A sudden rupture in the U.S. labor market has put small businesses at the center of an emerging jobs downturn, intensifying pressure on the Federal Reserve just as it weighs whether to cut interest rates. In November, private employers reported a loss of 32,000 jobs, the steepest monthly decline since early 2023, and the fourth negative reading in six months. Behind that headline, a stark split emerged: small firms shed 120,000 positions while larger employers expanded payrolls, signaling a shift from cooling growth to outright contraction.
Labor Market Turns Negative
The November figures marked a clear break from the pattern of steady, if slowing, employment gains over the past two years. Economists had expected private-sector employment to rise—FactSet projected more than 40,000 new jobs and Reuters anticipated growth of nearly 10,000—but instead companies cut a net 32,000 roles. The roughly 72,000-job gap between expectations and reality reverberated through financial markets and policy circles, raising concerns that the slowdown is deepening faster than previously believed.
Revisions to October data had temporarily obscured this weakening trend. Once those adjustments were stripped out, a sequence emerged: losses of nearly 33,000 jobs in June, about 3,000 in August, 32,000 in September, and another 32,000 in November. It is the most persistent stretch of job declines since the 2020 downturn and suggests momentum in the labor market is now tilted toward contraction rather than expansion.
Small Businesses Under Strain
Nowhere is the stress more visible than among smaller employers. Firms with fewer than 50 workers cut 120,000 jobs in November, including 46,000 at micro businesses and 74,000 at companies with 20 to 49 employees. These cuts largely came from long-established operations rather than new ventures, indicating deeper financial strain rather than early-stage volatility.
By contrast, large organizations added 39,000 jobs and mid-size employers increased headcount by 51,000. The 210,000-job gap between small-business losses and gains at larger companies underscores how rising costs and borrowing rates are hitting smaller firms disproportionately. Matthew Martin of Oxford Economics said on December 3 that small firms with fewer than 50 employees “have felt the pinch of policy uncertainty, rising input costs and high interest rates the most.” Sean Higgins of the Competitive Enterprise Institute pointed on December 4 to “a lot of economic uncertainty right now due to tariffs and other things,” highlighting how overlapping pressures are squeezing smaller operators.
Financial indicators from the National Federation of Independent Businesses reinforce that picture. In November, a net negative 23 percent of small-business owners reported positive profit trends, and a net negative 9 percent reported higher nominal sales. The NFIB Uncertainty Index rose 3 points in November to 91, up from October’s reading, signaling that anxiety about capital expenditure plans remains elevated. With roughly 20 to 25 million Americans employed by small firms, the month’s 120,000 job cuts represent about 0.5 to 0.6 percent of that workforce—an erosion that would become severe if it persisted.
Regional and Sector Fault Lines
The weakness is not evenly distributed across the country or across industries. The Northeast suffered an especially sharp blow, losing 100,000 positions in November—more than the net nationwide decline. The South shed 43,000 jobs, while the Midwest added 45,000 and the West gained 67,000, creating a pronounced regional divide between areas still expanding and those contracting rapidly.
Sector data show key middle- and high-skill industries coming under pressure. Professional and business services cut 26,000 jobs, information services eliminated 20,000, manufacturing reduced payrolls by 18,000, and construction lost 9,000 positions. Because these sectors serve as economic anchors in many communities, particularly in regions like the Northeast, their retrenchment can amplify local downturns.
Other parts of the economy continued to grow. Education and health services added 33,000 jobs, and leisure and hospitality gained 13,000. The contrast between cuts in traditionally higher-paying fields and gains in service-oriented sectors points to a rotation in labor demand that may have implications for wage growth and household incomes over time.
Signals From Wages, Consumers, and Tariffs
Pay trends added another sign of cooling conditions. Annual wage growth for workers who stayed in their jobs eased to 4.4 percent from 4.5 percent, while pay gains for job changers fell from 6.7 percent to 6.3 percent. Slower wage increases, combined with outright job losses, indicate softening labor demand just as many households face higher borrowing costs and lingering inflation.
Consumers are already reacting. Research from McKinsey indicates that about half of shoppers anticipate delaying spending in areas such as electronics and dining out, directly affecting the small retailers and restaurants now cutting staff.
Tariff policy has emerged as another pressure point for smaller firms, particularly manufacturers. Higgins noted that “the assumption with most tariffs is finished products. The problem is that a lot of times it is raw materials.” Larger manufacturers often have multiple suppliers and stronger negotiating power, allowing them to cushion cost increases. Smaller companies, dependent on a narrow set of vendors, have fewer options and are more likely to respond by reducing payrolls.
The combination of job cuts and softer wages carries clear consequences for households and local economies. The 120,000 positions lost at small businesses in November translate into annualized income losses estimated between $4.8 billion and $6 billion, based on median pay levels. With an average of roughly 2.5 people per household, about 300,000 individuals experienced immediate financial strain, forcing families in affected areas to cut spending or draw down savings.
Policy Choices and an Uncertain Outlook
The labor data arrive at a sensitive moment for U.S. monetary policy. Following the negative November report, market-based measures put the probability of a Federal Reserve interest-rate cut as high as 89 percent, and many economists penciled in a quarter-point reduction. Yet inflation remains near 3 percent, leaving Fed officials divided over whether easing policy could reignite price pressures even as growth slows.
That dilemma has been compounded by gaps in the government’s own statistics. A 43-day federal shutdown led to cancellation of the October employment report, and November’s official figures were delayed until after the Fed’s December meeting. For a time, the ADP report became the primary real-time reading on labor conditions, magnifying the impact of its weaker-than-expected numbers.
Forward-looking assessments reflect the same ambiguity visible in current data. Deloitte projects modestly negative job growth into early 2026 and expects unemployment to rise from 4.2 percent to 4.5 percent, with a downside scenario that includes a recession beginning late next year. PNC Economics foresees slower growth but not a downturn, while warning that hiring plans could shift abruptly if tariff-related uncertainty worsens. Peter Hansen of the National Federation of Independent Businesses observed on December 4, 2025, that “it is not just a business that is uncertain about its future. It is a business selling to people who are a little uncertain,” capturing how caution among both firms and consumers can reinforce each other.
As the Federal Reserve meets in December to decide whether to lower borrowing costs, the stakes are clear. A rate cut could relieve some of the financial burden on small employers and help stabilize hiring. Holding rates steady might contain inflation but risks allowing emerging labor-market weakness to deepen. After nearly two years of steady job gains, the economy has reached a turning point, and decisions made in the coming weeks will help determine whether this downturn remains contained or broadens into a more sustained slide.
Sources
ADP National Employment Report, December 3, 2025
U.S. Bureau of Labor Statistics (BLS) Employment Situation Reports and schedules,
Federal Reserve Open Market Committee (FOMC)
National Federation of Independent Businesses (NFIB) Small Business Optimism Index,
Reuters Survey of Economists on December Fed Rate Expectations, December 4, 2025
Federal Reserve Bank of New York and CME FedWatch Tool data on rate cut probabilities,
Federal Reserve policy guidance and commentary from FOMC members
University of Michigan Survey of Consumers on tariffs and spending expectations, August–October 2025
McKinsey ConsumerWise Research on Consumer Sentiment and Spending Intentions, December 4, 2025