- Despite layoffs at major companies, small private companies are creating jobs.
- The strong employment numbers are one reason we are not in a recession yet.
- The data shows a boom in small businesses that are likely to employ workers, suggesting that job growth could continue into the future.
Small businesses are keeping the economy strong.
While big companies like Goldman Sachs, Amazon and Salesforce are cutting staff this year, private companies with fewer employees are still hiring. Also, overall layoffs in the US are very low.
The strong jobs numbers are one reason we’re not in a recession yet, as economists previously told Insider. The United States added 223,000 jobs last December and the unemployment rate fell from 3.6% in November to 3.5%, according to data from the Bureau of Labor Statistics. And, in general, there are many vacancies waiting to be filled: 10.5 million in November.
Small businesses have seen their openings skyrocket, compared to larger businesses, from where they were before the pandemic. Data from the Bureau of Labor Statistics on private sector job openings shows that the number of job openings at companies with 1 to 49 employees was 85% higher in November 2022 than it was in February 2020, much more than the increase of 41 % for companies with at least 1,000 employees.
While openings for small businesses are not as high as they were in the spring of 2022, there are still more openings at small businesses than large ones.
Data from payroll processing giant ADP shows that private employment has historically been higher for smaller companies than for those with 500 or more employees. Additionally, companies with 500 or more employees saw a decline in employment of 151,000 in December, according to ADP employment data. At the same time, small businesses with 1 to 19 employees saw an increase of 65,000 and those with 20 to 49 employees saw an employment increase of 130,000.
“The job market is strong but fragmented, and hiring varies considerably by industry and by establishment size,” said Nela Richardson, chief economist at ADP. “Business segments that aggressively hired in the first half of 2022 have slowed hiring and, in some cases, eliminated jobs in the last month of the year.”
But as the Wall Street Journal reported, all this job growth jeopardizes the Federal Reserve’s efforts to control inflation, which could be bad news for public markets.
High propensity startups create jobs
KPMG chief economist Diane Swonk told Marketplace Morning Report that many of the new business formations since 2020, spurred by lower barriers to entry, are companies planning to hire.
“These are high-quality companies that could become bigger companies in the future,” he said. “That increase has accounted for more than half of the increase in new job openings.”
This was also detailed in a KPMG post where Swonk wrote that “lower barriers to entry with work-from-home, easier credit conditions and VC funding fueled that jump.”
The Census Bureau refers to these businesses as “high propensity” or likely to employ workers rather than remain sole proprietors. In fact, there was about a 24% increase in new high-propensity business apps reported by the Census Bureau between February 2020 and November 2022. The boom in high-propensity businesses peaked in 2021, but remains historically strong.
But small businesses are cutting back on hiring and worried about a recession.
To be sure, many of the factors that made starting a business easier in 2020 and 2021, such as low interest rates and an overflow of venture capital funds, have reversed. Business data from Gusto, a payroll and HR platform for small and medium-sized businesses, shows companies aren’t hiring as much as they used to as they grapple with a tough economy and a potential recession on the horizon.
“The US economy completed 2022 with a slowdown in job growth from levels seen earlier in the year, and we also saw that pullback among small and midsize businesses,” Luke Pardue, economist at Gusto, said in a statement. communicated to Known Person. “These companies battled a triple whammy of economic forces: rising inflation, rising labor costs, and higher interest rates, all while competing with larger companies with more resources.”
“However, it is important that we have seen how companies react to these headwinds mainly by slowing down hiring, which fell from 5.5% in December 2021 to 4.5% last month, rather than increasing job layoffs. significantly, a hopeful sign that the economy can navigate this slowdown without entering an economic recession,” Pardue added.
A Vistage survey of small and medium-sized business CEOs shows that the majority of these CEOs reported that they “plan to increase hiring in the coming year” according to a press release.
On the other hand, a Nationwide Agency Forward survey also found that some small businesses are thinking of pausing their hiring efforts, while others have already done so.
However, Swonk remains optimistic that small businesses will prevail.
“Although small businesses are failing at a much higher rate than any other business, I have some hope in the traction they’ve already gained,” he said.