Since S&P Global Economics' last report on the Paycheck Protection Program (PPP), the Small Business Association (SBA) has released more information on total loan approvals, broken down both by industry and state. In our view, the breadth of industry reach seemed to improve with the second round of PPP. While there is no data available on how canceled loans were later lent, the first SBA report on the first round of loan approvals showed average loans that were larger in size and more concentrated in states and industries less affected by social distancing measures. We also found that later loan approvals, after the first round, likely didn't offset the concentration of the first round of loans to industries less affected by social distancing.

In the new SBA report, released on May 30, there was no breakdown on loan approvals by round and no information on loan cancelations for the PPP in either round. Given limited financial data on the small businesses awarded a loan, we focused our analysis on the jobs initiative of the PPP program. The industry and state data are aggregates, with no details on the businesses approved for the loans--the size of the workforce and balance sheet, for example. We also recognize that a business's pre-virus financial health "starting point" should also be considered when determining decisions to lay off workers.

The new report provides data on aggregated PPP loan approvals, with some additional detail on the second round of PPP. Unfortunately, the report did not provide detailed industry data by PPP round. We attempted to parse out the industry impact from the second round of PPP by extracting the loan approval data by industry in the first round as reported by the SBA (approvals through April 16, 2020). We used the April 16 SBA PPP report on approved loans in round one as a base to determine the breadth and scope of the second round of loan approvals, including subsequent cancelations and adjustments to the first round. For ease in comparison, we call the two groupings PPP.1 and post-PPP.1.

The SBA notes that the total loan approvals reported reflects both rounds of PPP funding and cancellations through the report date. (Cancellations include duplicative loans, loans not closed for any reason, and loans that have been paid off.) Since details are not provided on cancelations for reach round, our analysis is not a complete picture and can only be considered a proxy of the industry impact. In addition, subsequent loan cancellations or payoffs would alter the overall share of loans approved.

By The Numbers

The PPP has approved a total of $510.2 billion loans as of May 30. The average loan size for total PPP approvals was $114,000, with 4.475 million loans approved. The average loan size for PPP.1 was almost twice that size, at $206,000, with 1.66 million loans approved. With approximately 30 million small businesses in the U.S., this was apparently not enough to meet significant small business demand. PPP.1 funds distributed over $342 billion in less than two weeks, starting April 3, according to the SBA April 16 report. According to Chamber of Commerce/Met Life May survey conducted April 21-27, of the small businesses who applied for a PPP loan, approximately one-third said that they received a loan. For those who applied and did not receive a loan, the biggest reported issue was that the loan funds were gone before they could apply. For those who reported that they tried to apply but were unsuccessful, 39% reported that the loans were gone before they could apply. The second PPP round, announced on April 24 authorizing an additional $310 billion, started to address these problems.

Roughly 85.5% of the total PPP loans were for $150,000 and under, and 26.4% of overall loan dollars were for loans in this range. Almost 80% of the total loan count was for loans $100,000 and under (64.6% was for loans $50,000 and under). About 0.7% (29,697 loans) were for amounts larger than $2 million (receiving 21.2% of the total loan money in PPP). For comparison, less than 1.57% of the total number of PPP.1 loans were for amounts larger than $2 million. However, those businesses getting more than $2 million received 27.8% of the loan money in the PPP.1, which had likely limited the program's ability to reach the many small businesses in need. The more bite size loan approvals seem to be more fitting given 98% of small business have fewer than 20 workers or no workers on its payrolls, according to the SBA "2019 Small Business Profile" (see "The Paycheck Protection Program Impact On Jobs: (More) Help Wanted," May 27, 2020).

Those PPP.1 loans that were cancelled may have followed the approach of PPP.2, and as a result would have been split into smaller loans, possibly reaching industries and states with more need.

We found that the division of haves and have-nots relative to COVID-19-related claims still stand. States with the highest COVID-19-related increase in continuing jobless claims (Feb. 8 to May 30) ended up seeing the smallest dollar amount of the total approved loans through May 30 (see chart 3 in appendix). In stark contrast, those states with the lowest claimants (and lowest unemployment rates) ended up seeing the the largest dollar amount of approved loans.

