The Resilient Spirit of American Small Businesses: Growth in 2025

Small businesses remain the beating heart of the American economy, demonstrating remarkable resilience and adaptability despite ongoing challenges. Recent data from key small business indices indicates growing optimism among small business owners across the United States. The convergence of government infrastructure investments, the rise of AI, and evolving consumer behaviors have created a dynamic environment for small business expansion. According to the Wall Street Journal, the next US President will inherit a remarkable economy. Despite the growth prospects, challenges remain. The 2024 election of former president Donald Trump to the presidency will impact the small business landscape over the next several years. Based on recently announced cabinet picks, we see bias to the upside for small businesses. However, weaker business formation and payroll data, inflation, and a tight labor market continue to persist as concerns. In this article, we highlight the resilient spirit of American small business through the lens of three important small business indices. We analyze these indices and examine current trends, challenges, and key drivers shaping the small business landscape. We’ll also explore how Professional Employer Organizations (PEOs) such as Deel, through their best-in-class solutions, help companies optimize their workforce strategies, boosting competitiveness. Be sure to follow us on LinkedIn. Now let’s get started. 

Small Business Growth and Economic Impact

The United States has witnessed an extraordinary surge in small business formations, marking a significant shift in entrepreneurial activity. According to the U.S. Census Bureau, new business applications reached unprecedented levels, with over 5.4 million new business applications filed during 2023, surpassing previous records. This remarkable growth extends beyond statistics, translating into tangible economic benefits and job creation across diverse sectors and geographic regions. Between 2013 and 2023, small businesses (firms with less than 250 employees) accounted for 55% of the net job creation. Additionally, they represent roughly 44% of the nation’s gross domestic product (GDP)

The Impact of the 2024 US Elections on Small Businesses

Former President Donald Trump secured a historic return to the White House in the 2024 U.S. presidential election. Additionally, the Republican Party secured control of both the Senate and the House of Representatives. As he prepares to take office, the impact on small businesses remains unclear, with mixed results expected based on campaign messaging. The campaign focused on economic nationalism, trade renegotiations, deregulation, and bureaucratic deconstruction. Bold calls for mass deportation and double-digit tarrifs on major trade partners also loomed large during the campaign. Moreover, large ticket spending programs enacted during the Biden administration, e.g., CHIPS and Science Act, appeared to be threatened for a short period of time during the campaign. As the cabinet begins to take shape, we don’t expect policies and behavior to deviate from historical party (Republican/Democrat) norms. Early cabinet announcements include pro-business figures in economic roles, such as Howard Lutnick for Commerce Secretary and Scott Bisnett as Treasury Secretary. On a macro level, these picks appear focused on the status quo and ensuring a more competitive America. Given the current state of the US economy and its forecasted outlook, we expect policymakers to build on these trends. However, the first 12 months will be challenging with a focus on personalities rather than policies and the ability to prioritize the economy over ideology. 

Economic Growth Forecasts

• National Growth: According to The Confernece Board, real GDP is expected to expand 2.6% in 2024, moderating to 1.7 percent YoY growth in 2025. Global investment bank Goldman Sachs expects US economic growth at 2.5% in 2025, with US economic growth outpacing the Eurozone. The September 50bps cut by the US Federal Reserve is expected to buoy the US economy into 2025. 
• Regional Dynamics: The broad demographic trends underway in the US will continue to drive regional economic performance in the medium to long term. The Sunbelt will remain a major beneficiary at the expense of the Northeast and Midwest as more populations migrate to Southern states. However, in the near term, regional economic performance remains mixed. According to global financial services firm Visa, regional GDP growth in the South and the Northeast is expected to trend above national averages through 2026. Regional economic activity in the Midwest will remain well below the national average with a deceleration of economic performance toward national averages in the Western US. 

