Tariffs take a bit out of mom-and-pop stores as small business profit growth turns negative for first time in 18 months, BofA says

Bank of America’s Small Business Checkpoint shows profitability growth for U.S. small businesses slipped into negative territory in November (-0.02% YoY), the first such reading in 18 months, as tariffs and inflation force a record jump in price increases (net percent raising average selling prices rose 13 points to a net 34%). Sector data show wholesale trade down 1%—driven by tariff-exposed durables like electronics and furniture and weaker apparel—while overall profits were propped up by the holiday calendar (owners estimate Small Business Saturday drives ~20% of annual sales) even as Black Friday momentum cooled. Labor-market indicators point to cooling hiring (payments to hiring firms fell 4.6% YoY) despite some sectoral payroll gains and the highest near-term hiring plans of the year, and firms are increasing tech investment (tech-services spending +6.2% in November; 50% plan to adopt AI within five years) to try to restore margins, implying persistent margin pressure that could weigh on small-business-led employment and growth into 2026.

Analysis

Bank of America Institute’s Small Business Checkpoint shows U.S. small-business profitability growth slipped to -0.02% year-over-year in November, the first negative reading in 18 months, driven by tariff- and inflation-related cost pressures. The net percent of owners raising average selling prices jumped 13 percentage points from October to a net 34%—the largest monthly increase in the NFIB survey’s history and the highest reading since March 2023—indicating widespread pass-through of higher input costs.

Sector-level BofA account data show wholesale trade profitability down 1% in November, with tariff-exposed durables (electronics and furniture) and apparel leading the decline; revenues remain positive but margins are being eroded. Total small-business profits stayed in the black thanks to the holiday calendar—owners estimate Small Business Saturday generates ~20% of annual sales—but Black Friday momentum cooled and small-business bank accounts, while positive overall, show a deteriorating trajectory.

Labor indicators point to cooling small-business hiring: payments to hiring firms fell 4.6% YoY and BofA/ADP reports show job losses led by small firms, even as construction and restaurants raised payrolls and near-term hiring plans hit the year’s high. Firms are responding by investing in efficiency—tech services spending rose 6.2% in November and 50% of owners plan to adopt AI within five years—implying persistent margin pressure and a tilt toward automation-driven cost mitigation into 2026.

Key Decisions for Investors

• Monitor tariff developments and small-business pricing metrics (net 34% raising prices) and consider reducing exposure to consumer-discretionary and wholesale-durables names most tied to small-business margin stress
• Use hiring/payroll indicators (payments to hiring firms down 4.6% YoY, ADP and BofA employment reports) as leading signals to reassess exposure to regional banks and SMB-focused credit—avoid increasing credit risk exposure until hiring and profitability stabilize
• Tactically increase exposure to software and services vendors benefitting from SMB digital transformation (tech services +6.2% in November; 50% plan AI) as a defensive, margin-restoration theme
• For existing positions with material small-business revenue or lending exposure, consider hedging downside or trimming positions given ongoing margin compression and uncertain holiday carry-through into 2026