The U.S. labor market is cooling. This was a development predicted by the Intuit QuickBooks Small Business Index last November, when small business job growth began to slow and overall small business employment began to decline. In fact, the index predicted the negative job growth that small businesses have experienced for 11 of the previous 18 months.
Small businesses lost jobs for the sixth straight month in 2024, with employment increasing slightly in July and remaining steady in August. These job losses reflect the tough macroeconomic conditions resulting from the COVID-19 pandemic, for which interest rate cuts could provide relief. Still, the index indicates that further broader action from Washington is needed to alleviate the situation and support the creation and expansion of small businesses.
Research shows that small businesses play a major role in driving innovation in the U.S. economy. They are creating jobs at a faster pace than larger, more established businesses, and despite their small size, they represent 77% of all U.S. employers. At the peak of post-COVID-19 pandemic employment in the fourth quarter of 2022, small businesses with 1-9 employees employed more than 13.08 million people.
From Q1 2023 to Q4 2023, the BLS showed two quarters of declines and two quarters of flat growth. From Q1 2024 to Q3 2024, our index shows two additional quarters of declines and one quarter of flat growth. This represents a total decline of 47,200 jobs (-0.36%).
While many celebrate the job gains seen in other sectors of the economy over the past year, small businesses are struggling to hire and retain employees. Simply put, this means economic activity is shifting from small businesses to larger corporations, and this side of the story is not being told.
Our economy may end up experiencing the ripple effects of this change for decades to come. Tomorrow’s superstars are today’s new startups and struggling small businesses. It’s well-known that many of the most successful and well-known companies were launched from garages. And consider the unprecedented challenges that entrepreneurs doing the same today face compared to their predecessors.
Businesses can grow revenue without increasing employment, but a lack of high-frequency data makes this growth difficult to measure. To fill this gap, our team developed a new, proprietary revenue component to the Index, providing a monthly snapshot of small business revenues that complements the limited official data that is only available once every five years. The Index shows that despite a contraction in employment during the first seven months of the year, average revenues increased during this period.
So imagine what these businesses could accomplish in more favorable macroeconomic conditions. Access to easier, more affordable lending rather than the costly credit cards that small businesses have relied on since the pandemic could help them fund the expansion of their brick-and-mortar retail space or investments in new equipment. Owners might be more willing to take risks if they have more savings set aside. Or entrepreneurs might feel more comfortable spending upfront capital on technology upgrades that give them access to artificial intelligence tools, helping them become more efficient and competitive in the long run.
Small businesses have weathered the challenging times of the past few years. Now is their chance to thrive in more favorable conditions. Policymakers have more tailored tools at their disposal, recognizing both the current importance and future potential of small businesses, and ready to focus on their specific needs rather than the one-size-fits-all approach that has dominated economic policy to date, favoring larger, more established, less dynamic businesses.
We hope that policymakers will use our findings as a starting point to seek out further data and develop informed, effective and targeted policies that support our country’s small businesses.
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