Small business profitability fell 1.3 percent in April from a year earlier, the weakest reading in two years, the Bank of America Institute said.
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Corporate earnings are up, with the S&P 500 posting 29% profit on an annual basis only in the first quarter of 2026. But on most high streets across America, it’s a different story. Small business profitability in April fell 1.3% from a year earlier, the weakest reading in two years, according to new national exhibition from the Bank of America Institute, which collected anonymized and aggregated data from the bank’s business customers with revenues under $5 million.
Economist Taylor Bowley, author of the report, said a confluence of factors over the past year, particularly new international tariffs under the Trump administration and rising gasoline prices due to the war in Iran combined to dampen the results of small companies. So it is not surprising that the Small Business Optimism Indexas measured by the National Federation of Independent Business (NFIB), was below the historical average for April.
“Small businesses have really been in this position for at least a year or more now as there’s been one shock after another, stretching from when the tariffs were implemented about a year ago to now being squeezed by rising fuel costs,” Bowley said. Forbes. “We’re starting to see Main Street feel more squeezed than Wall Street.”
The war in Iran and the subsequent rise in natural gas prices in turn led to a 31% annual increase in fuel spending by small businesses in April. That also contributed to a 6 percent annual increase in producer prices, the biggest such jump since December 2022, Bank of America said.
“Our data shows it’s a mixed bag, and small businesses are being squeezed by rising costs,” Bowley said. “When you combine that with the slowdown in sales growth, that leads to more cautious sentiment, and that’s probably why we’re seeing hesitation with hiring as well as expansion.”
That matters because in some states, as the map below shows, small businesses account for more than half of all jobs, Bank of America estimates.
The share of jobs provided by small businesses
Sure, there are bright spots in various parts of the United States. Some cities in the American South, for example, have higher small business payroll growth numbers than many cities on the coasts or in the North. San Antonio and Dallas led major US cities in small business payroll growth since April of this year, while the five lowest performing cities in payroll growth were all in the American West: San Francisco, San Jose, Los Angeles, Phoenix and Las Vegas. In Las Vegas, payroll growth in the quarter ending in April was down about 10 percentage points from a year ago.
Over the past half decade, the small business community has played a critical role in job creation nationwide, with small businesses creating about half of net jobs between the third quarter of 2020 and the third quarter of 2025, Bank of America estimates.
However, there have been significant declines in payroll growth so far this calendar year “across the board,” Bank of America said. This was despite an increase in payments to recruitment firms as small businesses faced a “labour supply shock”. Similarly, in the April NFIB survey, a lack of skilled labor was the top problem cited by small businesses surveyed, even outpacing taxes.
But the US economy is not a monolith, and the bank’s report also found that some industries have proved more resilient in the face of macroeconomic pressures.
While sectors such as agriculture, construction and transportation have been hit hardest by rising gas prices, small businesses in both agriculture and transportation – along with retail and health services – posted payroll gains in April, the bank said. In transportation, for example, continued demand for couriers and messengers helped boost hiring, while health care “has been a solid driver of jobs for more than a year,” the bank noted.
Hence Bowley’s description of the findings as a “mixed bag.”
“What’s been so persistent is the uncertainty,” Bowley said, when asked what the bottom line was for business owners. “It’s almost a question, is uncertainty the new normal?”
Bowley hypothesized that one of the reasons for greater wage growth and better performance among small businesses in the American South is immigration patterns. Populations in states like Texas are growing, while other states, including California, are steadily losing residents.
“Part of the economic expansion, and of course the population growth, has really served the small businesses that are flourishing in these areas,” Bowley said.
Bowley expects the financial pressures to continue in the short term, but added that there is always a light at the end of the tunnel. He noted some positive factors. Despite consumer economic worries, consumer spending was resilient. High gas prices, while burdensome, represent only a small fraction of total operating costs. And some small businesses should be able to reap big financial benefits from this summer’s upcoming World Cup, which will be held in 11 cities across the country.
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