Small Businesses Tell A Big Story

The stress on small business owners is accumulating.

Small businesses are a vital part of the American economy. The U.S. Small Business Administration estimates that they represent over 46% of employment and account for the majority of new job creation. Small business openings are an expression of optimism in an entrepreneur’s ability and support from their community.

Particularly in the current cycle, small businesses have caught our attention as a bellwether of credit stress. While still performing well today, we will watch small businesses’ performance as an indicator of potential trouble.

The sample to monitor has grown. During the pandemic, new business formation surged, and the trend has endured. Many people saw the interruption to their work routines as a cue to strike out on their own. Though the worst of the COVID era is in the past, new business applications and openings have remained elevated.

U.S. consumer review site Yelp observed that 2023 was a record year for new businesses appearing on the platform. Restaurants and travel destinations are well represented in this collection; demand for new experiences, dining out and takeout meals has endured. Home services like painting and decorating, which are easy to establish, were the largest category of new businesses. As the cost of new dwellings rose to levels unattainable for many households, consumers are instead spending on upgrading their existing homes.