Small business employment declines in first quarter of 2024

Small businesses cut 58,000 jobs in first 3 months of 2024

US small businesses with 1 to 9 employees employed 58,000 fewer people at the end of the first quarter of 2024 than at the end of 2023, according to the latest release from the Intuit QuickBooks Small Business Index. From the end of December to the end of March, small business employment declined by 0.44%, ending the quarter with 13,039,000 jobs. This suggests small businesses continue to face growth challenges that are not affecting larger businesses. According to official employment data from the U.S. Bureau of Labor Statistics (BLS), employment grew by 829,000 in Q1/2024 (0.5%) across all business sizes, with 303,000 jobs added in March alone.



Jump to: Sectors | Regions | States | Analysis by Professor Ufuk Akcigit

First year-over-year decline since the COVID-19 pandemic

Q1/2024 was the second consecutive quarter with declining small business employment — erasing all the gains from the summer of 2023, when employment grew. As a result of the recent decline, small businesses employed 3,500 fewer people at the end of March 2024 than at the end of March 2023, the first year-over-year decrease (-0.03%) measured by the Index since the COVID-19 pandemic. The biggest losses over the past 12 months have been in the transport and warehousing sector (NAICS 48-49), down by 45,300 jobs (-7.16%) year-over-year, and in the manufacturing sector (NAICS 31-33), down by 44,300 jobs (-3.46%) year-over-year. 

More recently, over the past three months, the biggest losses have been in the professional and business services sector (NAICS 54-56) and, again, in the manufacturing sector (NAICS 31-33). We explore the quarterly and annual trends by sector in more detail below.

Declining employment for both product and service-based small business

Overall, 11 out of 12 sectors tracked by the Index had declining small business employment in Q1/2024, with the wholesale trade sector (NAICS 41-42) being the only exception. The picture is more positive, however, when we compare annual growth from March 2023 to March 2024. Over this timeframe, only five sectors declined: information, leisure and hospitality, manufacturing, professional and business services, and transport and warehousing (see table below). All data insights from the Index are seasonally adjusted.

Still struggling

• The leisure and hospitality sector (NAICS 71-72) ended 2023 with declining employment and this accelerated in Q1/2024 with a loss of 12,900 jobs at small businesses (-0.79%). Notably, year-over-year employment declined for the first time since 2021, with 2,800 fewer jobs in March 2024 (-0.17%) compared to March 2023, at 1,631,400. In contrast, the BLS reports overall employment in leisure and hospitality is trending up, which suggests employment gains are favoring larger firms in the sector. 
• The retail sector (NAICS 44-45) had a slower-than-expected quarter in Q4/2023 and employment was down again in Q1/2024 with 8,100 fewer jobs (-0.52%). As Ufuk Akcigit, the Arnold C. Harberger Professor of Economics at the University of Chicago, describes below, national retail sales were down in January and recovered in February, but this was a smaller rebound than anticipated, which may have affected smaller retailers. Despite this, employment was above the March 2023 level in March 2024 — at 1,558,300 — with annual growth of 1.75%. 

Worst hit

• The manufacturing sector (NAICS 31-33) lost more small business jobs than any other in Q1/2024 — down by 18,600 compared to Q4/2023 (-1.47%), ending the quarter with 1,258,800. The sector also saw a large year-over-year decline of 44,300 jobs (-3.46%) when comparing March 2024 to March 2023. The latest report from the BLS shows no change in manufacturing employment month-over-month due to equal gains and losses in durable and nondurable goods businesses — indicating, again, that smaller firms are facing greater challenges than larger firms.

• The professional and business services sector (NAICS 54-56, which includes legal, accounting, and marketing firms) lost 16,500 small business jobs in Q1/2024 (-0.73%). The annual decrease is slightly larger, down by 17,500 (-0.78%), with current employment at 2,245,700 jobs.
• The transport and warehousing sector (NAICS 48-49) employed 15,100 fewer people at small businesses in March compared to December (-2.45%), now with 609,700 jobs. On an annual basis, the sector had the largest decline of all, losing 45,300 jobs (-7.16%) from March 2023 to March 2024.

• The information sector (NAICS 51, which includes media, telecommunications, and broadcasting) had the fastest quarterly rate of decline in Q1/2024 (-2.83%), with a loss of 8,300 jobs at small businesses. This was the sector’s fifth consecutive quarter of declining small business employment, which now stands at 288,600 jobs. Like leisure and hospitality, the information sector also had its first year-over-year decline since 2021, with 16,800 fewer small business jobs (-5.66%) in March 2024 vs March 2023.   

Growing

• The only sector in the US that ended Q1/2024 with more jobs at small businesses was wholesale trade (NAICS 41-42), up by 2,300 with quarterly growth of 0.37%. Annual growth is also up, by 19,200 jobs (3.15%) from March 2023 to March 2024. Current employment: 622,000 jobs.

