Are Small Businesses Growing?

It depends.

The dataset used, how “small businesses” are defined, what part of the country is measured, what sector of the economy is tracked, seasonal variations—these and many other factors determine what answer, at any given moment, can be provided to that question.

We know with some certainty that new business creation remains strong. Through its Business Formation Statistics (BFS), the Census Bureau tracks monthly business applications filed with the IRS. As explored here previously, monthly business applications spiked in mid-2020 and have stayed at historically elevated levels. In July, for example, the number of new business applications was still 57% higher than the monthly average between January 2015 and February 2020.

That’s also true for “high-propensity” business applications—those, based on several variables, that the Census Bureau deems likely to become firms with employees. The number of high-propensity business applications in July was 30% higher than the 2015-20 monthly average. Americans appear to remain entrepreneurially optimistic, even as observers put the odds of a recession at somewhere between 20 and 30%.

What about existing small businesses? Are they similarly optimistic? More importantly, how are they performing? It’s one thing for lots of new business applications to be filed and for some share of them to be probable employer firms. It’s another to look at the environment into which those businesses are entering and attempt to gauge prospects for growth. This is not an easy task—fortunately, some organizations make valiant and credible efforts to do so.

Small Businesses Are Growing—Sometimes

The monthly Fiserv Small Business Index, useful because it is calculated from point-of-sale transaction data, has generally trended upward over the past year. This is true for both its Sales Index and Transactional Index. The nice thing about Fiserv’s data is it gives us a sense of how both small businesses and their customers are doing. In August, for example, average transaction size in retail sectors fell both monthly and yearly even though the number of transactions rose.

Fiserv data give us a broad view of sales performance across small businesses of all sizes. We get a slightly different look from the Intuit QuickBooks Small Business Index which, for the first time, now includes revenue as well as employment data.* It captures the smallest businesses, those with fewer than 10 employees.

In its latest reading, the QuickBooks Small Business Index finds that, since February 2024, average monthly revenue at small businesses has risen six consecutive months. While monthly revenue growth among small businesses is more volatile, it has been in positive territory for four straight months. Employment data in the QuickBooks index is less rosy. Through the first seven months of 2024, employment growth has been positive in just one, July. The July growth number was small (0.03%) but was the first positive reading since December 2023.

Based on these two data sources, existing small businesses are enjoying mildly positive growth. Recent survey data from the National Federation of Independent Business (NFIB) tend toward a more negative view. The net percent of respondents regarding earnings changes has been persistently and deeply negative for four years. There’s less negativity in “actual sales changes” but still a clear downward trend (as measured by net percent of respondents) since mid-2023.

So, positive or negative? What do we see if we look under the surface?

Small Businesses Are Thriving—Somewhere

Headline findings in a small business index could obscure considerable unevenness among different types of companies. And that’s exactly what the Fiserv and QuickBooks indices find: wide variation across economic sectors.

In the QuickBooks Small Business Index, the highest revenue growth rate was in the Education and Health Services sector. The greatest revenue decline was in Finance and Real Estate. By contrast, in the Fiserv Small Business Index, the largest monthly increases from July to August were found in Truck Transportation and Food Manufacturing, with the biggest declines in Insurance Carriers and Educational Services. (The two indices are not precisely comparable regarding sectors, as they capture difference slices of the NAICS codes that categorize economic activity.)

Geographic variation is evident as well. According to Fiserv data, small businesses in Illinois and South Dakota saw healthy monthly increases in sales—their counterparts in Vermont and New Mexico did not. Similarly, in the QuickBooks index, small business revenue grew in Indiana and Illinois but fell in New York and Oregon.

Is There “Small Business”?

Some small businesses are growing, some are not; in some states, small businesses are adding jobs and increasing sales, in others they aren’t. That sounds like a fairly banal conclusion to be drawn from the rich data we have at hand. Yet it should remind us of two things.

First, while there is a “national” U.S. economy, shaped by interest rates and the tax code and the like, many American businesses—and thus many American workers—are still more affected by what happens either regionally or within their specific economic sector. This matters for educational institutions, lenders, job seekers, potential entrepreneurs, and others.

Second, what we call “small business” is far from a monolithic entity. That matters especially for policymakers. We can strive to make laws and policies to help small businesses across the board. We should keep in mind, however, that the effects of those actions will ultimately be shaped by sectoral and regional factors.

^{*Full disclosure: Intuit is a supporter of the Bipartisan Policy Center, where the author is employed. All views expressed here are the author’s, arrived at independently.}