Decline in Small Business Hiring Driven by Rising Tariff Costs

The latest findings from the Bank of America Institute indicate a notable decline in hiring among small businesses, a trend largely attributed to surging tariff costs. As these businesses grapple with increased expenses linked to importing goods, hiring rates have shown a consistent downturn. Hiring Declines for Small Businesses According to the proprietary data from Bank of America, small businesses have experienced a drop in hiring payments for three consecutive months as of July, with year-over-year hiring down 6.7% based on a three-month moving average. This consistent decrease indicates a shift in the small business labor market. Impact of Tariff Payments Taylor Bowley, an economist with the Bank of America Institute, highlighted that small businesses making direct customs payments have seen their costs rise dramatically, with increases of nearly 170% since the beginning of the year due to higher tariffs enacted during the Trump administration. “We’re starting to see construction and manufacturing hiring payments ramp up, whereas other sectors like retail and services have fallen off,” Bowley noted, indicating a shifting landscape in employment trends. Consumer Spending and Profitability Trends While small business profitability continues to grow, it is showing signs of slowing. Bowley pointed out that despite an increase in consumer spending, the reasons behind this growth remain unclear—whether it reflects higher consumer purchases or increased prices driven by tariffs. The National Federation of Independent Businesses (NFIB) also reported a rise in the number of small business owners identifying poor sales as their primary concern, reaching levels not seen since February 2021. Sector-Specific Hiring Dynamics Bowley explained that while some sectors are witnessing increased hiring, particularly construction and hospitality, challenges remain due to labor shortages impacting hiring decisions. "You’re seeing sectors like construction, restaurants, lodging—payroll payment growth has increased since the start of the year," Bowley mentioned, although overall wage growth has shown a slight decline. Challenges for Small Businesses The imposition of tariffs has introduced additional pressures on small businesses, which often have limited capacity to alter supply chains compared to larger corporations. Bowley elaborated on this by stating that smaller entities face heightened pressure on their profit margins, as they struggle to absorb tariff-induced costs. This reality contributes to the observed decline in profitability among small businesses. As the landscape of small business hiring continues to evolve, the combination of rising tariffs and challenges in workforce availability presents a complex scenario for entrepreneurs navigating this economic environment.