Seven of the 10 states that received the smallest dollar amount of loans had the 10 highest insured unemployment rates in the country as of May 23 (see table 1). Nevada, with the largest COVID-19-related increase in its unemployment rate (and the highest unemployment rate in the U.S.), saw the smallest amount of PPP loan approvals relative to total COVID-19 claimants, at just over 12,900.

Table 1

On the other end, states with fewer continuing jobless claims received relatively larger dollar amounts of loans approved per insured claimant. South Dakota stands out as the largest beneficiary of dollar loan approvals relative to its continuing claims, with over $100,000 per insured claimant.

That said, based on limited data, it still appears that the second program has improved on the first. The second round of PPP has already approved a lot more smaller loans than the first, and the approved loans appear to reach more businesses, with loans less concentrated in a few states when normalized by several job indicators. Moreover, states with the highest levels of unemployment have moved up the ladder, receiving a greater share of loans than what was seen in the first round.

While there has been improvement in the second round's reach, its smaller size relative to the total amount of PPP.1 loans allocated meant that it was not enough to reverse the industry and state concentration. The overall size of the second round of loans, at $310 billion, was smaller than the first, at $342 billion. Moreover, the total loans approved in the SBA May 30 report, at $510 billion, indicates that not all of the loans in the second round have been reported as approved. So, although some solid improvements in industry and state reach were made in the second round, at this point, it does not appear have been enough to offset the overall PPP.1 loan concentration in states and industries that were less affected, it terms of jobs loss.

Total PPP Approvals: Industry Impact

We define industries less directly affected by social distancing to include most goods-producing industries and some services industries. Generally, service industries are most affected by social distancing measures (see the footnote in table 2). We found that 58% of the total loans approved in dollars for PPP went to industries less affected by social distancing (see table 2). While these industries faced significant job losses--accounting for 6.6 million jobs lost from March through May (33.9% of all jobs lost)--industries more closely impaired by social distancing saw losses that were much higher. (However, industries less directly affected by social distancing still suffer secondary losses, which factored into their decisions to lay off workers.) That suggests that the more bite-sized post-PPP.1 loan approvals at the industry level did not offset the concentration of PPP.1 loans to industries less affected by social distancing. The total PPP loans approved to industries less affected by social distancing, at 58%, was only slightly lower than the 59% share for less affected industries in the first round of PPP loans.

Table 2

Goods-producing industries captured 26% of total dollar loans authorized by PPP. These industries accounted for only 1.9 million (10%) of the 19.6 million total jobs lost from March to May. The energy industry is a special case, given the quarantine-driven drop in prices. Though the direct impact on jobs for small businesses in the mining sector, which includes energy, so far has been modest with 77,000 jobs lost, it captured 0.9% of total loans (see chart 1).

Chart 1

Services we consider to be moderately affected by social distancing, such as information services and financial industries, captured around 32% of the program's total loan dollars through May 30. Though moderately affected by social distancing, they still accounted for 4.7 million (23.9%) of the total jobs lost from March to May. The knock-down effect from COVID-19 recession forced two industries to shed jobs, explaining over half of the jobs lost. Government services saw the largest job losses with 1.6 million, or 8% of total jobs lost, March through May but received 0.34% of total loans approved with little change during PPP.1 and post-PPP.1. Administrative and waste service also saw large job losses of 1.5 million, or 7.8% of total jobs lost, but garnered 6.8% of the pie post-PPP.1, up from 4.47% during the first round.

The other industries in the group fared much better. Wholesale trade lost 370,000 jobs but received 5.5% share of the total PPP loans. Information services and financial industries lost just 316,000 and 37,700 jobs, respectively, and received the most modest shares of 1.8% and 2.39% in total PPP loans, with modest differences in relative loan approvals during PPP.1 and post-PPP.1.

In contrast, the slice of the pie left for more severely impaired service industries barely changed. Service industries we consider significantly hurt by social distancing accounted for an unprecedented 13.1 million jobs lost from March through May (66.8% of the 19.6 million lost) but received just 42.6% of the program's total loans approved (these industries received 41.6% in the first round). Of those industries more significantly affected by social distancing measures, leisure and hospitality and retail stand out as suffering the most job losses, with 9.0 million jobs, or 46.3% of the total. However, they only received 18% of the program's total loans approved through May 30.

