Economic Divide in U.S. Widens Between Big, Small Businesses

 

 

“It has been a good year for most of the U.S.'s biggest companies, with surging profits and enthusiasm for artificial intelligence propelling stocks to record highs.

 

But for many small businesses, it has been just the opposite.

 

At small businesses, which are unable to withstand economic headwinds as easily as their larger counterparts, years of high inflation, increasingly cautious consumers and tariffs are weighing on earnings and prompting cutbacks. Over the past six months, private firms with fewer than 50 workers have steadily shed jobs, according to payroll processor ADP, cutting 120,000 in November alone. Midsize and, especially, large firms have continued to add jobs.

 

Typically, in early December, Almost Famous Popcorn would have been staffing up for the holiday rush, when the gourmet popcorn company does 60% of its sales.

 

"In a normal year we'd hire 10 to 15, and this year we're closer to four or five," said Sydney Rieckhoff, chief executive officer of the Cedar Rapids, Iowa-based company. "We're definitely seeing more thoughtful spending," she said, with companies placing smaller orders for client and staff gifts.

 

The growing divide between the fortunes of small and large businesses mirrors the divide that has emerged over the past year between low-income people and their high-income counterparts. That split among categories of consumers is exacerbating, according to the Federal Reserve's latest compilation of economic anecdotes from around the country, known as the beige book. "Overall consumer spending declined further, while higher-end retail spending remained resilient," it said.

 

The growing divides are also related: Workers at small businesses tend to earn less than those at large companies. And the increases in stock-market wealth stemming from the rally in shares of large, public companies accrue mostly to the rich.

 

"We're seeing two different economic realities on both the consumer and the business landscape," Bank of America Institute economist Taylor Bowley said.

 

Giant, well-capitalized businesses such as Amazon.com and Nvidia generally have had a very good year. Net income for the large, publicly traded companies in the S&P 500 was up 12.9% from a year earlier in the third quarter, according to LSEG.

 

Main Street businesses' health is also important for the U.S. economy. Small businesses -- those with up to 500 workers -- employ nearly half the U.S. workforce and represent more than 40% of gross domestic product, according to the U.S. Chamber of Commerce.

 

But small-business profits are faltering, according to an analysis of small-business bank accounts conducted by the Bank of America Institute, which found that earnings are slightly lower than they were a year ago.

 

Small businesses' margins and cash reserves are typically thinner than those of large corporations, making it harder for them to absorb higher costs. They lack the kind of access to financing and expertise that large companies can deploy to weather challenges such as high tariffs and the sharp slowdown in the supply of immigrant labor.

 

Las Vegas-based Total Promotion Co. has struggled this year with tariffs on the imports it needs to make promotional merchandise, including apparel, pens and bags, largely for small to midsize businesses.

 

Confusion over whether vendors, shippers or purchasers were liable for tariffs on orders meant "we'd get a bill from the shipper for tariffs and it caused us to lose money on certain jobs rather than make money," owner and CEO Brandon Mills said.

 

Mills had to cut a full-time staff member earlier this year as the business struggled with slower demand and higher costs. That and worker attrition mean his staff is down to six people from 10 last year.

 

St. Louis-based apparel and gift shop STL-Style started 2025 on a difficult footing after a weak holiday season last year, when bad weather washed out some key shopping days. This year, "the tariffs were just the double whammy; that was the nail in the coffin," said Randy Vines, who co-owns the custom design and screen-printing business with his twin brother Jeff.

 

In June, the owners cut hours by about 25% for their five staff members and started working more shifts themselves because of rising costs. As a result, they have held off on vacation hiring this year. Despite the obstacles, Vines said he was cautiously optimistic about next year because this shopping season has been better than last year. "We need to keep moving forward," he said.

 

Small retailers, like STL, are struggling in particular with tariff uncertainty and continued cost pressures, said Andrew Chamberlain, chief economist at Gusto, a small-business payroll and benefits provider. Gusto's most recent monthly jobs reports found that small businesses cut workers in both October and November, with retail and professional services accounting for the largest declines.

 

Those findings echo a recent report from Homebase, whose software helps small businesses schedule hourly workers. It found workforce participation and a separate measure of hours worked saw their biggest drops in three years in November, led by sharp pullbacks in entertainment and hospitality.

 

In the restaurant sector, more than 90% of employers are small businesses, according to Chad Moutray, chief economist for the National Restaurant Association.

 

Restaurants are challenged now, he said, because of weak customer traffic and rising costs that have dented eateries' bottom line.

 

Zach Negin, owner of Tabula Rasa Bar in Los Angeles, said deadly wildfires and a slowdown in the entertainment industry have weighed on business, along with increased costs. Office holiday parties this year are more likely to be happy hours, rather than a company booking out the bar.

 

Goods like wine, cheese and replacement parts for equipment have gone up in price due to tariffs, but labor, rent and insurance have also soared, he said. In response, he has shortened workers' shifts and not replaced employees when they left.

 

"I feel like I have less confidence in how things are going to go than I have in 10 years of running this business, which just means we just have to be a little bit more nimble -- every week, and every day, and every month -- and making adjustments so that we can stay afloat," Negin said.” [1]

 

1. Economic Divide in U.S. Widens Between Big, Small Businesses. Torry, Harriet; Lahart, Justin.  Wall Street Journal, Eastern edition; New York, N.Y.. 26 Dec 2025: A1.