Small Business Sectors to Benefit Under Trump

• Sectors Poised for Growth:
  • Manufacturing: Heightened tariffs on China and Europe aim to revitalize domestic production, benefiting small manufacturers. The potential benefit to these sectors may be offset by changes to Biden-era spending programs. ​
  • Energy: Deregulation and expanded support for fossil fuels could boost opportunities for small energy firms. However, these opportunities need to be weighed in the context of supply-demand fundamentals and the $68/barrel oil price required to jusitify US production. 
  • Construction: Infrastructure spending proposals promise increased demand for small contractors offset by the risk of repeal or reduction of Biden era policies and labor challenges from immigration policies. 
• Challenges for Certain Sectors:
  • Retail: Higher tariffs may increase costs for small businesses reliant on imported goods. 
  • Agriculture: Export-dependent farms might struggle with retaliatory tariffs from trading partners. ​

Significant Opportunities with Significant Risk

The incoming administration’s tariff policies, while fostering domestic growth, will introduce more global uncertainties. For small businesses, the trade-off between localized growth and increased operational costs will shape strategic decision-making. Small businesses should explore a Megaregion strategy to capitalize on emerging domestic growth opportunities. We believe that rational economic behavior will eclipse idealogy, leading to a prioritization of domestic development and growth. Overall, the administration’s economic vision prioritizes domestic economic strength, creating a mixed but opportunity-rich landscape for small businesses. 

Business Formation Trends

Business Formation Statistics (BFS) from the Census Bureau serves as a crucial economic indicator by tracking new business creation through four key measurements.

• Business Applications (BA) represent all new business registrations
• High-Propensity Business Applications (HBA) identify registrations with a higher likelihood of becoming active businesses
• Business Applications with Planned Wages (WBA) track entities planning to hire employees
• Corporate Business Applications (CBA) monitor corporate legal structures

Together, these metrics provide valuable insights into entrepreneurial activity and potential job creation across the U.S. economy.

The Business Formation Statistics (BFS) are an economic series provided by U.S. Census Bureau in collaboration with the Board of Governors of the Federal Reserve System offering insights into entrepreneurial and startup activity based on EIN and payroll data.   

Weaker Business Activity Event Driven

In the third quarter of 2024, the U.S. Census Bureau’s Business Formation Statistics reported a 6.2% year-over-year decrease in business applications compared to Q3 2023, highlighting ongoing challenges in new business creation. For September 2024, business applications saw a seasonally adjusted decline of 1.3% from August, amounting to 426,170 applications. Projected business formations within four quarters dipped slightly 0.4% month-over-month, signaling a modest decrease in expected start-ups ahead. We believe this performance and the weaker than expected October non-farm payrolls have been disproportionally impacted by work stoppages and climate events during the quarter. In 2024, the US experienced significant climate events, most recently Hurricane Helene. Many of these climate events were billion-dollar events.

This quarterly data underscores shifts in entrepreneurial activity amid economic and climate uncertainties, as reflected in the sustained lower applications compared to the prior year.

The Impact of Billion Dollar Climate Disasters (Jan – Oct 2024)

Key Indicators of Small Business Optimism

Depsite the near-term concern among small business owners, there remains an undercurrent of optimism. Understanding the health and trajectory of the small business sector requires careful analysis of several key indices that track different aspects of small business performance and sentiment. Let’s take a look at three primary small business indices. These are crucial barometers for measuring small business vitality across the United States.

NFIB Small Business Optimism Index

History and Methodology

Established in 1974, the National Federation of Independent Business (NFIB) Small Business Optimism Index stands as the longest-running and most comprehensive indicator of small business sentiment in the United States. The index surveys approximately 1,800 small business owners monthly across ten key components, including hiring plans, capital outlay, and sales expectations. This historical depth provides invaluable context for understanding long-term trends in small business confidence.

Current Analysis

According to the September 2024 report, the index stood at 91.5, marking the 33rd consecutive month below the 50-year average of 98. Despite this historical context, we see several positive indicators emerge. The report shows 73% of small business owners expect higher real sales volumes, and 44% plan to create new jobs in the next three months. Notably, 51% reported capital outlays in the last six months, demonstrating continued investment in growth. Other key findings include:

• Employment Plans: 15% of owners plan to create new jobs (up 2 points from August)
• Capital Investment: 51% reported capital outlays in the last six months, down 5 points
• Revenue Expectations: A net negative 9% expect higher real sales volumes, an improvement of 9 points
• Economic Outlook: A net negative 12% expect better business conditions, up 1 point

Particularly notable is the Uncertainty Index reaching 103, the highest reading recorded, reflecting significant concerns about economic conditions and policy changes. The data suggests small businesses remain cautious but are showing signs of increased optimism in specific areas like sales expectations.