Accommodations and food services, in particular, lost 5.74 million jobs (29.4% of total jobs lost) in from March to May but received just 8.2% of the program's total loans approved through May 30 (see table 4). Retail and health care and social assistance lost 2.0 and 1.9 million jobs, respectively (10% of total jobs lost), but received 7.9% and 13.2%, respectively, of the PPP program's total approved loans. In contrast, construction and professional and technical services lost 975,000 and 509,000 jobs, respectively, but received 12.7% and 13% of the program's total approved loans.

The breakdown of the small business employment structure by industry helps explain the variation in lost jobs from COVID-19. For example, jobs in small businesses captured 41.6% of 2016 overall private-sector jobs in the mining and logging industry, according to the SBA's 2019 Small Business Profile report. However, 81% of those mining businesses have no employees (categorized as "nonemployer firms" by the SBA's 2019 Small Business Profile report), which helps explain why the job loss in the mining sector has been modest, so far. A small business owner can't lay off workers if they have no employees on the books. By way of contrast, small businesses represented 60.6% of overall private-sector jobs in the accommodation and food services industry, with 58% of those businesses having employees on their payrolls. Accommodation and food services represented the smallest share of small businesses with no employees on the books. Arts and entertainment and transportation and warehousing had the largest share of small businesses with no employees, with 92% and 91%, respectively.

The Post-PPP.1 Loan Approvals: Industry Impact

Based on our assumptions for the breakdown by round, we found that 55% of the total loans approved in dollars for post-PPP.1 loans went to industries with jobs less affected by social distancing (see table 3). That's lower than the 59% in PPP 1 (see table 5 in appendix). These industries accounted for 6.6 million jobs lost from March through May (33.9%)--industries more closely impaired by social distancing saw losses that were much higher.

Goods-producing industries appeared to have captured a much smaller 22% of the dollar amount authorized post-PPP.1 (it was 28% in PPP.1). Though the direct impact on jobs for small businesses in the mining sector, so far, has been modest with 77,400 jobs lost, it captured 0.36% of total loans. Services we consider to be moderately affected by social distancing captured around 33% of loan dollars post-PPP.1 (it was 31% in the first round). Goods-producing industries accounted for 1.9 million (10%) of the 19.7 million total jobs lost from March to May. While smaller than the PPP.1 loan approval allocation of 13.1%, construction industries still received a healthy portion of the post-PPP.1 loans approved at 11.7%. Manufacturing received an even smaller share of post-PPP.1 loans at 7.96% (PPP.1 loan approvals was 11.96%). However, in both cases, these amounts were higher than those industries that saw the most jobs lost, such as accommodation/food services and retail trade, which received 6.59% and 6.46%, respectively, in post-PPP.1 loans (see chart 2).

Chart 2

Service industries we consider moderately affected by social distancing accounted for 4.7 million (23.9%) of the total jobs lost from March to May. Of those industries within the services group that felt a moderate impact from social distancing, administrative and waste service saw the biggest relative change in distributions, at 6.8% of the post-PPP.1 distributions, up from 4.7% for PPP.1, though it also saw relatively large job losses. The industry within this grouping that also saw another big gain after PPP.1 was professional and technological services, which saw a 13.8% share of post-PPP.1 distributions, up from 12.7% (the industry lost 508,000 jobs, or just 2.6% of total lost, March through May).

Table 3

In contrast, service industries we consider significantly hurt by social distancing received 44.8% of post-PPP 1 total loans approved--larger than the 41.2% received in the first round. Of those industries more significantly affected by social distancing measures, the industries suffering the most jobs lost still saw a smaller share of post-PPP.1 loan approvals. Leisure and hospitality and retail, which suffered the most job losses, with 9.05 million lost (46.3%), March through May, received just 15% of post-PPP.1 loan approvals (the group received 19% in the PPP.1 round).

Accommodations and food services, which lost 5.7 million jobs (29.4% of total) received just 6.6% of loan approvals of post-PPP.1 loans, down from an already modest 8.9% in PPP.1 (see table 4). The share of loans was even smaller than the 8.9% in loans approved from the initial round (see chart 2). Retail also received an even smaller share of loan approvals in post-PPP.1 loans with just 6.5%, down from 8.6% of loans received in PPP.1 through April 16.

