• MetLife and the US Chamber of Commerce’s Small Business Index rose to 55.9 from 52.9 this quarter.
  • The reading marks a third straight increase, yet the rate of improvement has slowed.
  • Gauges of optimism and virus concerns also flashed warning signs as lockdowns continued.
  • See more stories on Insider’s business page.

A popular measure of small business activity improved in the first quarter, but underlying components suggest the segment’s recovery has a long road ahead.

The MetLife and US Chamber of Commerce’s Small Business Index gained to 55.9 from 52.9 in the current quarter, according to a Tuesday press release. The reading marks a third-straight quarter of recovery, yet the gauge remains well below the pre-pandemic highs of roughly 71{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6}. The pace of improvement has also slowed as lengthened lockdowns and still-elevated case counts dragged on activity.

Components of the headline number also flashed a few warning signs. Roughly 76{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} of surveyed businesses remain concerned about the coronavirus’s impact on their business. The same share said they’re concerned about their business’s finances.

More respondents held increasingly bearish views of the national economy. Nearly six out of 10 firms rated the overall health of the economy as “poor,” up from 50{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} and back to highs seen in summer 2020.

Outlooks also suffered at the local level. Roughly 43{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} of businesses said they view their local economy as poor, up from 32{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} in the previous report.

And just as the virus’ economic fallout landed disproportionately on minorities and low earners, those groups have lagged in the broad recovery. About 86{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} of minority-owned businesses said they’re still concerned about the virus’ impact. That compares to 72{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} of non-minority-owned firms saying they’re worried.

MetLife and the Chamber of Commerce surveyed small businesses between January 14 and January 27 for their first-quarter report. Daily new virus cases had peaked earlier that month before plummeting into the spring. The survey period also took place about one week after armed insurrectionists stormed the Capitol and sparked a new bout of national unrest. New stimulus was in the works, but Democrats had yet to hold any votes on their $1.9 trillion plan.

The rate of vaccination has also improved immensely since businesses were surveyed. The country is averaging 2.4 million vaccinations a day, double the pace seen on January 27, according to Bloomberg data.

The pickup in vaccine distribution is surely welcome news for small businesses. More than half of surveyed firms said they are likely to require employee vaccinations, while only 20{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} say they aren’t at all likely to do so. Roughly 54{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} of respondents said the availability of vaccines makes them feel more optimistic about the future.

Still, the majority of businesses are bracing for a lengthy recovery. Just 25{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} expect the small business climate to return to normal in the next six months, while 59{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} see the rebound taking between six and 12 months.

Accordingly, firms are starting to lift hiring expectations for the coming year. Nearly one-third of surveyed businesses said they plan to increase hiring over the next 12 months. That’s up from 27{98cae0078f524eff3ab8ec32cf55b261677ef6c8a6ed6e94d92a4234b93f46b6} in the fourth quarter. 

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