Small businesses are hurting — and could be for a while
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The rolling uncertainty of 2025 is giving the country's smallest businesses the biggest headaches.
Why it matters: Small companies employ nearly half of all U.S. workers, and are an engine of job growth for the economy.
- Weakness in the small business sector "is a concern when you think of the U.S. labor force in its entirety," ADP chief economist Nela Richardson told reporters earlier this month.
- Small- and medium-sized firms both shed jobs in October, per ADP's most recent report; larger companies gained workers.
Zoom in: A few things are happening here. For starters, small businesses are less able to ride the tariff roller coaster. They have "less muscle," Oxford Economics' Michael Pearce wrote in a new report on small businesses' problems.
- Big firms were able to spend (and borrow) to front-load imports ahead of increases in import taxes. Plus, they have the leverage to negotiate pricing with their suppliers and can pass through costs to customers.
Follow the money: Small firms are more credit-constrained — especially compared to the biggest firms. (A few of the big ones, like Microsoft, have even had lower borrowing costs than the U.S. government this year.)
- That means small players can't make the kinds of AI investments that the big guys are getting into. AI adoption rates are lagging for small firms, according to Census data cited in the Oxford report.
- And AI is, of course, driving much of the economy's growth at the moment.
By the numbers: For the three-month period ending in October, companies with 50 or fewer employees saw a net loss of 88,000 jobs, per private company data from ADP analyzed by Oxford.
- Firms with more than 500 employees gained 151,000 jobs.
Zoom out: The diverging prospects of big and small companies echo the widening gap between low-income Americans, struggling with higher costs, and higher earners buoyed by strong stock market returns.
- "The overall economy has been resilient, but there are all these stories going on underneath the surface," Pearce, who is Oxford's deputy chief U.S. economist, tells Axios.
- Count small businesses among these vulnerable sectors.
- Other worrying signs: rising unemployment rates for Black workers, particularly women, and young adults; plunging economic sentiment for those without stock holdings; and slumping wage growth for the lowest earners.
Yes, but: Some of this could be structural. There was a surge in small business formation during the COVID-19 pandemic, and now some of those firms are going under.
- That's relatively normal; younger firms typically fail at higher rates — "a usual and healthy sign of a dynamic economy," Pearce wrote.
What to watch: This split won't last forever — growth from big technological advances often happens among the biggest firms first, but the small guys do eventually catch up. "In the long run, everyone benefits," says Pearce.
- The catch: The long run could take awhile.
