After unrelenting economic shocks, small businesses around the country were feeling plucky at the start of the year.
Inflation was easing. Borrowing costs were coming down. Tax breaks were materializing. Even President Trump’s whipsawing tariff policy finally seemed to be getting more predictable.
That cheeriness has faded.
The monthslong war with Iran pushed up the cost of fuel and other materials. Inflation has accelerated. The prospect of further interest rate cuts before the end of the year is dimming.
Even as large corporations are posting solid earnings and the stock market is booming, small-business sentiment has plummeted in recent months. Lacking the funds to withstand an onslaught of financial gyrations, many smaller companies are instead rethinking their hiring and pausing any plans to expand — again.
The National Federation of Independent Business reported in May its lowest measure of economic expectations since Mr. Trump was elected to his second term. The Bank of America Institute reported that small-business profitability in April grew at its slowest pace in two years. Job openings at small companies have flatlined. On Sunday, Mr. Trump and Iranian officials announced a preliminary deal to end the war, though the economic consequences will probably linger for some time.
“It has been an incredible challenge for a small mom-and-pop operation to just simply keep the doors open,” said Bruce Jovaag, the owner of Norse Construction, a home remodeling company in Fenton, Mo., that he started in 2013. “It has been a fight like has never existed before.”
Mr. Jovaag, who is 68, said that he had loved the creative aspects of redesigning kitchens, bathrooms and other interior spaces, and that he had formed many meaningful long-term relationships with customers. But seemingly endless disruptions since the Covid-19 pandemic have “taken the enjoyment out of what I do for a living,” he said.
High interest rates slowed the housing market and deterred homeowners from renovating. Immigration enforcement exacerbated a worker shortage in the construction industry. Tariffs swelled the cost of plywood and other building materials. Last year, Mr. Jovaag’s sales, around $1 million in a good year, were down nearly 25 percent.
Although he received a $3,000 tax refund this year, that did not offset the $10,000 of his savings he put into the business last year to keep it afloat. Soaring gas prices, which have made driving to job sites more costly, have eaten further into his profits.
“It’s been a nightmare,” he said. “I’m ready to retire.”
The health of small businesses is critical to the American economy because they power employment and growth. Businesses with fewer than 500 employees account for nearly half of all employment and 55 percent of job creation, according to the Census Bureau.
Many owners were optimistic that the Trump administration would slash taxes and reduce regulations. Legislation that Mr. Trump signed into law last July made permanent the 20 percent tax deduction on business income for many owners. It also allowed them to deduct the cost of certain business investments all at once.
“America First policies are restoring the American dream on Main Street to new heights,” Kelly Loeffler, the head of the Small Business Administration, said last month during a small-business summit at the White House.
That hasn’t been the reality for the small-business owners who are still reeling from years of challenges, some of which have been compounded by tariffs and other policies introduced during Mr. Trump’s second term.
The persistent pressure has pushed some small businesses to the brink. Businesses with fewer than 10 workers have broadly been shedding employees for much of the past five years, according to data from QuickBooks, the accounting software company.
Bankruptcy filings for small businesses also rose last year in a pattern that suggested they were tied to tariff-related economic stress, said Edith Hotchkiss, a finance professor at Boston College. Using data from New Generation Research, a bankruptcy research firm, she found that bankruptcies for firms with less than $50,000 in liabilities had increased two to four months after the administration imposed new import duties.
“Prices are higher, and these small businesses don’t have the flexibility that larger firms do,” she said. “They don’t have the existing inventories that larger firms might have.”
“It’s only natural that these would be maybe the most vulnerable,” she added.
More recently, skyrocketing energy prices have ratcheted up the pain. Since the war in Iran began more than three months ago, a constrained supply of oil has resulted in higher fuel prices, which have raised the cost of transportation, shipping and some materials.
Wholesale prices — what businesses pay for goods and services — rose 1.1 percent in May and were up 6.5 percent from a year earlier, according to the Bureau of Labor Statistics. The 12-month increase was the fastest since November 2022, evidence that elevated energy prices were working their way through the supply chain.
In a survey conducted in May and early June by the Small Business Majority, a nonprofit, three-quarters of business owners said the increases in fuel and transportation costs had affected them. More than a third said they had frozen hiring because of changes to expenses and other economic conditions this year, and roughly one in 10 had laid off workers.
Cost pressures, including higher energy prices, are “definitely the problem that we’re hearing most about right now,” said Holly Wade, the executive director of the National Federation of Independent Business’s research center.
Unlike tariffs, which have often been absorbed at least in part by wholesalers and suppliers, higher oil and gas prices are pummeling many small businesses directly.
“It’s really hitting their bottom line, and they’re having to pass those costs onto customers pretty quickly,” Ms. Wade said.
Francesca Costa, who with her fiancé runs a cafe in Houston called Cranky Carrot Juice, is among the business owners making difficult choices because of rising prices.
When she ran out of the tea that her company uses to make kombucha, she turned to a farm in Ecuador. She purchased about 100 kilograms for $440.
Getting the tea to Houston was another story. Shipping it by air was more expensive than she anticipated because of higher fuel prices. Import duties packed on cost. She said she had spent almost $1,000 on shipping and customs fees.
The cost of eggs and bacon that the company buys from local suppliers has also gone up. Shipping costs on glass bottles that it uses for juices have tripled.
Higher prices, along with expenses associated with opening a second location in downtown Houston in February, have pushed Ms. Costa and her fiancé to consider whether to keep the business going. She has already raised menu prices once this year — cold-pressed juices by 50 cents, smoothies by $1 — and is hesitant to do so again when consumers are pulling back spending on discretionary items like premium health food.
“We are very worried,” she said. “It is a very real possibility that we could also have to close.”
The coming months could bring some relief.
Energy prices are expected to fall if the war with Iran ends. And the labor market appears to be emerging from its period of stagnation, which could help small businesses that can respond nimbly to rising demand.
Gusto, a small-business payroll and benefits platform, said companies using its services had added 83,900 jobs in May, the fourth month in a row of hiring. Job growth occurred in nearly every sector.
These businesses “are looking at the future and seeing some sort of opportunity for themselves,” said Nich Tremper, a senior economist at Gusto.
Kirsten Davenport-Norwood, who owns Greene Thumb Landscape in Indianapolis, has seen the cost of mulch, concrete paving slabs and other materials balloon. Her clients include apartment complexes, parks and schools. Government budget cuts have meant that some that rely on funding have been unable to pay for services on time.
Last year, Ms. Davenport-Norwood and her husband, who together took over the business after her mother died four years ago, had to use their personal savings to pay workers because the company’s cash flow was so tight.
Ms. Davenport-Norwood is nervous about gas prices and the broader economic climate. For now, though, demand has held steady. There is “always grass to be mowed,” she said. She has jobs booked through August.
“I’m feeling really good about our organization right now,” she said.