According to the NFIB’s 2024 Small Business Problems and Priorities report, the cost of health insurance remains the #1 concern for small businesses. It has remained the top concern for the past 37 years.

MetLife & U.S. Chamber of Commerce Small Business Index

History and Methodology

Launched in 2017, this quarterly index provides detailed insights into small business perspectives and operations, with particular focus on local economic health, business environment, and cash flow expectations. The sample criteria are businesses with fewer than 500 employees that are not sole proprietorships. Additionally, the index, incorporates data from Ipsos and employs a sophisticated methodology that captures both current conditions and future expectations.

Current Analysis

The Q3 2024 score of 71.2 shows stability from the previous quarter’s 69.5, reflecting steady business confidence. Particularly encouraging is the finding that 73% of small business owners expect revenue increases in the coming year, while 44% anticipate increasing staff. Regional variations show strongest optimism in the Northeast (72.6) and South (72.1), with the Midwest (70.4) and West (69.5) following closely behind. Key findings include:

• Future Outlook: 73% expect revenue increases in the next year
• Hiring Intentions: 44% plan to increase staff, near the record high of 47%
• Business Health: Two-thirds view their business as being in good health
• Regional Variation: Northeast (72.6) and South (72.1) showing strongest performance
• Cash Flow: 68% report comfort with current cash flow levels

The index reveals particular strength in hiring plans and revenue expectations, though concerns about inflation remain prominent, with 56% citing it as their biggest challenge.

The MetLife US Chamber Small Business Index Score 2020 Q4 – 2024 Q3

Fiserv Small Business Index

History and Methodology

Introduced in 2020, the Fiserv Small Business Index takes a unique approach by analyzing actual transaction data rather than survey responses. This methodology provides real-time insights into small business performance through direct measurement of business transactions and spending patterns.

Current Analysis

The Fiserv Small Business Index reported a steady index of 141 in September 2024. The index shows year-over-year sales growth of 1.8% and strong consumer transaction growth of 4.0%. Notably, healthcare providers and trade contractors demonstrated particular strength, with growth rates of 4.7% and 2.8%, respectively.

Recent data indicates robust growth in small business spending, with significant findings including:

• Transaction Growth: Year-over-year increases averaging 9.2% across sectors
• Regional Performance: Strongest transaction growth in Northeast and West Coast regions
• Sector Variation: Service-based businesses and retail establishments showing particular strength
• Consumer Spending: Continued resilience in consumer spending supports small business growth

The transaction-based nature of this index provides valuable complementary data to the survey-based indices, offering concrete evidence of small business activity levels.

Summary of Index Findings

Consolidating the results from the three indices highlights important trends:

Persistent Challenges

• Inflation remains the primary concern across all indices
• Labor market tightness continues to impact growth
• Economic uncertainty remains elevated

Signs of Resilience

• Revenue expectations remain positive
• Hiring intentions continue to show strength
• Capital investment plans remain stable despite challenges

Regional and Sector Variations

• Northeast and South showing particular strength
• Service and retail sectors demonstrating robust growth
• Manufacturing facing specific challenges but maintaining stability

Forward-Looking Indicators

• Business expansion plans remain cautiously optimistic
• Investment intentions suggest continued growth
• Hiring plans indicate confidence in future demand

Government Stimulus Impact and Opportunities

Another key driver of small business growth has been the passage of key legislative initiatives of the current administration. Since COVID-19, significant government stimulus has been pumped into the US economy. The implementation of major federal initiatives has created unprecedented opportunities for small businesses. While government spending has occurred across the board, three core programs have been noteworthy with substantial job growth forecast in the decade following their passage. Some of the key spending initiatives include:

Inflation Reduction Act (IRA) Benefits

The IRA (2022) authorizing $891 billion in total spending has catalyzed significant investment in clean energy and sustainability initiatives. Treasury Department data shows that clean investments have increased substantially in disadvantaged communities, with 75% of announced investments occurring in counties with median incomes below the U.S. aggregate median. This represents a significant increase from pre-IRA levels of 68%, demonstrating the legislation’s effectiveness in driving economic development in areas that need it most. Analysts expect the IRA to create over 9 million jobs in the decade following its passage.