Table 4

The health care, education, and other services group saw the biggest gains, receiving 27% of post-PPP.1 loans (the group received 21% in the PPP.1 round). The health care subgroup, which lost 1.9 million jobs (9.6% of total), saw the largest share of post-PPP.1 loan approvals across all industries, at 16.5%, up from 11.7% in PPP.1. "Other" services, which lost 1.1 million jobs from March to May (5.6% of total), also received a bit more with 7.7% of post-PPP.1 loan approvals, up from was 5.2% in PPP.1. The education subcategory saw the smallest share of loan approvals, with little change in its share of dollar loan approvals, inching down to 2.36% of post-PPP.1 loan approvals from 2.33% in the initial round. However, education also lost a more modest 471,700 jobs (2.4% of total) from March through May. In contrast, professional and technical services lost 509,000 jobs but received an even higher portion of post-PPP.1 loans of 13.8%. It received 12.7% of the first program's total approved loans as reported on April 16.

Although information isn't complete and total shares may change, this preliminary analysis may provide some framework when gauging next steps in policy decisions as the U.S. economy begins to slowly recover and businesses open their doors.

There are many questions left on why the very industries hit the hardest by social distancing did not receive loans. While many underlying factors are at play, one could be that they didn't apply or were unable to get their forms in before the funds ran out. Services group applications were reportedly the smallest share of total applications, according to the Chamber of Commerce/Met Life May survey, with 27%, versus manufacturing, which was the biggest share of applications with 39%. That helps explain part of the results: The sector most in need didn't get the loans because there were fewer applications. However, why they didn't apply remains unclear. (It's hard to believe that they didn't need the loan, which would turn into a grant if they kept their workforce.)

The U.S. jobs market has recently seen a much needed lift in rehires, with 2.5 million jobs gained in May. However, almost 19.6 million jobs remain lost post-COVID-19, with workers applying for initial jobless benefits in the millions each week. Given that small businesses employed 59.9 million workers in 2016 (47.3% of the U.S. total), the success of PPP will have far-reaching consequences for not only the pocketbooks of these workers, but also for the recovery overall.

About 80% of the recently unemployed were considered temporarily unemployed. The question remains whether there will, first, be a business with which to return and, second, will the business make room for them once the doors open wide. The newly signed Paycheck Protection Program Flexibility Act (PPPFA), which lowers the required share of spending on payroll costs for the loan to be forgiven to 60% from 75%, together with our expectation of a slow post-virus recovery, increases risks that fewer workers than originally thought will be getting called back to the shop.

While the opening of some states may have come just in the nick of time for some businesses in the service sector, there is still a long way to go. It remains unclear how many of these companies survived, or will survive, the first stage of the sudden-stop recession. What is clear is twofold: the service industries most affected by social distancing lost the most jobs, and companies in these sectors and subsectors also represent the smallest number of applicants for PPP loans. Were the PPP funds depleted once these businesses filed the forms? That was the case for the first round of PPP, as indicated by one survey. Will small businesses feel the same way with the second? This leads us to the next question: Did the employees remain but the business disappear?

Related industries, not directly tied to social distancing, have felt knockdown effects as the revenue strains from social distancing move down the supply chain. Until more data on who exactly received these loans is compiled, we will not know. What we do know is that we are left with large gap in employment from lost service jobs, only exacerbated by the slow opening of state economies.

The U.S. economy may also be dramatically different post-COVID-19, increasing chances that small service-driven businesses that survived quarantine would still be threatened by permanent closure. Many Americans have learned to adapt to the new reality that was borne out of the COVID-19 pandemic--remote working, increased online shopping, online entertainment and limited in-person interactions--all giving way to more a technology-driven day-to-day existence.

While this underlines the need to strengthen our information infrastructure, it raises the question as to whether employment in services sectors--and potentially overall--will return to prepandemic levels. Some businesses may opt to do more with less or opt not to do it all. In either case, this could have lasting repercussions on the U.S. economic recovery. Going into the COVID-19 pandemic, the U.S. economy was already overwhelmingly both domestic and service-driven. This potentially stutter-step recovery may mean the dis-service that comes with it may make the climb back to prepandemic economic levels even steeper.

Appendix

Chart 3

Chart 4

Table 5