Corporate Polarization Deepens Amid U.S. Economic Boom... "K-Shaped Economy" Intensifies Beyond Consumption

Profit Growth Driven by AI Benefits Large Corporations
Small Businesses Cut Jobs Amid High Inflation and Tariff Burdens

The U.S. economy has maintained stronger-than-expected momentum, achieving a high annualized growth rate in the 4% range in the third quarter. However, the benefits have been concentrated among large corporations, rapidly widening the gap with small businesses. While large companies continue to improve their performance and expand hiring, fueled by the artificial intelligence (AI) boom and rising profits, small businesses are facing increasing management pressure as consumer sentiment weakens due to tariff burdens and high inflation. This is deepening the so-called "K-shaped polarization."

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On December 25 (local time), The Wall Street Journal (WSJ), citing a report from U.S. private labor market research firm ADP, reported that over the past six months, private companies with fewer than 50 employees have continuously reduced their workforce. In particular, about 120,000 jobs were lost at these small businesses in November alone.

In contrast, during the same period, mid-sized companies with 50 to 499 employees added about 51,000 jobs, and large corporations with 500 or more employees increased employment by about 39,000. This highlights a clear divergence in hiring trends by company size. Although the U.S. real gross domestic product (GDP) growth rate in the third quarter reached an annualized 4.3% compared to the previous quarter, indicating robust overall economic conditions, the benefits of employment expansion have been concentrated among large and mid-sized companies.

The polarization between companies is also evident in their performance. According to financial information provider LSEG, the net profit of large listed companies in the S&P 500 increased by 12.9% in the third quarter of this year compared to the same period last year. This trend was particularly pronounced among capital-rich big tech firms such as Amazon and Nvidia.

On the ground, small businesses are experiencing a rapid deterioration in business sentiment. Sydney Rieckhoff, CEO of the popcorn brand "Almost Famous Popcorn" based in Cedar Rapids, Iowa, said, "In a typical year, we would have hired 10 to 15 people for the holiday season, but this year it was only 4 to 5," adding, "Consumers have become much more cautious about spending." The company typically generates about 60% of its annual sales during the year-end holiday season.

The underlying cause of this phenomenon lies in the structural vulnerabilities of small businesses. Compared to large corporations, small businesses have lower profit margins and less cash on hand, leaving them with fewer buffers to absorb external shocks such as tariff increases, rising labor costs, or a decrease in immigrant labor. In particular, the strengthened tariff policies implemented since the launch of the second Donald Trump administration have imposed a more direct burden on small businesses.

The polarization between companies is also intensifying in line with recent divisions among consumer groups. While high-income earners, whose assets have increased due to the stock market rally, are maintaining or even increasing their spending, middle- and low-income groups are cutting back on expenditures under the weight of high prices. The U.S. Federal Reserve also noted in its Beige Book, released in November, that "overall consumer spending has declined, but retail spending on high-priced goods remains solid."

Given that the average wage for small business employees is lower than that of large company employees, there are concerns that the struggles of small businesses could lead to reduced consumption among low-income groups, creating a vicious cycle that further pressures small business management.

Ultimately, despite robust consumption and strong growth indicators, there are growing concerns that polarization within the U.S. economy is intensifying across both consumer groups and company sizes, calling into question the overall health of the economic structure. Analysts suggest that much of the apparent economic strength may be a mirage created by headline indicators.

Experts warn that the gap between high-income and middle- to low-income groups emerging in the consumer market-the so-called "K-shaped economy"-is also manifesting in the corporate sector, raising the risk that economic polarization will become further entrenched. Taylor Bolli, an economist at the Bank of America (BoA) Institute, stated, "Two very different realities are unfolding simultaneously in both the consumer economy and the corporate economy."