Bipartisan Infrastructure Law Impact

The Infrastructure Investment and Jobs Act (The Bipartisan Infrastructure Law) was passed in 2021. The $1.2 trillion infrastructure investment is creating substantial opportunities for small businesses across various sectors. Post passage, the law has driven the largest two-year increase in state and local capital investment since 1979, with funding strategically directed toward states with the greatest infrastructure needs. This creates numerous opportunities for small businesses in construction, transportation, and related services. The Act is expected to create more than 700,000 jobs annually between 2021 and 2031, many of which will be in construction, manufacturing, and transportation. 

CHIPS Act Opportunities

The CHIPS and Science Act of 2022 (the CHIPS Act) has opened new avenues for small businesses in the technology and manufacturing sectors, particularly in the semiconductor supply chain. The Act allocated $280 billion for investment in the nation’s semiconductor industry.  This creates opportunities not just for direct manufacturers but for a wide range of support services and suppliers. A recent study by Oxford Economics estimated that the Act is expected to generate an estimated 44,000 direct jobs by 2027, with an additional 240,000 new permanent jobs created.

Supply Chain Resilience Driving New Opportunities

The global supply chain disruptions experienced during the pandemic have been replaced by geopolitical risks and global economic uncertainty. Conflict in Europe and the Middle East and concerns in Asia Pacific are causing unease among companies dependent on global supply chains. These bottlenecks have created challenges on transit times, costs, and availability.  For example, the current conflict in the Red Sea has added an additional 14 days in transit times and an average cost increase of 1 million USD per trip.

Given these risks, there has been a significant shift toward nearshoring and reshoring initiatives, creating substantial opportunities for U.S. small businesses. This ongoing strategic realignment of supply chains has opened new avenues for small businesses to participate in domestic manufacturing, logistics, and support services across multiple industries. 

Between 2010 and 2023, it took 11 years to add the first million reshoring jobs but only 3 years to add the second million. 

Manufacturing restructuring efforts have created particularly robust opportunities for small businesses. The Reshoring Initiative reports that 2023 saw record levels of reshoring and foreign direct investment (FDI) announcements, with over 285,000 manufacturing jobs returning to or being created in the United States. Small businesses are benefiting both as direct manufacturers and as crucial suppliers to larger reshored operations. Component manufacturers, precision machining shops, and specialized industrial service providers are experiencing increased demand as larger manufacturers seek to establish reliable domestic supply networks.

New Small Business Opportunities

Nearshoring to Mexico and other North American locations has also generated significant opportunities for U.S. small businesses, particularly in border states. Small businesses are finding new roles in cross-border logistics, customs facilitation, quality control, and technical support services. The trend has been particularly beneficial for small businesses in the border states, e.g., Texas, Arizona, and California, where proximity to Mexico creates natural advantages for supporting nearshored operations. Additionally, states benefiting from reshoring include Alabama, Ohio, Georgia, Kentucky and North Carolina

Technology and automation have become crucial enablers for small businesses participating in reshored manufacturing. Small manufacturers are investing in advanced manufacturing technologies, including 3D printing, robotics, and Industrial Internet of Things (IIoT) capabilities. This technological adoption, often supported by federal and state grants, allows small businesses to compete effectively in terms of both cost and quality while maintaining domestic operations.

Closing the Skills Gap

Labor force development has emerged as a critical component of successful reshoring, creating opportunities for small businesses in training and workforce strategies. Additionally, trade schools have seen a resurgence as students eschew community colleges and four-year institutions. Enrollment in construction trade courses increased by 19.3% between 2021 and 2022. Small businesses are partnering with community colleges and technical schools to develop training programs, creating additional revenue streams while helping to address the skilled labor shortage in manufacturing. According to estimates, there are an estimated 2.1 million jobs that could go unfilled by 2030.  