• On an annual basis (March 2024 vs March 2023), the education and health services sector (NAICS 61-62) is notable for adding more jobs at small businesses than any other — 44,700 in total — an increase of 1.85%. Current employment: 2,440,400 jobs.

Small business employment falls in all but one US region

Seven out of eight US regions had declining small business employment in Q1/2024, with New England being the only exception. On an annual basis (comparing March 2024 to March 2023), the picture is more positive, with employment up in five regions (the Great Lakes, Mideast, New England, Plains, Rocky Mountain, and Southeast), and falling in only three (Far West, Mideast, and Southwest) — see table below.

Hardest hit

• The Far West (Alaska, California, Hawaii, Nevada, Oregon, Washington) had both the fastest and largest declines in small business employment in Q1/2024, down by 1.28% and 28,300 jobs. Quarterly growth has slowed in all US regions since the pandemic rebound of 2021, but over the past 12 months, the Far West has been the hardest hit. It’s the only US region with declining small business employment in three of the last four quarters. On an annual basis, employment is down by 35,800 compared to March 2023 (-1.61%). Current employment: 2,202,000 jobs.

• The decline can be attributed to the Far West having a large share of US small business employment in the professional and business services and leisure and hospitality sectors. Both sectors, as we’ve seen above, were among the worst-hit in Q1/2024.

Bright spots

• New England (Connecticut, Maine, Massachusetts, New Hampshire, Rhode Island, Vermont) brings better news, with quarterly growth of 0.20% thanks to its small businesses creating 1,300 jobs. Similarly, annual growth is up by 1.33%, with 8,600 jobs added at small businesses in the region since March 2023. Current employment: 652,000 jobs.

• Out of the 20 states tracked by the Index, two had rising small business employment in Q1/2024. Indiana added 300 jobs, with quarterly growth of 0.12%. Wisconsin added 200 jobs, with quarterly growth of 0.09%. Notably, Wisconsin had by far the highest annual growth rate in March 2024, up by 4.92%, adding 12,600 jobs at small businesses compared to March 2023. Using data from the BLS, the Wisconsin Department of Revenue reports an employment increase of just 0.7% year-over-year, suggesting small businesses here are bucking the national trend by expanding workforces faster than larger competitors.

Expert analysis

Professor Ufuk Akcigit, who leads the team of economists that created the Index in collaboration with Intuit QuickBooks, explores the trends in more detail.

“A growing number of economists are starting to believe the US economy could be on the path to a "soft landing," a scenario in which economic growth slows sufficiently to reduce inflation but not enough to cause a recession. However, the indicators remain somewhat ambiguous. Data from the BLS show that the monthly inflation rate saw an uptick, climbing to 0.4% in March and February from 0.3% in January. Additionally, according to the Census Bureau, retail sales in February experienced a weaker rebound than anticipated. After a decline of 1.1% in January, sales saw a modest increase of 0.6% in February, pointing to a potential slowdown in consumer spending in the first quarter due to persistently high inflation and borrowing costs. 

“Amidst these mixed signals, the Federal Reserve opted to maintain the federal funds rate at its current peak of between 5.25% and 5.5% at its latest meeting. The latest quarterly Household Debt and Credit Report issued by the New York Federal Reserve highlights a significant uptrend in credit card delinquency rates. Post-COVID, credit cards have emerged as a critically important financing tool for small businesses, as underscored in the Intuit QuickBooks Small Business Index Annual Report—as noted in the recent Intuit QuickBooks Small Business Index Annual Report, which looks at a sample of anonymized QuickBooks small business payroll customer records. This rise in delinquencies signals a pressing concern for the financial health and stability of these enterprises.

“How does small business employment fare under such challenging macroeconomic conditions? Not particularly well, according to the latest Index numbers. Despite the broader US labor market showing resilience, the Intuit QuickBooks Small Business Index highlights that small businesses encountered considerable hurdles in Q1/2024. The Index showed a seasonally-adjusted quarterly decrease in small business employment of 0.44% and a slight annual decline in employment of 0.03%. 

“The information sector saw the most significant quarterly small business employment drop, at 2.83%, with an annual decline of 5.66%. Conversely, wholesale trade was the sole sector in the Index to record positive quarterly employment growth, at a rate of 0.37%, and an annual increase of 3.15%. Regionally, New England emerged as the only area showing positive employment growth for small businesses, with a 0.2% increase for the quarter and 1.33% for the year. The most substantial decline was in the Far West, with -1.28% quarterly and -1.61% annual growth rates.

“While some analysts attempt to extrapolate the health of the small business sector from general labor market or business registration data, both of which have been strongly positive this quarter in the US, the Index suggests caution against such inferences. Economic conditions impact businesses of varying sizes differently, leading to a divergence between the employment trends in small businesses and the broader labor market. Whereas large firms may capitalize on opportunities during poor macroeconomic conditions due to their substantial internal capital, small businesses, which rely heavily on external financing, face significant difficulties when credit becomes scarce or expensive. This discrepancy underscores the unique challenges small businesses face and highlights the need for tailored economic analyses and policy responses.”