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Intuit QuickBooks Small Business Index Q4-2023 Trends

What the Intuit QuickBooks Small Business Index tells us about small business jobs in Q4-2023

Small business employment lags behind total employment

At the end of the final quarter of 2023 (October to December), US small businesses with 1 to 9 employees employed 13,281,000 people nationally, according to the latest estimate from the Intuit QuickBooks Small Business Index. This is 14,000 fewer jobs than the previous quarter, following two months of declining small business employment in October and November (down by 0.11% and 0.28%, respectively) and a rebound in December, when employment increased by 0.28%. 

However, this trend doesn’t extend to total employment in the US according to the latest figures from the Bureau of Labor Statistics (BLS), which reported positive jobs growth for the fourth quarter. This suggests small business employment continues to lag behind—as noted in the recent Intuit QuickBooks Small Business Index Annual Report—and that jobs may be moving from small businesses to larger businesses.

quote image
"Major macroeconomic factors have subjected the US economy to periods of volatility, with small businesses bearing the brunt of these fluctuations.”
Professor Ufuk Akcigit
13,281,000 US workers employed by small businesses with 1 to 9 employees in December 2023.

By sector: 2023 ended strong for education and health services, weaker for leisure and hospitality

Diving deeper, the Index points to a mixed quarter for small business employment, with key sectors such as leisure and hospitality (NAICS 71-72) and, to a lesser extent, retail (NAICS 44-45), not performing as well as expected during the holiday peak season, while education and health services (NAICS 61-62) fared better. This follows a stronger quarter in general in Q3 (July to September) as Professor of Economics Ufuk Akcigit explains below. He believes this can be attributed to ongoing challenges from inflation and the rising cost of small business loans due to higher interest rates—challenges many small business owners have faced since March 2022, leaving them especially vulnerable to economic volatility.

-14,000 decline in number of jobs at US small businesses from Q3 to Q4 in 2023

Analysis from Ufuk Akcigit, Arnold C. Harberger Professor of Economics at the University of Chicago

“Major macroeconomic factors have subjected the US economy to periods of volatility, with small businesses bearing the brunt of these fluctuations. Even though COVID initially had a positive impact on new business registrations and small business employment, the landscape began to shift in 2021, with rising inflation coupled with interest rate hikes commencing in March 2022. These events placed a disproportionate strain on small businesses. Consequently, small business employment declined, and the employment share of small businesses as a proportion of overall jobs in the economy began to dwindle after April 2021. The decline in small businesses’ share of overall employment accelerated a year later, beginning in April 2022. During the past summer, however, we saw a notable rebound for small businesses, especially in Q3 of 2023. Unfortunately, this resurgence proved short-lived, as small business employment dropped by 14,000 in Q4, translating to a 0.11% reduction compared to Q3. Despite the negative quarterly growth, ‌yearly growth in Q4 remains positive at 1.56%, thanks to strong growth in the summer of 2023.

“The strongest small business employment expansion, both on quarterly and yearly scales, has occurred in the agriculture, natural resources, and mining sector. This is unsurprising, considering the exceptionally strong performance of the oil and natural gas industry in the US in 2023. Despite ongoing political discussions advocating for greener energy sources, the US economy achieved record-breaking levels of crude oil and natural gas production. This propelled end-of-year production figures to more than double the levels seen a decade ago. 

“In general, the fluctuations observed both quarterly and within Q4 on a monthly basis serve as a reminder of the vulnerability of small businesses, and the challenging macroeconomic forces exert an outsized influence on the fate of small businesses. When discussing major industrial policies, we should pay attention to small business trends.”

Tougher-than-expected holiday season for small retailers

Retail (NAICS 44-45) has a large share of small business jobs and was among the better-performing sectors in the US over the course of Q4-2023—but still ended the quarter with 3,300 fewer jobs at small businesses (seasonally adjusted) than the previous quarter. Employment declined in October and November but ended the year with a small monthly increase of 0.08% in December.

