Big Data Insights on Small Business and Household Finance in the COVID-19 Economy

Chris Wheat is the Co-President for the JPMorgan Chase Institute. Prior to joining JPMCI, he served as the Director of Analytics at a financial technology startup, where he led the development of advanced analytics algorithms. He previously was an Assistant Professor at the MIT Sloan School of Management and at the Center for Urban Entrepreneurship and Economic Development at Rutgers Business School. As a faculty member, he taught and researched topics in strategy, entrepreneurship, global microfinance, economic sociology, and social network analysis. At JPMCI, he leads research on small businesses and local economic development.

The COVID crisis clearly slowed the growth of the small businesses in all contexts, particularly those owned by racial minority groups. Mr. Wheat’s research during the COVID crisis quantifies the harm done to small businesses early in the pandemic and later on towards the end of 2020, via three business research reports that we engage in discussion with.

His report titled  “Small Business Financial Outcomes during the Onset of COVID-19” shows that cities such as Atlanta, Las Vegas, Orlando seem to report slower economic recovery than cities such as Chicago, Seattle. Cash balances are an important metric of financial health, but the unemployment rate in Chicago is much higher compared to Atlanta, for example (105% increase in unemployment compared to a year ago for Atlanta, 250% for Chicago). How should we reconcile the differences between these financial metrics in the context of economic recovery? 

 Mr. Wheat also highlights how businesses need to maintain robust cash balances to weather financial hardships. You also point out that cutting expenses, or the idea of businesses pulling themselves up from the bootstraps, leads to deficiencies in the supply chain. For the policymaker, what balance sheet metrics should be prioritized in fiscal stimulus? For instance, between cash balances and cash revenues?

In addition, from mid March to the end of April, small business cash balances declined across industries, with wide variation in the severity. It seems reasonable to understand why restaurants and personal services were particularly hard hit, but why were high-tech manufactures and real estate firms seeing an increase in cash balances at the end of April? 

JPMCI’s report “Small Business Owner Race, Liquidity, and Survival” discusses the importance of developing a holistic understanding of financial health: including cash liquidity, revenues, and expenses. However, we usually hear about unemployment in the economy as the main metric, because that information is more readily available to policymakers and the public. How should we think the availability bias of information regarding small businesses affects government policy? How can we combat the asymmetry of information between policymakers and their constituents? What metric should policymakers look at when deciding how to implement financial stimulus? What is the most efficient way to supply businesses with exactly what they need? 

JPMCI also found that the industry downturns during the beginning of COVID were felt equally across different owner races. As business started to pick up, cash balances of White-owned restaurants doubled while those of Black-owned restaurants increased by 38%. However, cash balances of Black-owned personal service firms increased by over 60% compared to those of White- and Hispanic-owned firms, which increased by less than 25%. How can we explain these different recovery rates? What do they tell us about the relationship between race and financial stability in different industries?

More broadly, we discuss the relationship between research and business, expanding into academia and industry. JPMCI holds a unique position that allows Mr. Wheat to conduct research that fits the description of neither scholarly academic nor finance professional. The question of data sourcing comes into play, along with a weighing of interests between private sector firms and public research groups. Furthermore, we explore the impact of business research in public policy. How is business research utilized in the public sphere, and what shape does that take?

For students navigating career paths in finance, tech or entrepreneurship and choosing between academia and business, Mr. Wheat offers insight into how to think about these different sectors from the perspective of an individual who has navigated all of them. His work into the COVID pandemic utilizes methodologies from every sector combined, and our conversation with him tackles the intricacies of COVID impacts on small businesses and the nature of business research in the big picture. 

Chris Wheat