Small business profitability was down 1.3% in April from the previous year, the weakest reading in two years, the Bank of America Institute reports.
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Corporate profits have been surging, with the S&P 500 posting a 29% year over gain in the first quarter of 2026 alone. But on most Main Streets across America, it’s a different story. Small business profitability in April was down 1.3% from the previous year, the weakest reading in two years, according to a new national report from the Bank of America Institute, which crunched anonymized and aggregated data from the bank’s business clients with revenue below $5 million.
Economist Taylor Bowley, an author of the report, said a confluence of factors over the past year, particularly new international tariffs under the Trump administration and surging gasoline prices due to the war in Iran have combined to throttle small companies’ bottom lines. So it’s not surprising that the Small Business Optimism Index, as measured by the National Federation of Independent Business (NFIB), was below its historic average in April.
“Small businesses have really been in this position for at least a year or more now, in that there’s been one shock after another, spanning from when the tariffs were implemented around a year ago to now they’re being squeezed by rising fuel costs,” Bowley told Forbes. “We are starting to see Main Street feel more squeezed than Wall Street.”
The Iran war and the subsequent spike in gas prices in turn led to a 31% year-over-year increase in fuel spending by small businesses in April. That also contributed to a 6% year-over-year increase in producer prices, the biggest such jump since December 2022, Bank of America reported.
“Our data does show that it’s a mixed bag, and small businesses are being squeezed from rising costs,” Bowley said. “When you couple that with slowing sales growth, that leads to more cautious sentiment, and that’s probably why we’re seeing hesitation with hiring as well as expansion.”
That matters because in some states, as the map below shows, small businesses account for more than half of all jobs, Bank of America calculates.
The Share of Jobs Provided by Small Businesses
To be sure, there are bright spots in various parts across the United States. A number of cities in the American South, for instance, have posted stronger small business payroll growth numbers than many cities on the coasts or in the North. San Antonio and Dallas led major American cities in small business payroll growth as of April of this year, while the bottom five performing cities on payroll growth were all in the America West: San Francisco, San Jose, Los Angeles, Phoenix and Las Vegas. In Las Vegas, payroll growth in the three months ended in April was down about 10 percentage points from last year.
Over the past half-decade, the small business community performed a crucial role in job creation nationally, with small firms having created about half of all new net jobs between Q3 2020 and Q3 2025, Bank of America calculates.
But there have been significant drops in payroll growth so far this calendar year “across the board,” Bank of America reported. That was the case despite an uptick in payments to recruiting firms, as small businesses have struggled with a “labor supply shock.” Similarly, in the April NFIB survey, the lack of qualified labor was the top problem cited by small businesses surveyed, edging out even taxes.
But the American economy is not a monolith, and the bank report also found that a number of industries have proven more resilient in the face of macroeconomic pressures.
While sectors such as agriculture, construction and transportation have been hit the hardest by surging gas prices, small businesses in both the agricultural and transportation trades – along with retail and health services – posted payroll gains in April, the bank reported. In transportation, for instance, ongoing demand for couriers and messengers helped drive hiring, while health care “has been a consistent driver of jobs for more than a year,” the bank noted.
Hence Bowley’s description of the findings as a “mixed bag.”
“What has been so persistent is uncertainty,” Bowley said, when asked what the bottom line was for business owners. “It’s almost a question of, is uncertainty the new normal?”
Bowley speculated that one of the reasons for more payroll growth and better performance among small businesses in the American South is migration patterns; populations in states such as Texas have been growing, while other states, including California, have been steadily losing residents.
“Some of the economic expansion, as well as of course population growth, has really catered to small businesses flourishing in those areas,” Bowley said.
Bowley expects economic pressures will continue in the near-term, but added that there’s always a light at the end of the tunnel. She ticked off some positive factors. Despite consumers’ economic concerns, consumer spending has been resilient. High gas prices, while burdensome, only represent a small fraction of overall operating costs. And some small businesses should be able to capture big economic benefits from this summer’s upcoming World Cup, which will be held in 11 cities across the country.
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