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Home Commercial Lending

Illustrating the Impact of the PPP on Small Business Employment

June 22, 2020
Reading Time: 3 mins read
‘We Were Economic First Responders’

Observing social distancing, a couple signs their PPP loan documents in the parking lot of Washington County Bank’s headquarters office in Blair, Nebraska.

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Economic Analysis from ABA

The May employment numbers were a pleasant surprise. Amid the COVID-19 pandemic and the ensuing economic downturn, many economists had predicted unemployment to reach nearly 20 percent in May. In fact, the unemployment rate dropped from 14.7 percent in April to 13.3 percent in May, according to the Bureau of Labor Statistics.

While there are several reasons why unemployment unexpectedly fell, one contributing factor appears to be the Paycheck Protection Program, which provides a strong incentive to small businesses to maintain payrolls and rehire previously furloughed employees. The PPP was designed to keep small business workers employed and preserve the employer-employee relationship during pandemic-driven closures. As of the end of May, nearly 4.5 million PPP loans had been approved at an average size of $114,000.

Banks have been key to this program. The first round of PPP was launched on April 3 and, in a matter of days, bankers rallied to deliver hundreds of billions of dollars in loans to support Americans’ jobs. While the SBA has released limited data for the participants in PPP—limiting the breakout to institutions with assets less than $1 billion—an early study found that banks accounted for 93.7 percent of all round 1 PPP loans and 96.8 percent of the dollar amount. As of May 30, banks with assets less than $1 billion accounted for two-thirds of all PPP lenders and disbursed nearly 1 million loans worth more than $83 billion.

Table 1: Click to enlarge.

Industries that experienced stronger employment gains in May tended to benefit more from PPP, based on ABA analysis of government data on PPP loan recipients and job gains in May (see Table 1). For example, the top five industries in terms of PPP participation as measured by dollars received (construction; professional services; manufacturing; health care; and accommodation and food services) accounted for nearly 75 percent of May job growth.

Industries that received a higher number of PPP loans (e.g., retail, construction, and health care) tended to add more jobs, while industries that received fewer loans (e.g., mining, education services) experienced less job growth (correlation = 0.62). When the “accommodation and food services category (a clear outlier industry that accounted for 10 percent of loan recipients but 40 percent of May job growth)is removed, the correlation strengthens to 0.76.

The graph below illustrates that the same pattern emerges when looking at PPP loan volume in dollar terms: industries that received more PPP funding (e.g., construction and health care) tended to experience stronger job growth (correlation = 0.55). Again, when accommodation and food services is removed, the correlation strengthens to 0.79. While these results do not necessarily mean that the PPP caused the strong May job growth, it is reasonable to assume that PPP lending contributed to increased May payrolls given the strong industry-level correlation coefficient and underlying rationale for the program.

Based on ABA analysis, the PPP appears to have succeeded in recouping some of the small business job loss that occurred in March and April due to the pandemic-fueled economic recession. Importantly, the PPP may have also avoided additional layoffs that would have occurred in April and May in absence of the program, particularly in industries that had greater participation in the program. According to the Census Small Business Pulse Survey, 71 percent of small business respondents across the U.S. had received assistance through the PPP by the end of May. While there is evidence that the SBA could have been designed the program more efficiently, banks have played a critical role in supporting businesses and workers across the country. The program should continue to benefit millions of small businesses who have been adversely impacted by the pandemic’s economic effects in the months ahead.

Tags: ABA Data BankCoronavirusEmployment situationSBA Paycheck Protection ProgramSmall business lending
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