Why You Should Care About America’s Small Businesses

Public Success, Private Stress

Public companies have managed an impressive recovery since the darkest days of the pandemic, contributing to the record highs seen in stock market indexes at the tail end of last year. But the rebound has been uneven.

Smaller, private firms are less visible in economic reports, but they’re an important part of the U.S. economy. Unfortunately, their financial health hasn’t mirrored the growth we’ve seen in their public counterparts.

Midmarket Misfortune

Between 2019 and 2022, mid-sized businesses have seen their earnings shrink and debt grow, according to analysts. As the Federal Reserve raised interest rates to combat high inflation, the situation went from bad to worse as higher borrowing costs lead to rising bankruptcies.

This is concerning because mid-sized businesses employ some 50 million Americans, and account for as much as one-third of private sector GDP. A spotty bill of health for this section of the U.S. economy holds a potential risk lurking beneath the prosperity we’re seeing in the stock market.

Economic Ripple Effects

As long as interest rates remain high, mid-sized companies could continue to struggle. Layoffs of bankruptcies could in turn affect employees, and have a knock-on effect on consumer spending, the all important metric that keeps the economy ticking along.

As the success of public companies buoyed market hopes that the Federal Reserve could achieve its goal of a soft landing, the health of smaller companies may be worth monitoring.

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