- Several major trends are impacting the performance of the U.S. economy, including the pandemic, labor shortage, and tax policy.
- Many businesses, especially small businesses, are still recovering from the ripple effects of the pandemic on the economy.
- Staying abreast of the state of the economy and adapting to its changes are essential for any American business to scale and grow.
Our economy encompasses all of the wealth and resources of the United States, including production, distribution, consumption, and trade of goods. If the U.S. economy is performing well, this yields positive trends for businesses, as people tend to use their extra income to buy more goods and services.
While it can be a challenge to predict economic trends and how they will affect certain industries, businesses should strive to stay informed so they can make decisions that will help them succeed in a good economy or survive through a bad one.
There are several major trends that have affected the United States economy in recent years, most notably the COVID-19 pandemic. Global lockdowns, as well as those implemented by state and local governments in the early part of the pandemic, adversely impacted supply chains, workforce health, and business operations. Many companies, especially small businesses, are still recovering from the ripple effects of these early shutdowns, despite government stimulus plans, vaccine distribution, and the growing remote workforce.
The U.S. economy has also been impacted by various tax policies and the rise of the gig economy. Here is an overview of what business owners should know about our nation’s economy and how these trends can impact their present and future success.
COVID-19’s impact on the U.S. economy
The coronavirus pandemic had a massive impact on both the United States and the global economy. The United States Census Bureau has calculated the impact of COVID-19 so far by measuring the difference between what was expected based on historical trends and what actually occurred within the economy throughout the pandemic.
In early 2020, there was a significant decline in the employment to population ratio as there were fewer people employed than was expected before the pandemic, having an even greater impact on unemployment. To help individuals and small businesses survive the shutdowns, the federal government enacted multiple laws and programs.
The Coronavirus Aid, Relief, and Economic Security Act (CARES Act) was passed in March 2020 to offer several financial programs designed to help small businesses impacted by the virus. One of the most significant components of the CARES Act was the Paycheck Protection Program (PPP). This loan program allocated money to small businesses to help keep their staff on payroll and assist with other expenses.
After the initial financial allocation from the government ran out, Congress passed additional legislation to replenish funds for this program. The government issued roughly $800 billion in forgivable PPP loans in total. As of September 2021, the PPP is no longer accepting applications.
Job market shortages
The pandemic also caused a worker shortage that is impacting businesses across industries—there are currently around 11 million job openings in the U.S.
Businesses continue to struggle with hiring workers and find incentives to attract prospective employees to work at their companies. Openings at businesses are continuing to grow as job turnover rates return to their pre-pandemic numbers. Workers know that there are plenty of job openings available, so they can easily secure another position if their current one is undesirable.
As the pandemic continues, some employees are not returning to the workforce because of unemployment benefits, fears about contracting the coronavirus, and a lack of childcare — especially since many U.S. children have yet to be vaccinated.
Business tax policies in the U.S.
U.S. tax regulations play a large role in the health of the nation’s economy. Business owners must understand their federal, state, and local business tax obligations, as well as how to file them on time and correctly.
When business owners register their companies with their home state, they must choose a legal structure, such as sole proprietorship, partnership, limited liability company, or corporation. A business’s structure determines its tax responsibilities and how much they owe the Internal Revenue Service annually. Most businesses have to pay income tax, employment taxes, property tax, sales tax, and estimated tax.
Tax rates and policies can change annually, so business owners need to keep track of any legislative updates. For instance, the Biden Administration has released tax proposals for fiscal year 2022 that would raise the corporate tax rate from 21% to 28%. This increase could significantly impact corporations of all sizes, including the 1.4 million small businesses with 500 employees or less that are classified as C corporations. The types of small businesses most affected by a tax increase would be manufacturing, science, technical services, and retail.
Inflation's impact on the broader economy
In September 2021, the United States had an inflation rate of 5.4%, the highest it has been since July 2008. The U.S. Chamber of Commerce Chief Economists Committee (USCCCEC), a group of chief economists from all industries, believes that this inflation is temporary and is occurring because the economy is restarting after the COVID-19 pandemic.
At the end of most economic recessions, there tends to be a period of inflation as consumer spending surges and businesses work to catch up with resurgent demand. The latest uptick in inflation is larger than usual due to the strength of the current economy coming out of the pandemic-related recession. While most economists agree that this increase is temporary, some believe policymakers should be paying close attention to current inflation trends and taking measures to reverse the situation.
Knowing the state of the United States economy and adapting to its changes are essential for any American business to scale and grow. By understanding how external forces impact the economy and their industry, business owners are better equipped to stay competitive and be successful, no matter how the economy is doing.
For more resources on the U.S. economy, visit the U.S. Chamber of Commerce’s Economic Data resources.