After years of post-pandemic optimism, small businesses across the United States hit a roadblock in 2024. A new nationwide survey by the Federal Reserve shows the long-promised “recovery” for many entrepreneurs hasn’t just stalled — it’s taken a step backward.
For the first time since 2021, more small businesses reported revenue losses than gains, underscoring the persistent economic pressures that continue to weigh on Main Street. The survey, based on responses from more than 6,000 small employers, paints a sobering picture of a sector still reeling from inflation, labor costs, and policy whiplash — with significant implications for jobs, innovation, and community development.
But beneath the surface of the numbers lies a deeper transformation. Small business owners aren’t just hurting — they’re changing. As uncertainty becomes the new norm, many are pivoting, downsizing, or rethinking what it means to succeed in the modern economy.
Revenue Declines Outpace Gains — A First Since 2021
In 2024, 41% of small businesses said their revenue declined, compared to just 38% who reported gains. This marked the first net-negative year since 2021, when pandemic-era challenges were at their peak. The Federal Reserve’s “revenue performance index” — which tracks the spread between businesses reporting gains versus losses — fell by seven points. That follows a smaller but still concerning three-point dip in 2023.
The majority of firms are still feeling squeezed. Just 46% operated at a profit, while 35% reported losses, and 19% broke even. These figures represent a step back from 2023 and highlight the tightening margins across industries — from retail and hospitality to manufacturing and professional services.
What’s Behind the Stagnation?
According to the survey, small business owners cite a common trio of culprits: rising costs, hiring challenges, and economic uncertainty.
- Costs: Inflation, while slowing overall, remains a top concern. Prices for goods and services — particularly raw materials and energy — have risen sharply in certain sectors. Labor costs, too, have jumped, as businesses strive to retain employees in a competitive job market.
- Labor market issues: Despite high interest rates and softening consumer spending, demand for skilled labor hasn’t eased. Many small businesses struggle to hire and retain workers without offering unsustainable wages or benefits. Nearly 6 in 10 employers said they had difficulty filling positions in 2024.
- Uncertainty: The broader policy environment is adding to the stress. Ongoing tariff revisions, immigration policy changes, and shifting federal regulations — particularly in energy and tech — have made long-term planning more difficult. With a presidential election on the horizon, many business owners are holding back on capital investments or expansion plans.
The Psychological Toll: Resilience Under Strain
Beyond the financial metrics, the emotional and mental burden on small business owners is rising. Many have spent the last several years navigating crisis after crisis — from the COVID-19 pandemic to supply chain disruptions to inflationary spikes.
Now, the feeling is less panic and more fatigue. Owners are exhausted from playing defense — and wary of making bold moves without more economic clarity.
That said, some are responding in innovative ways. A growing number of small firms are investing in automation, outsourcing back-office work, or shrinking their physical footprints in favor of hybrid or remote operations. Others are diversifying their revenue streams — adding e-commerce, launching subscription models, or forming partnerships with local creators and communities to sustain demand.
An Unexpected Bright Spot: Entrepreneurial Spirit Isn’t Dead
Despite the gloomy headlines, one trend remains unexpectedly strong: new business formation. In February 2025, the U.S. saw a 7.8% jump in new business applications compared to January — and a stunning 33% increase over pre-pandemic levels.
This suggests that while existing small businesses may be struggling, aspiring entrepreneurs still see opportunity in the changing economic landscape. Many are driven by necessity — after layoffs, career pivots, or a desire for greater control. But others are spotting niche markets, from AI-driven service firms to sustainability-focused local businesses.
The implication? Resilience in the small business sector is no longer about “returning to normal.” It’s about evolving.
Regional and Sector Variability: Not All Pain Is Equal
Not all businesses are hurting equally. The Fed’s data shows that certain industries, like hospitality and personal services, are still lagging behind others. These sectors tend to rely on discretionary spending, which has softened as consumers grow more cautious.
Geographically, smaller cities and rural regions — especially those dependent on one or two major industries — have reported sharper downturns. Meanwhile, urban and tech-forward regions have seen more stable or even growing demand, albeit unevenly distributed.
This geographic divide raises questions about how local policies, infrastructure, and workforce development programs can help level the playing field for smaller communities.
What Comes Next?
With economic headwinds continuing into 2025, small businesses are looking for relief — and clarity. Key areas they’re watching include:
- Interest rate policy: Will the Federal Reserve cut rates soon, or keep them elevated to combat inflation?
- Tax policy and regulatory stability: Businesses are hoping for fewer surprises and more predictability.
- Access to capital: As traditional lenders tighten their criteria, many small firms say it’s harder than ever to get loans.
While the future remains murky, one thing is clear: the small business sector is not standing still. Even as some struggle or close, others are adapting, experimenting, and surviving — just not always in ways that show up in quarterly revenue charts.
Final Thought: A Sector in Transition
The narrative of “recovery” often implies a return to what once was. But for many small businesses in 2024, the past isn’t coming back. Instead, they’re writing a new story — one of adaptation, reinvention, and resilience under pressure.
As policymakers and economic planners weigh how to support the backbone of the U.S. economy, they’ll need to move beyond the idea of recovery — and start investing in transformation.