Small businesses are cutting jobs. It's a warning sign for the US economy.
The United States added 275,000 new jobs in February, signaling continued economic growth and inspiring confidence that a soft landing can be achieved. But that number doesn’t tell the whole story.
New data from Intuit shows that businesses with nine or fewer employees, which account for 13 million jobs nationwide, actually decreased their employment last month, shedding more than 23,000 jobs and signaling that this key portion of the economy needs focused attention.
Running a small business is a massive challenge. About half of new small businesses fail to survive past five years. Despite these odds, small business owners are proud, passionate and dedicated to pursuing their dreams, solving problems and serving their customers. Yet, they also feel that the deck is often stacked against them and that they’re on their own.
One of the reasons small businesses feel this way is because their needs are often invisible to policymakers. Economic trend reports, including government data such as the recent jobs numbers, are not designed to provide detailed and real-time data on the smallest of small businesses, those with fewer than 10 employees, and the only government data that does cover small businesses lags from six to nine months.
As a result, policymakers are working without a real-time, accurate picture of small business health.
To fill this void and assist policymakers, Intuit partnered with a team of economists, led by University of Chicago economist Ufuk Akcigit, to launch the Intuit QuickBooks Small Business Index. The index draws data from more than 330,000 Intuit QuickBooks customers, which is normalized against official government data to provide unique, up-to-date insights that reflect the general population of small businesses.
Our hope is that this new, rigorous data will empower policymakers to make decisions that better serve the unique needs of small businesses.
While the overall economy is strong, our index shows that the state of the small business economy is not performing as well and continues to face strong pressure from inflation and high interest rates. The index has demonstrated that small business employment growth has slowed and financial pressure has increased.
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And while higher interest rates are helping to ease inflation, they’ve taken a toll. In the two-year period since the beginning of 2022, when interest rates started to climb, our index shows 15 total months of negative employment growth compared with only nine months of growth for small businesses.
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What’s more, small business owners are increasingly reliant on credit cards to finance their business, and thus are paying more due to higher interest rates. Many have tapped into their own savings to pay off credit card debt, and 76% say they've used 30% or more of their credit limit.
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Taken together, these pressures are trapping small businesses in a cycle that makes it even more difficult to compete with larger, more established businesses, and therefore more difficult to grow and create jobs.
This should concern lawmakers in Washington, because small businesses play a critical role as engines of employment and innovation across the country. Without focused attention, we’ll continue to see a decline in business dynamism that could have significant long-term consequences.
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AI can help small businesses thrive
As policymakers work to sustain and increase the nation’s economic momentum, here are several key actions, informed by data from the Intuit QuickBooks Small Business Index Annual Report, that will give small businesses a boost:
Provide access to digital tools. Congress should pass the commonsense, bipartisan Small Business Technological Advancement Act because financially and digitally connected businesses grow faster.
Enable AI for small businesses. President Joe Biden should commit to establishing a Small Business AI Innovation and Commercialization Institute, as proposed in the White House executive order on artificial intelligence. Congress should seize on a once-in-a-generation opportunity to ensure that new regulations help small businesses take full advantage of the benefits that AI tools provide.
Facilitate access to credit. Our data shows that access to credit is still one of the biggest pain points for new small businesses. As Congress debates new bank capital standards, we strongly encourage policymakers to preserve bank-financial technology (fintech) partnerships to ensure that small businesses have ready access to credit.
Even in an increasingly polarized environment, more than 90% of Americans have a favorable view of small business owners.
We can help small businesses prosper when we make better-informed decisions that are based on their real-time challenges. Washington should follow the right data and enact policies that make it easier for small businesses to grow and create jobs.
Sasan Goodarzi is the CEO of Intuit, the global financial technology platform that supplies small businesses with software such as QuickBooks, Mailchimp, TurboTax and Credit Karma.
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This article originally appeared on USA TODAY: Is US economy strong? Small businesses pinched by high interest rates