Bank of America’s (BoA) latest Small Business Checkpoint for January 2024 found that not only did small businesses display resilience in 2023 but they also were “an important driver of the overall buoyancy in the U.S. labor market.”
But this resilience may be tested in 2024 — at least if December 2023 data is any indication. This month had the second lowest inflow-to-outflow ratio for small businesses’ checking and savings accounts when compared to the previous four Decembers, according to internal BoA data. BoA reported that even if a “soft landing” is likely in 2024, profits “are likely to be constrained” by inflation and other cost pressures.
Despite this uncertainty, small businesses successfully navigated 2023’s most significant pressures, including inflation, rising interest rates, and the failure of regional banks, which paints a positive picture for the market. Most indicated that the health of their business was “somewhat good” or “very good,” according to the MetLife and U.S. Chamber of Commerce Small Business Index. Combined, these responses were the most positive since 2020.
‘Sustainable Growth’ on the Horizon?
Internal BoA also showed monthly payroll payments per small business client rose year-over-year for most of 2023. Overall payroll growth moderated compared to March 22, when growth reached its highest, however BoA notes that this could lead to a more consistent path forward.
“This moderation could indicate more ‘sustainable’ growth going forward, as we think this primarily reflects slowing wage growth especially in high-touch sectors like leisure and healthcare that were more strongly impacted by persistent labor problems during that period,” the report stated.
BoA internal data also showed solid momentum in hiring in 2023, with payroll payments per small business client showing a year-over-year increase throughout most of the year. In December, payroll payments per small business client increased 1.7% over the same time last year, also rising gradually over a three-month period.
Despite payroll payments rising and aligning with overall labor market growth, BoA found that overall payroll growth has steadied since its peak in March 2022. The report defined payroll growth as reflecting changes in jobs, wages and hours worked at small firms. Past growth was influenced significantly by labor shortages and wage inflation, which both have come down in certain sectors, such as restaurants and retail. Conversely, other sectors like healthcare are seeing greater payroll growth.
“We think part of the moderation in small firm payrolls is coming from slowing wage growth in sectors where there is significant small business representation,” according to the report. “High-touch sectors that have a sizable presence of small firms were more affected over the pandemic, and as a result, persistent labor supply problems in the aftermath tended to impact smaller firms more than larger firms.”