Small Businesses Face Hiring Declines Amid Rising Tariff Costs

Small Business Hiring Declines as Tariff Costs Rise Recent data from the Bank of America Institute highlights a notable trend in the hiring practices of small businesses, indicating a slowdown. This downturn aligns with a sharp increase in tariff payments faced by firms importing goods, leading to heightened financial pressure for these businesses. According to the report, small businesses' payments to hiring firms have decreased for three consecutive months, with July seeing a year-over-year hiring drop of 6.7%, based on a three-month moving average. This significant decline reflects ongoing challenges in the small business sector. Taylor Bowley, an economist at the Bank of America Institute, mentioned in an interview with FOX Business that this marks a shift from earlier in the year when hiring trends appeared stronger. She pointed out that small business clients directly affected by customs fees have seen their expenses surge by nearly 170% since the beginning of the year, largely due to increased tariffs imposed by 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 commented, signaling a changing landscape within different industry segments. Despite the challenges, Bowley noted that small business profitability remains in positive territory, although growth in this area is beginning to slow. With consumer spending on the rise, it remains uncertain whether this is due to increased purchasing power or just higher prices resulting from tariff-induced costs. A survey conducted by the National Federation of Independent Businesses (NFIB) found that a record percentage of small business owners are citing poor sales as their primary concern, a number not seen since February 2021. Bowley further explained that tariffs and the resulting conditions create uncertainty for small business hiring decisions. While specific sectors may experience growth, the significant burden from elevated tariffs impacts smaller enterprises more acutely, as they often lack the flexibility to adjust their supply chains or absorb increased costs. “We’re also seeing a bit of a restriction in terms of the supply of workers, which is leading to labor shortages,” Bowley added, noting this trend is evident in the payroll growth observed within small businesses. Certain sectors, such as construction, restaurants, and lodging, exhibit increased payroll payment trends; however, this is countered by a slight decrease in overall wage growth. Bowley pointed out that larger publicly-traded companies have acknowledged in their earnings calls that tariffs are resulting in price increases for some products. In contrast, small businesses may struggle more severely because they operate on tighter profit margins and have fewer options to adjust their strategies. “When we think about small businesses that can’t, for instance, switch a supply chain as easily as it might be for larger corporations, it’s unsurprising to me that we’re starting to see profitability come down,” she said, underlining the unique pressures small businesses face amidst changing economic conditions. Read more about the Bank of America report.