An increase in small business hiring will complicate the Fed’s efforts to slow the economy.

As of February 2020, small businesses — companies with fewer than 250 employees — employed 3.67 million more people than those who downsized or quit. Despite expanding in some fast-moving epidemics like technology, large businesses with 250 employees or more shed a net 800,000 jobs during that period. According to data from the government’s Job Vacancy and Labor Turnover Survey.

“Small businesses are literally taking over the labor market,” said Aneta Markowska, chief economist at Jefferies.

Elizabeth Trenbeth, franchise president at Snelling Staffing in Lexington, S.C., said in recent months she has been inundated with inquiries from small and medium-sized businesses looking for staff.

“We’ve been getting a lot of unsolicited calls from people in all different industries needing help with support,” said Ms. Trenbeth, whose company is part of HireQuest. Inc.

“When I picked up the phone, it was very disappointing.”

Investors are keeping a close eye on the sharp increase in small business hiring because it will have major implications for financial markets.

In the sometimes perplexing logic of Wall Street, good news for the economy — such as an increase in employment at small businesses — can be bad news for the market. As long as the labor market is strong, the Fed will have difficulty slowing the economy and curbing inflation and raising interest rates.

According to Ms. Markowska’s calculations, small businesses accounted for 78 percent of US job listings in November, the latest month for which data are available, and 91 percent of post-pandemic job openings. Fed Chairman Jerome Powell contrasted the 10.5 million job openings with data showing the US had six million unemployed workers that month, keeping inflation at unacceptably high levels.

Awards and Map Now known as Snelling Staffing, the firm’s office is in Lexington, SC.

Central bankers have pointed to the labor market as the main driver of inflation, although wage increases have lagged significantly behind overall inflation.

The Fed’s rate hikes – seven hikes last year brought US interest rates to their highest levels since the global financial crisis – have already had a major impact on markets and the economy. The S&P 500 suffered its worst annual loss since 2008 last year, and bonds had their worst year on record.

If the Fed fails to slow the labor market and weaken the economy, policymakers need to be proactive, said Joe Amato, president of Neuberger Berman. “This increases the chance of the car running into a deep pothole,” he said.

Large businesses get most of their foreign currency by issuing bonds or selling new shares of stock. In the year The downturn in both stocks and bonds in 2022 has caused many to stop or delay hiring as they are unable to tap the markets for cheap financing.

Many large companies in various sectors have laid off workers and ordered hiring after their stock prices plummeted last year.

Small businesses, meanwhile, continue to go crazy for workers. They said they have to raise wages to attract more workers.

Small businesses generally depend on what consumers buy to increase or decrease their headcount. Data shows that Americans are spending less, but still spending more. U.S. retail sales at the end of 2022 fell month-on-month for the first time since November and December 2020. But the November and December readings were up 7.6 percent and 6 percent, respectively, from their 2021 levels.

According to the Federation of Free Trade Association’s latest survey of small companies, the demand for workers remains high and many are unable to fill vacancies. While the percentage of companies that failed to fill vacancies in December fell to the lowest level, when 2022 and 2021 are excluded, that reading would be the highest since 1986.

Holly Wade, executive director of the NFIB Research Center and overseeing the group’s survey, said, “For those who want to fill the vacancies, many of them are still increasing and planning to increase compensation.

in Richmond, Va. Gary Weiner, president and CEO of Saxon Shoes, is looking to double its sales force by 2022, hiring about 15 people. He was able to hire only about half that number, and said his workers were forced to scrounge for years. He hopes to add more employees this year.

“We’ve tried to compete, to stay in the market, we’ve raised our starting wages, but we’ve been feeding people who want jobs,” Mr. Weiner said.

But the small business bonanza may be coming to an end.

The Fed has said it plans to raise rates this year. This is expected to slow the economy, with the central bank projecting the US economy to grow just 0.5% in 2023. The economy grew by an average of 2.1 percent from 2012 to 2021. Most economists and big banks are predicting a recession.

Smaller companies are historically the first to be hit during a recession and generally suffer more significant losses. The data shows that the clashes have already started. The NFIB’s Small Business Optimism Survey fell in December to 10 points below the 49-year historical average. The index has fallen year-over-year for 11 straight months in 2022.

“In general, small business owners are not optimistic about 2023,” said NFIB Chief Economist Bill Dunkelberg.

Small business owners who reported a decrease in sales in the past three months outnumber those who said their sales increased, according to the NIB survey. And others are expecting real sales volumes to decline rather than increase over the next six months.

Additionally, the Fed’s rate hikes are making it harder for small businesses to find or buy financing. The prime rate, which sets the floor for personal and small business loans, more than doubled to 7.50% in December from 3.25% in January 2022. Data from the Fed shows that banks have tightened their lending standards in recent months and are making fewer loans.

“Last year was a very good year for small businesses,” said Ms. Markowska, chief economist at Jefferies. “This is slowly starting to change.”