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The economic fortunes of mom-and-pop businesses are diverging from those of their larger counterparts — a pre-existing gap that now appears to be getting bigger, faster.

Why it matters: 

The evidence is in the private-sector labor market, that in recent months, has been propped up by large companies as smaller firms — typically responsible for 40% of U.S. employment — shed workers.

The big picture: 

Larger businesses have been able to adapt to a tough economic backdrop — historic tariffs, high interest rates and a more cautious consumer — in ways far more challenging for small companies with fewer resources.

• “It’s evident that medium and large firms are better positioned to weather what’s going on,” said ADP chief economist Nela Richardson.
• “They can set prices, they can change suppliers. They can hire contractors instead of permanent employees in a more sophisticated way. They can hire globally, not just in their local region. They have more tools in the toolbox,” Richardson said.

By the numbers: 

The hiring gap between small and big businesses is getting worse, a fresh sign that small business firings are holding down jobs growth across the economy.

• As we mentioned yesterday, the private sector shed 32,000 jobs in November, according to payroll processor ADP. Small firms — those with fewer than 50 employees — accounted for all of the losses.
• Those businesses reported a net loss of 120,000 jobs, the most small businesses have cut since the pandemic’s onset. Larger businesses grew, but not enough to offset the cuts elsewhere.

“Small business hiring really started to slow in April and I attribute some of this to tariffs and the higher cost of doing business that small companies are much less able to absorb,” Peter Boockvar, chief investment officer at One Point BFG Wealth Partners, wrote in a note.

• “The natural reaction is to cut costs elsewhere and we know that labor is their biggest cost,” Boockvar added.

The intrigue: 

Bloomberg recently reported that there are more small businesses filing for bankruptcy under a special federal program this year than at any point in the program’s six-year history.

• Subchapter V filings, which allow firms to shed debt faster and cheaper, are up 8% from last year, according to data from Epiq Bankruptcy Analytics.
• Chapter 11 filings — a process used by larger businesses — are up roughly 1% over the same time frame.

Threat level: 

Main Street is bearing the brunt of an economic slowdown in ways that might make it even harder for small shops to compete with larger companies.

• One bright spot: Despite that pain, applications to start new businesses — ones likely to employ other people — remain notably higher than in pre-pandemic times, according to the latest data available from the Census Bureau.

What to watch: 

The Trump administration shrugged off the ADP data that indicated a hiring bust. Commerce Secretary Howard Lutnick told CNBC that the cuts were due to factors unrelated to tariffs, like immigration crackdowns.

• That hints at a debate among monetary policymakers, who are trying to gauge how much weak jobs growth is a byproduct of fewer available workers.
• But ADP had earlier told reporters that small businesses generally had less demand for workers — not that staff weren’t available for hire.