K-shaped economy! The performance of large and small businesses in the United States varies significantly

The U.S. economy is showing a significant structural divergence: driven by the AI boom and soaring profits, the stock prices of large American companies are hitting new highs, and their performance is strong; in stark contrast, many small businesses are deeply mired in operational difficulties due to their inability to withstand economic headwinds.

This "ice and fire" situation on the corporate front truly reflects and exacerbates the widening wealth gap between high-income and low-income groups in the United States.

The latest employment data shows that this divergence has triggered severe shocks in the labor market. According to payroll processing firm ADP, private enterprises with fewer than 50 employees have been continuously laying off workers over the past six months, cutting 120,000 jobs in November alone.

This trend sharply contrasts with medium-sized enterprises and especially large companies that continue to add jobs, highlighting the vulnerability of small businesses in the current macroeconomic environment.

Market performance further confirms this rift. According to LSEG statistics, the net profit of large publicly listed companies in the S&P 500 index grew by 12.9% in the third quarter compared to the same period last year, with capital-rich giants like Amazon and NVIDIA generally experiencing a bumper year. In contrast, small businesses are seeing a decline in profitability due to persistent inflation, cautious consumer spending, and tariff pressures, forcing them to implement cost-cutting plans.

According to the Wall Street Journal, Taylor Bowley, an economist at the Bank of America Research Institute, pointed out that two distinctly different economic realities are currently observed in both consumer and business sectors. Although small businesses contribute over 40% of GDP and employ nearly half of the U.S. workforce, their pressured state indicates that the K-shaped divergence within the U.S. economy is intensifying.

Divergence in Profitability and Employment Market

The financial health of large enterprises and small businesses shows starkly different trajectories.

Large publicly listed companies have achieved profit expansion through their economies of scale and the benefits of AI technology, while small businesses are finding life increasingly difficult.

Analysis of small business bank accounts by the Bank of America Research Institute shows that their earnings are slightly below last year's levels.

This profit pressure is directly transmitted to the employment market. In addition to the wave of layoffs reported by ADP, the latest monthly report from Gusto, a small business payroll and benefits provider, also shows that small businesses reduced their workforce in both October and November, with the largest declines occurring in the retail and professional services sectors.

Data from Homebase also echoes this trend, as the company found that the labor force participation rate and hours worked in November experienced the largest decline in three years, with the contraction particularly severe in the entertainment and hospitality industries.

Structural Disadvantages and Tariff Impact

Compared to large enterprises, small businesses typically have weaker profit margins and cash reserves, and they lack the financing channels and expertise that large companies possess, making them particularly powerless in the face of challenges such as high tariffs and a slowdown in the supply of immigrant labor.

The rising costs and uncertainties brought about by tariffs are eroding the survival space of small businesses. Brandon Mills, owner and CEO of Total Promotion Co. in Las Vegas, stated that due to uncertainty over who bears the tariffs, the company often receives tariff bills from shippers Some orders are resulting in losses instead of profits. Due to a slowdown in demand and rising costs, the company's staff has decreased from 10 last year to 6.

Similarly, STL-Style in St. Louis, after experiencing a weak holiday season last year, is now facing tariff impacts this year. Co-owner Randy Vines described the tariffs as "the nail in the coffin," forcing them to cut employee hours by about 25% in June and freeze holiday hiring.

Consumer Downgrade and Cautious Spending

The plight of small businesses is closely related to the polarization of American consumers.

The Federal Reserve's latest "Beige Book" economic summary indicates that overall consumer spending has further declined, but high-end retail spending remains resilient. This reflects the reality that small business employees have relatively low incomes and cannot benefit from stock market gains like the wealthy.

This cautious spending on the consumer side directly impacts businesses that rely on holiday sales. Sydney Rieckhoff, CEO of Almost Famous Popcorn based in Iowa, stated that in previous years, they would typically hire an additional 10 to 15 employees to handle the holiday rush, but this year they only plan to hire 4 to 5.

She observed that corporate clients are placing smaller orders for customer and employee gifts, showing clear signs of "more thoughtful spending."

Service Industry Facing Multiple Cost Pressures

In the service industry, such as dining and entertainment, over 90% of employers are small businesses, and they are facing a double whammy of weak foot traffic and soaring costs.

Chad Moutray, chief economist at the National Restaurant Association, pointed out that these factors severely weaken the profit margins in the restaurant industry.

Zach Negin, owner of Tabula Rasa Bar in Los Angeles, stated that in addition to the impacts of wildfires and a slowdown in the entertainment industry, the prices of wine, cheese, and replacement parts for equipment have risen due to tariffs, while labor, rent, and insurance costs are also skyrocketing.

In response, he has had to shorten employee shifts and no longer replace staff who leave. Negin admitted that his confidence in the business outlook is at its lowest point in a decade, and he can only survive by constantly adjusting.

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