Despite the headwinds from high inflation and increased household debt, the National Retail Federation predicted a strong 2023 holiday shopping season in early November. For the smallest retailer employers, Q4-2023 may not have lived up to those predictions. The ramifications of a disappointing peak season could follow small businesses into Q1/2024, especially for small retailers who might depend on strong holiday sales for a large portion of their annual revenue. Overall, it seems small business retailers had a tougher holiday season than anticipated

-3,300 decline in small business jobs in US retail sector from Q3 to Q4 in 2023

Small business employment falls in leisure and hospitality sector 

Similarly, the leisure and hospitality sector (NAICS 71,72) was in peak season last quarter and appears to have had a challenging few months. The sector ended Q4 with 9,000 fewer small business jobs in December than in September (seasonally adjusted), after three consecutive months of decline—down by 0.15% in October, 0.4% in November, and 0.03% in December. 

Despite these recent drops in small business employment, the leisure and hospitality sector overall showed some of the fastest growth in the post-COVID recovery. As of December, this sector is just 1% below the pre-pandemic level. Larger businesses in the sector seem to have fared better than smaller businesses this holiday season. The latest report from the US Bureau of Labor Statistics (BLS)—which includes larger businesses as well as small businesses—shows consistent growth through Q4 for the sector as a whole, with 40,000 jobs added in December alone. This suggests larger businesses are driving the sector’s employment growth.

-9,000 decline in small business jobs in US leisure and hospitality sector from Q3 to Q4 in 2023

Stronger growth in education and health services 

The education and health services sector (NAICS 61-62) made a significant contribution to the recovery in small business employment at the end of Q4-2023, helping US small businesses to end the year with 1.56% yearly growth (December 2022 to December 2023), as noted above. 

Overall, the education and health services sector doesn’t employ as many people in small businesses as the retail sector, but with 0.26% growth in December, it created 6,000 jobs that month alone. This was more than any other sector currently covered by the Index and five times more jobs than were created in small retail businesses in the same timeframe. This mirrors data from the latest BLS jobs report on the education and health services sector overall—showing a gain in each month of Q4-2023 and ending the quarter with 74,000 jobs added in December.

+6,000 increase in small business jobs in US education and health sector from Q3 to Q4 in 2023

Agriculture, natural resources, and mining sector continues to grow

As Professor Akcigit highlights in his analysis above, the best-performing sector among US small businesses in Q4-2023—measured by the monthly rate of jobs growth—was agriculture, natural resources, and mining (NAICS 11; 21). The sector started Q4 strong, with the highest employment growth (0.28%) among the 12 sectors in the Index. In fact, this was the only sector to see employment growth in October. Over the course of 2023, the sector has added small business jobs in 8 out of 12 months, with largely consistent growth in the second half of the year.

+500 increase in small business jobs in US agriculture, natural resources, and mining sector from Q3 to Q4 2023

Information sector and transport and warehousing sector among worst-performing in Q4-2023

The information sector (NAICS 51) saw consistently declining small business employment in Q4-2023, down by 0.75% in October and 0.72% in November before slowing to a much smaller decrease of just 0.1% in December. Overall, the sector ended the quarter with 4,500 fewer jobs than it had in September. 

Transport and warehousing (NAICS 48-49) followed a similar trajectory, with declines of 0.54% in October, 0.59% in November, and 0.23% in December, ending the quarter with 700 fewer small business jobs compared to September’s level. This decline mirrors data from the latest BLS jobs report on the sector overall that also showed a loss each month in the fourth quarter. While this sector doesn’t provide a large share of small business jobs in the US, it can be an indicator for other areas of the economy because businesses in other sectors—especially retail—rely on it. The transportation and warehousing sector is part of the trade, transportation, and utilities supersector using the North American Industry Classification System.

-4,500 decline in small business jobs in US information sector from Q3 to Q4 in 2023

By region: strongest growth in Great Lakes and Southeast

Following the national trend, all eight US regions (Far West, Great Lakes, Mideast, New England, Plains, Rocky Mountain, Southeast, and Southwest) had declining small business employment in October and November while all saw positive growth in December except the Mideast, which had 0% growth. 

Overall, the Great Lakes and Southeast regions performed best, with lower-than-average declines over the first two months and above-average growth in December. The Great Lakes ended the quarter with 4,200 additional small business jobs compared to September, ending the year with 1,922,400 small business jobs. The Southeast added 1,200 jobs at small businesses compared to September, finishing 2023 with a total of 3,162,800 jobs. According to the latest data from the Bureau of Economic Analysis, the Great Lakes and Southeast regions both saw an increase in GDP growth in Q3 of 2023, which may have contributed to employment growth in Q4.

+4,200 increase in small business jobs in the Great Lakes region from Q3 to Q4 in 2023

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