Profit Growth Driven by AI Benefits Large Corporations
Small Businesses Cut Jobs Amid High Inflation and Tariff Burdens
Although the U.S. economy continued to show stronger-than-expected momentum in the third quarter with an annualized growth rate in the 4% range, this performance has been concentrated among large corporations, rapidly widening the gap with small businesses. While large corporations have continued to improve their earnings and expand hiring, driven by the artificial intelligence (AI) boom and increased profits, small businesses are facing growing management pressure as consumer sentiment weakens due to tariff burdens and high inflation.
On December 25 (local time), The Wall Street Journal (WSJ), citing a report from U.S. private labor market research firm ADP, reported that private companies with fewer than 50 employees have continuously reduced their workforce over the past six months. In particular, about 120,000 jobs were lost at these small businesses in November alone.
In contrast, during the same period, medium-sized companies with 50 to 499 employees increased employment by about 51,000, and large corporations with 500 or more employees added approximately 39,000 jobs, clearly highlighting the employment trend gap by company size. Although the U.S. real gross domestic product (GDP) growth rate for the third quarter reached an annualized 4.3% compared to the previous quarter, indicating overall economic strength, the benefits of job growth have been concentrated among large and medium-sized companies.
The polarization between companies is also evident in 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. The trend of improved performance was particularly pronounced among well-capitalized big tech companies 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 previous years, we would have hired 10 to 15 people to prepare for the year-end peak season, but this year it was only 4 to 5," adding, "Consumers have become much more cautious about spending." The company generates about 60% of its annual sales during the year-end and New Year season.
The background of this phenomenon lies in the structural vulnerability of small businesses. Compared to large corporations, small businesses have lower profit margins and less cash reserves, meaning they lack the buffers to absorb external shocks such as tariff increases, rising labor costs, or a decline in immigrant labor. In particular, the strengthened tariff policies following the launch of Donald Trump's second administration have become a more direct burden for small businesses.
The polarization among companies is also intensifying in conjunction with the recent segmentation among consumer classes. While high-income groups, whose assets have increased due to the stock market rally, are maintaining or expanding their spending, middle- and low-income groups are cutting back on expenditures under the burden of high prices. The U.S. Federal Reserve also noted in its Beige Book, an economic report 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 workers is lower than that for large corporation employees, there are concerns that the sluggishness of small businesses could lead to a contraction in low-income consumer spending, which in turn could further pressure small business management, creating a vicious cycle.
Ultimately, despite robust consumption and strong growth indicators, experts point out that polarization among consumer classes and by company size is deepening within the U.S. economy, making it difficult to conclude that the economic fundamentals are entirely healthy. Analysts suggest that much of the apparent economic boom is, in fact, a mirage.
Experts warn that the gap between high-income and middle- and low-income groups observed in the consumer market-known as the 'K-shaped economy'-is also appearing in the corporate sector, raising concerns that economic polarization could become even more entrenched. Taylor Bolli, an economist at the Bank of America (BoA) Institute, said, "Two very different realities are unfolding simultaneously in both the consumer and corporate economies."
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