Sunday, May 19, 2024

A vacant commercial space in Central Square. (Photo: Marc Levy)While the pandemic allowed large businesses to expand operations and grow their scope, it crippled many smaller local businesses. There is a wealth of data on these effects nationwide:

  • Between February and April 2020, the number of active business owners in the United States sank by 3.3 million, or 22 percent.
  • The World Economic Forum found that 34 percent of America’s small businesses are still closed due to the Covid-19 pandemic.
  • A survey by small business intelligence firm UpCity discovered that 57 percent of small businesses were forced to cut their spending during the pandemic.

All of these statistics reflect national averages, and may not speak to the challenges faced by business owners in Cambridge and Boston. Furthermore, they don’t account for business owners of different sectors or backgrounds.

Over the past few months, though, Cambridge Local First and the Harvard Data Analytics Group collaborated to identify how business owners in Cambridge were affected by the pandemic. The goal: pinpoint problem areas for CLF’s member businesses and provide the organization with guidance on how to resolve them. The results, though largely expected, still presented disappointing news.

The main areas for which the group generated insights were consumer spending, business revenue and restaurant-specific grants. Using data from Harvard and Brown’s Opportunity Insights Economic Tracker, it plotted Massachusetts consumer spending from Jan. 1, 2020, to June 13, 2021. Including a pre-pandemic starting point helped contextualize the findings, as did overlaying the graph with important public health events. These events included school closings, stay-at-home advisories, stimulus payments and capacity restrictions that affected Cambridge businesses.

With Opportunity Insights, the group was able to separate businesses by various characteristics and compare consumer spending across those categories. First, it observed differences across merchant category codes, namely grocery, home improvement, sports, health, apparel, food, arts and transportation centers. The graph showed that food stores and home improvement centers remained strong over the 1.5-year period; sporting goods, health care and apparel experienced dips in spending followed by quick recovery; and food services, entertainment and transportation had slower and weaker recovery. Generally, the behavior of these sectors during the pandemic aligned with national trends over the same period.

Next, the group compared spending across residents of ZIP codes categorized by median household income. It found that all quartiles had similar decreases in spending when the pandemic started and strong increases after getting stimulus payments. Quartiles 1 and 2, the ZIP codes with median incomes on the lower half of the distribution, recovered more strongly as a proportion of their initial spending and increased spending more in response to stimulus payments as compared to Quartiles 3 and 4. Also compared was spending on remote and in-person services, as well as spending on durables and non-durables. In short, spending on all services decreased in March 2020 and slowly renormalized, excluding durable goods, which actually saw sharp increases in consumer spending at the pandemic’s onset.

To complement observations about consumer spending and demand, the group analyzed business revenue data to understand their pandemic response. It used small-business opening and revenue data from Womply from Jan. 10, 2020, to June 30, 2021. To generate sector-specific insights, data was separated into four groups: education and health services; leisure and hospitality; professional and business services; and transportation. Due to strict stay-at-home advisories, many businesses across groups closed their doors. Professional-services businesses approached their pre-pandemic opening numbers at the end of the 1.5-year period, while leisure and hospitality openings declined steadily over the entire period. The same groups were used to analyze small business revenue, and all groups experienced similar declines with the exception of professional services, which nearly exceeded its pre-pandemic revenue by July 2021.

The Restaurant Revitalization Fund is a grant issued by the U.S. Small Business Administration. Because it is a national program, the data set analyzed provided data on grants given to restaurants in all 50 states. On average, it was found that Massachusetts restaurants got the greatest grant amounts, trailing only Washington, D.C. For all analysis hereafter, the group compared national averages for different groups of businesses in Cambridge and Massachusetts more broadly. The three main groups observed were socially and economically disadvantaged businesses, women-owned businesses, and Historically Underutilized Business Zones (otherwise known as HUB-Zones). In Cambridge, large disparities exist between grant amounts for economically disadvantaged and women-owned businesses as compared with their counterparts. The difference is about $250,000, on average. These disparities also exist between HUB-Zone businesses and their counterparts, but in the amount of about $50,000 on average. For all groups, these disparities shrink when state and national levels are examined, which is standard as the sample size increases.

The data confirmed that the national trends are also true on a local level: Small businesses are suffering. Though some sectors and groups of businesses are beginning to find their footing again, it is imperative that organizations such as Cambridge Local First and Cambridge governing bodies offer support to businesses in the hospitality space, as well as women and economically disadvantaged business owners. The strength of our state and national economies build directly upon the strength of local businesses. In the search for a new normal, uplifting small businesses should be at the forefront.

Chelsea Baker is a member of the Harvard Data Analytics Group.