Middle Market Industry Projections
Due to the current COVID-19 pandemic, a stay-at-home directive has been placed on a large portion of the population. This impacts the middle-market industries in various ways. Below is a summary of key findings on its impacts (other than the drops in values due to the stock market crash) on the industries and future recovery measures.
Overview Impact of Stay-at-Home Orders
- Many states have issued state-at-home orders for "non-essential" business. Sectors exempted from the orders include--but are not limited to--healthcare, maritime (which the State of California, for example, considers as essential business of transportation and logistics), agriculture, energy and some key technology business.
- Although these sectors are exempted, the stay-at-home orders impact about half of the U.S. population. This means their clients and suppliers are impacted, which will impact their business.
- If we were to look at the lockdown impacts on China as a preview to what may be coming to the United States, declines in many sectors are to be expected. People plan to restrain their consumption due to bankruptcies and job losses.
- Research on small and medium enterprises in China finds that 30% of them have seen a drop of more than 50% of their income and with their current cash flows a third could remain open for only one month. While the exact statistics for U.S. firms are not yet known, this research could give a sense of what a lockdown means for U.S. firms.
- Experts forecast a contraction in U.S. GDP in the second quarter.
- A new law in the United States requires companies, including middle-market firms, to provide sick leave benefits to workers impacted by COVID-19.
- While states exempt "essential" construction business such as plumbers and emergency repairs, many construction projects are put on hold. Whether construction--and which category of it--is considered "essential" varies depending on jurisdiction.
- Boston, for example, announced a two-week halt to construction projects and later extended the suspension "indefinitely." The impact of this could range from delays in contractor payments to insurance issues due to extended construction periods that need coverage.
- Washington State has suspended construction statewide citing that it is impossible to meet CDC safety guidelines while maintaining construction.
- Legal complications may arise due to unfulfilled contract obligations. It is unclear whether COVID-19 could be used as a reason to release companies from certain obligations.
- While working from home is nothing new to tech companies, event cancellations and travel restrictions mean fewer business development opportunities.
- Smartphone production is projected to decline by 12% in the first quarter due to its labor-intensive nature. This means that many middle-market firms in related business will likely see a hit.
- Disruptions in supply chains will lead to slower production. Ultimately, this could lead to cash flow issues, particularly for undercapitalized firms.
- Some companies have already begun laying off employees. For example, Puppet, a tech company based in Oregon, laid off less than 10% of its employees.
- However, a study on COVID-19 impacts by industry finds that, while come tech companies suffer due to supply chain disruptions, software companies are seeing increases in demands due to increases in remote work.
- A study on COVID-19 impacts on IT spending forecasts that the tech market growth will slow to around 2% in 2020. Tech consulting services will not grow and could decline up to 5%.
- Supply chain disruptions have hit the solar energy industry very hard, resulting in delays in project deliveries. The delays could violate the federal investment tax credit terms, causing companies to lose eligibility for tax incentives.
- Stay-at-home measures may also disrupt the labor force in construction of the solar projects.
- A forecast by a Norwegian firm suggests that COVID-19 will impact all segments of renewables market across the globe. Restrictions on movement will impact construction timeframes, which could cause declines in growth.
- Nuclear power plants are at risk of staff shortages. The U.S. Nuclear Regulatory Commission states that it will close plants that are unable to appropriately staff their facilities.
- The most immediate impact of a stay-at-home directive for insurance companies is alternative work arrangement. This requires new cybersecurity protocols to ensure safe exchange of confidential information while employees working remotely.
- Claims adjusters, whose jobs often require travels, will face difficulties in performing their duties, which sometimes require onsite examination.
- If the lockdown leads to a recession, insurance industry is typically among the most affected.
- A report by the International Food Policy Research (IFPR) finds that there is not yet a threat to staple crops in terms of supplies and prices although transportation and distribution disruptions may be possible.
- Since COVID-19 is not known to impact farm animals, the report also finds that there is no risk to the livestock sector.
- Farmers and ranchers maintain that their farms will continue to work. With this, it should be expected that the feed and seed sector also maintains work. However, the Farmer Bureau stresses the importance of access to technology and labor.
- As required by a new law, employees affected by COVID-19 are entitled to paid sick leave. This includes those working in middle-market industries.
- The law also requires companies with fewer than 500 employers to offer 10 weeks for paid leave for employees who have to care for children affected by school or childcare facility closures.
- FinFit, a financial technology firm, has launched a coronavirus employee resource center and made its early wage access service free.
- A key factor in recovery is perseverance during the crisis. In doing so, they need the support of their banks. Research on middle-market companies finds that businesses need three things from their banks and account officers: communication, credit and flexibility.
- The same study finds that at the very least these companies expect reassuring communication. Unfortunately, only 37% were contacted directly by their primary contacts regarding the impacts of COVID-19 on their businesses.
- Companies will also maximize the use of government support policies. The $2 trillion stimulus package provides emergency loans to small and big businesses in the United States.
- Some industries may become more technologically innovative. For example, due to COVID-19, telehealth services are now covered by Medicare. With the stay-at-home directive, federal guidelines have changed to allow more practitioners to use telehealth.
- Brand messaging is very important, not only after the crisis, but also during the crisis. A report on brand messaging during the outbreak in China finds that brands have maintained connections throughout the outbreak through online marketing.
In order to carry out this research, the team began with an overview of the impacts of the stay-at-home orders. Since the orders are still early on in many places in the United States, there has not been any data to estimate the economic impacts. In order to understand what to be expected, we looked at the impacts on middle-market firms in China as it is the first country to undergo a lockdown. Keeping in mind that there are differences between China and the United States, this only served as a broad picture. Afterwards, we looked at stay-at-home orders to screen for industries likely to be affected. Although certain industries are exempted, we looked into how stay-at-home orders could still impact their business. As for recovery measures, we looked at recommendations provided by industry experts. We assumed that these companies would look into expert insights for these measures.