Evolving Small Business Priorities and Challenges

The American small business landscape is rapidly evolving. As such, the issues and priorities of small business owners also continue to evolve. In 2020, the unique challenges of the pandemic drove concerns among small business owners. In 2024, while some issues and concerns carried over from 2020, the current economic environment have changed priorities. According to the NFIB’s 2024 Small Business Problems and Priorities report, the cost of health insurance remains the #1 concern for small businesses. It has remained the top concern since 1986. Based on the 2024 NFIB report, the top 10 small business concerns nationwide, several of which are workforce-related, include: 

1. Cost of Health Insurance: This key concern has remained the top issue for small businesses for the past 37 years. About 41% of respondents deemed it critical in 2024
2. Cost of Supplies/Inventories: This concern rose significantly in severity from 12th place in 2020 to 2nd place in 2024, likely due to inflation and supply chain disruptions post-pandemic. Roughly 20% of owners found this issue critical.
3. Uncertainty over Economic Conditions: This concern jumped from 9th place in 2020 to 3rd place in 2024, highlighting the economic volatility small businesses face. About 22% of owners found it critical
4. Federal Taxes on Business Income: Taxes consistently rank among the top concerns. 25% of respondents found federal business income taxes a critical problem in 2024
5. Locating Qualified Employees: Finding skilled workers continues to be a major challenge for small businesses, though the severity of this issue declined slightly from 2nd place in 2020 to 5th place in 2024. 28% of owners found it critical.
6. Cost of Natural Gas, Propane, Gasoline, Diesel, Fuel Oil: Rising energy costs pushed this concern up significantly from 19th place in 2020 to 6th place in 2024. 24% of respondents found it critical
7. Unreasonable Government Regulations: The overall severity of this concern declined slightly, moving from 6th place in 2020 to 7th in 2024. However, it remains a significant worry for 24% of small businesses who consider it critical.
8. Uncertainty over Government Actions: Policy uncertainty remains a significant concern for small businesses. This concern rose in severity from 2020 to 2024, ranking 8th. About 23% of owners found it critical
9. State Taxes on Business Income: This concern fell slightly in ranking from 7th place in 2020 to 9th place in 2024. Roughly 22% of owners found it critical
10. Electricity Costs (rates): High energy costs remain a concern for small businesses. About 16% of owners found this issue critical

Workforce Issues Remain Prevalent in Key Sectors

Across several sectors, labor issues remain front and center as the US contends with a skills gap and rapid demographic shift toward an aging population. The sectors with major workforce challenges are: 

• Construction: This sector consistently reports the most acute labor challenges. “Locating Qualified Employees” ranks as the second most severe problem for construction, with 35% of owners finding it “critical. Additionally, ” The difficulty in “Finding and Keeping Skilled Employees” is also significant, with 33% rating it as “critical.” Employee Turnover is also more pronounced in construction compared to the overall average. This sector also reports the highest concern regarding Undocumented Workers among all industries.
• Manufacturing: While not as severe as in construction, manufacturing also faces difficulties with labor. Given the ramp up in US manufacturing and the expected demand for jobs, “Training Employees” and “Managing Employees” rank higher in concern for manufacturing compared to the overall small business population. This suggests challenges in finding workers with the right skills and in managing workforce performance.
• Professional Services: Fields like legal, engineering, accounting, and health services, experiences a higher level of concern with “Training Employees” compared to the overall average. This suggests a need for ongoing professional development and specialized skills within these fields.

The Role of PEOs in Addressing Workforce Challenges

Professional Employer Organizations (PEOs) have emerged as a crucial solution for small businesses navigating these complex workforce challenges. PEOs offer comprehensive employment solutions that are particularly valuable in the current economic environment.

