Economic Perspectives - 03/07/25

Last week, we gained perspective on how many businesses with 100 or less employees exist in the US. Even though small businesses themselves may not contribute a large amount to US GDP growth compared to big businesses, small businesses employ over 50% of employees in the US.

Since consumer spending makes up almost 70% of US GDP growth, those employees play a very important role in economic growth. As a result, I believe it is worthwhile to take a deeper dive into what small businesses are currently experiencing as well as expectations for the future. This week starts a five-part series that examines current conditions and future expectations of small businesses for the following categories.

• Business performance

• Operating revenue/sales/receipts 

• Employees

• Prices paid and received

• Use of Artificial Intelligence

 This week's Perspectives section starts the series by examining business performance. 

Let us start by examining what small businesses are currently experiencing. The question from the Census Bureau is: “Overall, how would you describe this business's current performance?”. 

• Three ratings categories have seen a steady increase in their percentage of the total since the start of the survey (9/10/23).

  • Average, Below Average and Poor

  • The percentage varied by size, but the trend is true for all business sizes.

• The increase in those three categories was due to a consistent decline in the top two rating categories.

  • Excellent and Above Average

  • Once again, the trend existed for all business sizes.

• The highest category for percentage of total responses is the Average category.

  • Small businesses with 50-99 employees had 48.5% of owners rate their current performance as Average while businesses with 1-4 employees had 45.5% of owners rate their current performance as Average.

• The good news (relatively) is that the Poor category makes up the smallest percentage of the total.

  • Small businesses with 1-4 employees had 7.2% of owners rating their current performance as Poor compared to 2.8% for small businesses with 50-99 employees.

The questions posed by the BTOS survey is: “Six months from now, how do you think you will describe this business's current performance?”.

• Three categories experienced a decrease in the percentage compared to 9/10/23. Those categories experiencing a decrease were Excellent, Above Average and Below Average.

  • The Average and Poor categories experienced increases in their percentages of the total.

• The percentage of business owners expecting their performance to be average rose above 50% for three out of the five categories.

  • Small businesses with 1-4 employs had 51.8% of the responses expecting performance to be average while small businesses with 50-99 employees had 48.7%.

• When comparing current conditions versus future expectations ratings, small businesses owners are not super optimistic (Excellent rating) or pessimistic (Poor rating).

  • When comparing current versus future ratings, percentage point declines occurred in the Excellent, Below Average and Poor categories while increases occurred in the Above Average and Average categories,

    • The category that experienced the biggest percentage point improvement was the Above Average category. The percentage point difference between future and current ratings ranged from 4 percentage points higher (1-4 employees) to 6.7 percentage points higher (10-19 employees). 

    • Small businesses with 1-4 employees saw the biggest percentage point drop when comparing current versus future ratings. The percentage of small business owners rating current performance as Poor is 7.2%. The percentage expecting Poor performance six months from now is 5.7%.

• Overall, small business owners currently rate their businesses's performance as average since the Average category comprises almost 50% of the total responses for current conditions.

  • Although people may not be happy if told that their performance was average, an “average” assessment of current performance for a small business owner may have more of a Goldilocks meaning (i.e. “not too hot, not too cold").

• The data highlights another example of where size matters.

  • You can see a steady decline in the percentage of total for the top two ratings (Excellent and Above Average) when examining the percentages by company size from biggest (50-99) to smallest (1-4).

  • Unfortunately, you can also see a steady increase in the percentage of total for the bottom two ratings (Below Average and Poor) when examining the percentages by company size from biggest to smallest.

• Small business owners are less optimistic when it comes to their expectations for performance six months from now.

  • The percentages for the Excellent and Above Average categories have fallen compared to 9/10/23 and the percentages are lower than the categories' current performance percentages.

  • The percentage for the Average category rises to over 50% for three of the five business sizes when assessing expectations for performance six months from now.

  • The encouraging news is that the percentage of responses for the Poor category are lower for six months from now compared to the current percentages for all business sizes.

• It is important to remember that the performance category is a “soft” data point since it is essentially asking small business owners how they are feeling versus actual results.

• Next week will examine   an area that will provide both a “hard” (current) and a “soft” result (future expectations). 

  • The area to be examined will be current and future expected changes to operating revenues/sales/receipts.