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Small vs Large Businesses - Inside the ADP Jobs Report - March 2022
Bottom Line: The headline number for job growth looked good enough in the ADP Report for February. 475,000 private sector jobs being added during the month. Add in meaningful upward revisions from the prior month turning reported job losses in job gains in January and the report looked outright rosy. Adding hundreds of thousands of jobs is no doubt a good thing but the details of where those jobs are being added as well. The most important leading indicator in the US economy is small business activity. Most Americans work for small businesses and in healthy economies they account for the largest employment gains. February proved to be a tale of two sized businesses.
Job changes based on company size.
- Small businesses: -96,000
- Midsized: +18,000
- Large: +552,000
Yikes, this is not at all what we want to see. I mean yeah, it’s great to see large companies hiring at the rate they’re hiring but not at the expense of all other businesses. Most troubling, this is the second straight month that’s been the case. Small businesses hire when there is an immediate need based on consumer demand. They lay people off when there’s not enough immediate demand for the employees they have on hand. The job losses we’re seeing with small businesses might be a leading indicator that after a year’s worth of 40-year high inflation – far outstripping wage gains – we're tapping out. I’ve been concerned that we could be in the early stages of an economic decline since mid-January based on real-time economic trends. This report does nothing but add to that concern.
At best, what we’re witnessing is the gutting of small businesses for the direct benefit of the largest companies who’re taking market share. At worst, we’re seeing the early indications of a recession. Two months doesn’t make a trend, but it can potentially be the start of one. As for where the jobs were added.
These were the top industries for job gains in February:
- #1: Leisure and Hospitality
- #2: Trade, Transportation & Utilities
- #3: Professional and business services
The news here was much better. Jobs were added across all sectors in February – including the manufacturing and construction sectors – which are leading indicators as far as sector growth goes. So why is it that small and mid-size companies are struggling but large companies are thriving, and all sectors added jobs? The dislocation we see in this report could be the result of international markets reopening from Covid restrictions driving demand for American multi-national products and services. If Americans have hit the wall from a consumer standpoint – perhaps international markets and foreign demand for American products and services can fill the gap to avoid a recession. With oil now over $110 per barrel, March is set to be an even bigger test of how much we can withstand as consumers to maintain a growing economy.