The central bank voted to leave its benchmark interest rate unchanged at near zero, and suggested the rate would stay there through 2023.

The year has been brutal on workers and small businesses alike.

The data firm Womply reported recently that 23% of local businesses were closed on Dec. 1, up from 17% at the beginning of August. The survey also found that 41% of all local bars are closed, plus 28% of restaurants and 32% of hair salons and other health and beauty shops.

Almost 100,000 small businesses in the U.S. have closed permanently since the pandemic hit in March, according to a recent Yelp analysis. In a survey of more than 6,000 small-business owners by small business social-networking company Alignable, 42% of respondents said they were in danger of closing permanently in the fourth quarter.

In an Alignable rent poll, 35% of small businesses said they couldn't pay their rent in December, up from 32% in November. Restaurants, beauty salons and travel/hospitality businesses are the hardest hit, but many other sectors are struggling.

Lawmakers were nearing a deal late Thursday that would provide about $330 billion more in small business relief, including $257 billion for the popular Paycheck Protection Program. Through August, businesses received $525 billion in two rounds of PPP aid.

The bipartisan framework would allow businesses that have already received a PPP loan to do so again. It would allow expenses such as personal protective equipment and facility upgrades like air-handling systems.

Negotiators also are likely to make such expenses tax deductible. PPP aid doesn't count as taxable income, but the Internal Revenue Service has ruled businesses can't deduct the cost of expenses that are paid with forgiven PPP money. The new round of aid specifically would allow those expenses to be deducted.

Sen. Ben Cardin, Maryland Democrat, told reporters Thursday that there were some objections to the tax-deductibility provision during negotiations. He said the last-minute hitch surprised him because he believed there was widespread agreement on it.

Some on the left have objected that the tax provision would amount to a $100 billion-plus windfall for mostly wealthy business owners.

"Passing legislation to allow businesses to pay their expenses with taxpayer-provided PPP funds and then to deduct those expenses against their own taxes would be a windfall to high-income business owners — a windfall that would exceed the amounts that Congress is considering in unemployment insurance, rental assistance, food aid, or healthcare," Adam Looney, senior fellow at Brookings, wrote in a blog post.

Lawmakers also were trying to devise what Sen. John Cornyn, Texas Republican, called a "fair formula" to provide money to shuttered performing-arts venues. He said zoos and museums also need aid, but he does not want it to come at the expense of theaters.

Senators in both parties said Thursday they expect still another round of economic aid in the new year, when President-elect Joseph R. Biden takes office.

"We all expect there will be another one with the new administration," Mr. Cornyn said.

Two prominent House Democrats on Thursday urged Treasury Secretary Steven T. Mnuchin to reverse his decision to end the Federal Reserve's emergency lending facilities and return unused CARES Act funding approved in March. Some of the money was intended to prop up small- and mid-sized businesses that weren't eligible for PPP funding.

Rep. James E. Clyburn of South Carolina, chairman of the Select Subcommittee on the Coronavirus Crisis, and Rep. Maxine Waters of California, chairwoman of the Financial Services Committee, said Mr. Mnuchin's decision last month "risks crippling the Fed's emergency lending programs at a time when we should instead be using every tool at our disposal to support our economic recovery."

The economic conditions are becoming dire in states such as Pennsylvania, where about 150 restaurant owners this week openly defied Democratic Gov. Tom Wolf's new order banning indoor dining until at least Jan. 4. The state warned that the owners face possible fines.

"This latest round of business restrictions is hitting small businesses and restaurants particularly hard at the most important time of the year," said Michael Flores, spokesman for the conservative Commonwealth Foundation.

The group noted that the National Restaurant Association surveyed Pennsylvania restaurant owners and found that about half say they could close by next year, while 65% say they're going to cut staff over the next three months.

According to Harvard University's Opportunity Insight Tracker, small business revenue in Pennsylvania was down 28% compared to Jan. 1, 2020, prior to the governor's latest restrictions.

Pennsylvania ranked third in the percentage of establishments that experienced a government-mandated closure, at 30% — behind only Puerto Rico (50%) and Michigan (32%). The national average is 19%, according to the Bureau of Labor Statistics.

As of Wednesday, Pennsylvania had 6,295 COVID-19 patients hospitalized, more than twice as many as during the peak level last spring.

Before the coronavirus erupted in March, weekly jobless claims had typically numbered only about 225,000. The far-higher current pace reflects an employment market under stress and diminished job security for many.

The pace of job creation has diminished steadily — from 4.8 million added jobs in June to 1.8 million in July, 1.5 million in August, 711,000 in September, 610,000 in October and 245,000 in November.

On Wednesday, the Commerce Department reported that retail sales skidded 1.1% in November, the biggest drop in seven months and a troubling sign at the start of the all-important holiday shopping season.

• This article is based in part on wire-service reports.