Key Takeaways
- Private payrolls data released by ADP Wednesday showed that companies with between 20 and 49 employees reported cutting payrolls by 29,000 jobs.
- A slowdown in small business hiring could indicate the record number of new businesses formed during the pandemic are struggling, said an economist.
- A record number of businesses were formed in July 2020, but persistent inflation and high interest rates make it harder for many to hire or sustain.
New businesses sprung up at record levels during the pandemic but may now be faltering in the face of economic pressures.
Private payrolls data released by ADP Wednesday showed that firms with 500 employees or more showed the strongest employment gains, while companies with between 20 and 49 employees reported cutting payrolls by 29,000 jobs.
The slowdown in small business hiring could indicate the record number of new businesses formed during the pandemic are struggling, said Diane Swonk, KPMG chief economist.
“Gains were driven by large firms. Small businesses are getting squeezed,” Swonk wrote in a post on social media platform X. “New business formation soared in recent years. More of those businesses are now failing in the wake of higher costs and interest rates. That means the assumptions made about gains in employment due to those new businesses will be revised down.”
A record number of businesses were formed in July 2020, according to data from the Census Bureau. Since then, inflation surged to its highest in nearly four decades, and the Federal Reserve worked to tame it by raising its influential federal funds rate to the highest since 2001.
Economists say a high fed funds rate can be especially hard on small businesses. The fed funds rate affects borrowing costs of all kinds, and often, small businesses rely on short-term loans for funding. When that borrowing becomes more expensive, it’s less accessible and can make it harder for businesses to hire or keep employees.
