Smallest US firms are shedding workers fast as economy cools

THE smallest American businesses are cutting jobs and struggling to meet financial commitments like rent payments, a sign that they’re feeling the squeeze more than most as the economy cools down.

Payrolls at firms with less than 20 employees declined for a sixth straight month in January, according to data published on Wednesday (Feb 1) by the ADP Research Institute in collaboration with Stanford Digital Economy Lab.

The US has seen a surge in business formation in the years since Covid hit, with record numbers of new firms created. That’s helped drive overall payrolls at small businesses — unlike employment in the wider economy — back up to pre-pandemic trend levels. But with consumer demand now waning, smaller firms that typically have tighter budget constraints may be more vulnerable to a downturn, along with the workers they employ.

The ADP findings are supported by a January survey by Alignable, a referral network for small businesses with more than 7.7 million members across North America. That study found that 30 per cent of small businesses were unable to pay their full rent in January, up from 26 per cent in January 2022.

Minority-owned businesses are having an especially tough time, according to the Alignable data. More than half said they could not afford to pay January rent in full and on time, up six percentage points from December and the highest delinquency rate since May 2022.

Firms in Michigan, Georgia and Illinois reported the steepest increases in rent delinquencies compared with a year earlier. BLOOMBERG