Iran war hits small business hard
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Illustration: Lindsey Bailey/Axios
Small business profits are sinking as owners get squeezed by rising labor costs and energy prices spiking from the Iran war.
Why it matters: Businesses with fewer than 250 workers created half of all new jobs over the last half-decade.
The big picture: Entrepreneurs are dealing with "persistent concerns around labor availability, inflation and uncertainty about the economic outlook," according to a new report from the Bank of America Institute.
Zoom in: Small business profitability in April suffered its biggest decline in two years, falling 1.3%, according to the report.
- That came after gas prices spiked due to the Iran war, which shut down the Strait of Hormuz, a critical global shipping lane for energy.
- The average price of gas was $4.53 on Tuesday, up 43% from a year earlier, according to AAA.
Threat level: Small businesses spent 31% more on gasoline in April than they did a year earlier, according to the BofA Institute report.
- Plus, "small business sales appear to be slowing despite strong consumer spending growth," the analysts reported.
Yes, but: Americans are starting businesses at a record pace — an entrepreneurial hot streak that helps set the U.S. apart from the rest of the global economy, Axios' Courtenay Brown wrote this month.
- Americans are filing paperwork to start new businesses at near-record rates — averaging 470,000 applications a month in 2025. That's about 66% above pre-pandemic norms.
The bottom line: America's capacity for entrepreneurialism remains strong but is coming under pressure.
