Small businesses seem to be struggling?:The latest employment figures from February reveal a mixed picture for small businesses in the United States. While the overall economy continues to demonstrate resilience with the addition of 275,000 jobs, data from the Intuit QuickBooks Small Business Index indicates that the smallest businesses, particularly those with fewer than 10 employees, faced challenges. In fact, these businesses collectively cut more than 23,000 jobs last month, suggesting ongoing struggles within this segment of the economy.
The decline in small business employment was widespread, affecting seven out of the eight U.S. regions covered by the index. Only New England bucked the trend, experiencing a slight increase of 0.09%, equivalent to 600 jobs added during the month of February. These regional variations highlight the localized nature of economic challenges faced by small businesses across the country.
The disparity in employment trends between larger and smaller businesses underscores the unique difficulties that small enterprises encounter, including limited resources, operational constraints, and often greater vulnerability to economic fluctuations. As policymakers and stakeholders continue to monitor the economic recovery, addressing the needs of small businesses, particularly those facing the most significant challenges, remains a critical priority for fostering inclusive growth and sustainability.
According to the index, the nation’s smallest businesses currently employ a total of 13,051,900 individuals. This figure reflects the significant role that small businesses play in the U.S. economy.
Ben Johnston, the Chief Operating Officer of Kapitus, a small business finance company, highlighted the challenges facing small businesses with narrow profit margins. Johnston pointed out that these businesses are particularly affected by higher interest rates, especially those that heavily rely on short-term financing. He noted that the increased costs associated with credit, labor, and inflation are putting additional pressure on small businesses, necessitating adjustments in pricing strategies to pass on these costs to customers.
Amidst stagnant wage growth failing to match rising costs, consumers are tightening their belts, opting out of discretionary spending, according to Johnston. Instead of frequenting boutique stores or indulging in gourmet treats, they are seeking cheaper alternatives or crafting items at home.
In urban centers, businesses are grappling with the shift in foot traffic as more individuals who once commuted to offices now work remotely for extended periods, notes Johnston.
Faced with declining sales, business owners are reassessing their staffing needs. “They’re considering automating tasks that previously required human intervention, such as bookkeeping and inventory management. Some might even consider implementing self-service kiosks,” Johnston explains.
The evolving landscape of work presents significant challenges for small businesses, Johnston acknowledges. “Service-based businesses reliant on foot traffic and established routines are particularly affected by the drastic changes in consumer behavior,” he adds.
Certain services, like shoe shining, repair shops, and dry cleaners, have suffered due to the shift towards more casual work attire, Johnston observes.
In February, small business employment witnessed a decline across all 12 sectors surveyed by the Intuit QuickBooks Small Business Index. The education and health services sector experienced the slowest contraction, decreasing by 0.17% from January, while transport and warehousing saw the fastest decline, dropping by 0.59%.
Professional and business services bore the brunt of job losses, shedding 8,200 positions with a negative growth rate of 0.36%. Meanwhile, leisure and hospitality, as well as retail, suffered losses of 7,000 and 5,400 jobs, respectively, with declines of 0.43% and 0.35%.
Unemployment still low
Small businesses in need of new hires are encountering challenges. Despite a slight increase to 3.9% in February, the unemployment rate has remained below 4% for 25 consecutive months, marking the longest streak since the 1960s.
Johnston emphasizes the national struggle for small businesses in securing permanent and high-quality employees amid low unemployment rates. “Even during peak periods like the holidays, it’s tough to find part-time and seasonal workers,” he notes.
While certain sectors like plumbing and electrical contracting continue to thrive, they are not exempt from hiring difficulties. Johnston highlights the particular struggle in finding trained professionals, which proves to be even more arduous than hiring unskilled workers.