PEOs can be particularly valuable in tight or uncertain labor markets for several reasons:

• Enhanced Benefits Packages: PEOs pool employees from multiple companies to negotiate better rates on health insurance and benefits. This helps smaller companies compete with larger employers for talent. These benefits e.g.,(401k, dental, vision, etc.) would be too expensive individually.
• Reduced Administrative Burden: These organizations handle payroll, compliance, and HR administration. Removal of this administrative burden allows your organization to focus resources on core business and recruitment. This can be particularly valuable when HR staff are hard to find or retain.
• Risk Management:  PEOs share employer liability, ensuring compliance with employment laws. This is particularly important in competitive markets where misclassification and other mistakes can be costly.

Deel PEO: A Comprehensive Solution for Growing Businesses

Given the growth potential but real challenges facing small business owners, Deel emerges as a unique player. Deel ranks as the leading all-in-one global HR platform that supports companies with contractors or direct employees. The Deel advantage includes: 

• Streamlined global payroll over 150 countries
• Access to global talent pools
• Advanced HR information systems
• Integrated payroll and benefits systems
• Comprehensive Immigration Services 

Addressing Small Business Workforce Challenges

For small businesses in key sectors with acute workforce challenges, Deel US PEO and Payroll Services addresses the needs of businesses, offering a range of services designed to simplify HR management in the US or abroad. Additionally, the company allows businesses to seamlessly combine payroll and benefits supporting the ability to handle a range of HR issues from state tax compliance to terminations and worker claims. Key advantages to Deel’s platform include:

• Access to economies of scale for company benefits and benefits administration.
• Deel HR to manage your entire workforce: Deel HR is a free service for companies with less than 200 employees.
• Training, HR policies, and on-demand HR support
• Advanced tax and benefit compliance

Other benefits of partnering with Deel include:

DeelDel Payroll Dashboard

• Nationwide Coverage: Deel serves employers in all 50 states across all industries with a team of in-house experts knowledgeable with federal, state, and local labor laws.
• Market-leading Leading service: Deel provides a dedicated CSM with a 24/7 in-app chat and a 1.25-minute FRT (First Response Time). It ensures quality support and the ability to have questions answered promptly.
• Security and Data Protection: Dell’s platform provides tight data security and protection. The company is SOC2 and ISO 27001-certified. They also offer GDPR-compliant solutions with the ability to integrate with multiple SSO providers.

For US small and medium enterprises (SMEs) expanding internationally or international SMEs seeking to enter the US markets, Deel offers benefits. Companies can take advantage of Deel’s global footprint (150+ countries) and variety of services, including Global Payroll and Employer of Record (EOR). Whether companies are seeking to expand into fast-growing US markets or take advantage of geoeconomic trends, e.g., nearshoring or reshoring, Deel can address your needs. Most importantly, Deel’s platform is flexible and designed around scaling and optimizing support as your business grows. 

For small business seeking to implement or optimize their HR tech stack, the following guides below will help your team in thier decision-making process. 

• A Guide to PEO
• Global Sick Leave and Mental Health Day Template
• Guide to Running US Payroll
• The Global Hiring Toolkit
• A Guide to Choosing an HRIS for Your Business

Optimism and Growth to Continue in 2025

Finally, as we enter the final stretch of 2024 and consider opportunities for 2025, the small business sector continues to demonstrate unprecedented resilience and adaptability. Based on the current small business indices, optimism remains. Recent events such as Hurricane Helene and the September US dockworkers strike have created some near-term challenges. These have adversely affected trends in business formation and hiring. However, in the medium to longer term, the convergence of federal investment, technological advancement, and evolving consumer preferences creates favorable conditions for sustained small business success. Many small business owners have expressed an interest in the outcome of the US election. This watershed event on November 5, 2024, will determine policy direction in different areas for the next several years to come. 

While challenges persist, particularly in workforce management and economic uncertainty, the fundamental strength of American small businesses suggests a bright future for this crucial contributor to the economy. The strategic use of PEO services, particularly market-leading solutions like Deel PEO, positions small businesses to capitalize on current opportunities while building sustainable operational foundations. Expected growth in 2025 reinforces the essential role of small businesses in driving economic prosperity and community development across the United States.

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