For the first time in a year-and-a-half, the growth engine of America’s small business economy has sputtered, with profitability growth slipping into negative territory in November. According to the December edition of the Small Business Checkpoint from the Bank of America Institute, rising costs associated with tariffs and inflation are forcing Main Street merchants to raise prices at historic rates, even as the holiday shopping season offers a critical lifeline.
While small business bank accounts remain in the black overall, the trajectory is concerning. Year-over-year profitability growth fell below zero (-0.02%) last month, marking the first negative reading for this metric in 18 months. BofA sees two real reasons this is likely related to tariffs, with the net percent of owners raising average selling prices jumping 13 points from October to a net 34%, the highest reading since March 2023 and the largest monthly jump in the history of the definitive small business survey from the National Federation of Independent Business.
This is also evident in small-business profitability growth by sector tracked across BofA small-business account data, where wholesale trade has declined the most over the year, down 1% in November. Within wholesale, durables such as the tariff-exposed electronics and furniture have driven most of the decline in the second half of the year, although non-durables like apparel are also down so far this quarter. This contraction signals that while revenues are still coming in, the cost of doing business is eating away at margins faster than sales can compensate. The data suggests that for many owners, absorbing tariff-related costs is no longer an option; they must charge more to survive.
Holiday hopes and hiring freezes
Despite the profitability squeeze, total profits remained positive in November, buoyed by the holiday calendar. Small Business Saturday, which fell on November 29, has evolved into a critical event, with owners estimating the day generates 20% of their annual sales. However, the BofA report notes that consumer momentum appeared to wane over the Black Friday weekend, suggesting holiday spending might not be the panacea retailers had hoped for.
The economic pressure is also cooling the jobs market. Payments to hiring firms plummeted 4.6% year-over-year, confirming a weaker job market for small enterprises. BofA noted support on the thesis of collapsing small-business hiring from other research, namely the Institute’s November Employment Report and data from payroll-service provider ADP, which both revealed a decline led by losses in small businesses. “With nearly half of the US workforce employed by such firms, this underscores the importance of the small business bedrock.”
However, the labor picture remains nuanced. While general hiring has cooled, sectors facing chronic labor shortages, such as construction and restaurants, actually increased payroll growth as they scrambled to fill open positions. Still, BofA notes that small businesses are generally both planning to increase employment and unable to fill job openings at higher rates than the average of the last two decades. Speaking to Fortune‘s Eva Roytburg earlier this week on the revelation of disappointing economywide jobs data, Moody’s chief economist Mark Zandi said “there’s just no forward motion,” with the labor market “stuck in the mud.”
Looking toward 2026
Despite the current profit squeeze, business sentiment is not entirely gloomy. Optimism regarding the coming year has ticked upward, and hiring plans for the next three months are actually at their highest point of the year.
Looking further ahead, owners are betting on technology to restore efficiency. According to the 2025 Bank of America Business Owner Report, 50% plan to implement artificial intelligence (AI) over the next five years. Spending on tech services, including AI, rose 6.2% in November, indicating that businesses are investing in digital transformation to navigate a high-cost environment.
For now, however, the small business sector finds itself in a precarious position—like a ship taking on water while still moving forward. The profits are there, but the drag from tariffs and inflation is heavier than it has been in nearly two years.
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