In a recent report, the financial stability of America's small businesses, the very lifeblood of the nation's economy, comes under scrutiny as alarming new data reveals a staggering 43% of these enterprises struggled to pay rent last month—the highest delinquency rate since the COVID-19 lockdowns. This distress signal resounds through the economy, given that small businesses employ approximately half of the American workforce, encapsulating some 62 million jobs, and represent nearly half of the entire U.S. economy.

With over 33 million small businesses operating within the country, their significance cannot be overstated, especially considering their pivotal role in job creation over the past 25 years, where they have been responsible for 63% of new employment opportunities. This contrasts starkly with larger corporations which often outsource or automate positions, reducing the human workforce.

The root of the hardship facing these smaller entities is twofold: escalating costs and diminishing sales. Echoed by the National Federation of Independent Businesses, which serves as the primary association for this sector, small business optimism has plummeted to an eleven-year nadir, paralleling the sluggish recovery from the 2008 financial crisis. The data delineates a grim landscape where less than one-third of businesses established pre-pandemic are generating pre-COVID-19 revenue levels. This is particularly disconcerting as it occurs against the backdrop of an economy that purportedly expanded by nearly a third in nominal terms since the onset of the pandemic, yet has been voraciously consumed by inflation, leaving businesses unable to fulfill basic financial obligations like rent.

Even for businesses conceived during the pandemic, only 40% are faring better than the previous year despite claims of a robust year for GDP growth. The current economic climate is a conundrum, marked by receding sales, hesitant hiring, and a resurgence of inflation—a set of conditions small businesses haven't had to navigate since the economic tumult of the 1970s.

As the storm of stagflation approaches, small businesses, already weakened by policies enacted during the Biden administration, face an exacerbated crisis. The prescription for mitigating this disaster lies in reducing government spending, bureaucracy, and taxes for small businesses, alongside refraining from inflation-exacerbating initiatives.

However, from Washington's perspective, the unraveling of small businesses may be less of a concern and more of a strategic advantage, potentially transitioning millions from the independent entrepreneurial class to reliance on government aid—a pattern observed in cities where the decline of small businesses has, in fact, led to the consolidation of political power on the left.

As this nationwide trend looms, it is critical to monitor the trajectory of America's small businesses, which are not only economic indicators but also pillars of community and innovation.

Bloomberg Article