Small Business Checkpoint

January 2023

Small business hiring continues to moderate, though payroll payments remained more resilient for firms with lower revenues.

Key takeaways

  • Small businesses are important for the labor market – nearly half of all US workers are employed by companies with fewer than 250 employees. This is why the latest Bank of America internal data, which shows that small business hiring seems to be moderating from historically high levels, is notable. Payroll payments per client were up 3.9% year-over-year (YoY) in December, down from 16.4% in March 2022.
  • What is driving the slowdown? Besides easing wage growth, demand for workers could also be turning lower with small business profits increasingly under pressure. The ratio of inflows into Bank of America small business accounts to outflows, which we view as a proxy for profits, reached a four-year low of 0.92 in December. Our data also showed payroll payments remained more resilient for firms with less than $100k in annual revenue.
  • Looking ahead, small business hiring should moderate further as the Fed presses on with rate hikes. But moderation doesn’t mean contraction. A proprietary Bank of America survey of small business owners showed that 70% of respondents still plan to hire in 2023, though most intend to take on just one or two employees.

 

Read our full analysis for a more in-depth look at these trends.