K-shaped economy! The performance of large and small companies in the United States varies greatly

The U.S. economy is exhibiting a striking structural divergence: driven by the AI boom and soaring profits, the stock prices of large U.S. enterprises have repeatedly hit record highs with robust performance. In stark contrast, numerous small businesses are mired in operational difficulties, unable to withstand economic headwinds.

This stark "two-tiered" situation in the corporate sector truthfully reflects and exacerbates the widening wealth gap between high-income and low-income groups in the United States.

The latest employment data indicates that this divergence has triggered violent fluctuations in the labor market. According to figures from payroll processor ADP, private-sector businesses with fewer than 50 employees have been cutting jobs continuously over the past six months, shedding as many as 120,000 positions in November alone.

This trend stands in sharp contrast to mid-sized enterprises and, in particular, large corporations that keep adding jobs, highlighting the vulnerability of small businesses amid the current macroeconomic environment.

Market performance further underscores this rift. According to LSEG statistics, the third-quarter net profits of large listed companies included in the S&P 500 Index surged by 12.9% year-on-year. Capital-rich giants such as Amazon and NVIDIA generally enjoyed a bumper year. On the contrary, plagued by persistent inflation, cautious consumer spending, and tariff pressures, small businesses are seeing declining profitability, forcing them to implement cost-cutting programs.

As reported by *The Wall Street Journal*, Taylor Bowley, economist at the Bank of America Institute, pointed out that "two distinct economic realities" are currently observable in both consumer and business sectors. Although small businesses contribute over 40% of the GDP and employ nearly half of the U.S. workforce, their current strained state indicates that the K-shaped divergence within the U.S. economy is intensifying.

## Divergence Between Profitability and the Labor Market

The financial health of large and small enterprises has followed completely different trajectories.

Large listed companies have leveraged their economies of scale and the dividends of AI technology to expand profits, while small businesses are finding it increasingly difficult to survive.

An analysis of small business bank accounts by the Bank of America Institute shows that their earnings are slightly lower than levels seen a year ago.

This profit pressure has been directly transmitted to the labor market. In addition to the wave of layoffs at small businesses reported by ADP, the latest monthly report from Gusto, a provider of payroll and benefits services for small businesses, also reveals that small enterprises cut jobs in both October and November, with the retail and professional services sectors posting the steepest declines.

Data from Homebase echoes this trend as well; the company found that labor force participation rates and working hour metrics suffered their sharpest drops in three years in November, with the entertainment and hospitality industries contracting particularly severely.

## Structural Disadvantages and Tariff Shocks

Compared with large corporations, small businesses typically have slimmer profit margins and thinner cash reserves. They also lack the financing channels and expertise available to big companies, leaving them particularly vulnerable when faced with challenges such as high tariffs and a slowdown in the supply of immigrant labor.

Rising costs and uncertainties stemming from tariffs are eroding the survival space of small businesses. Brandon Mills, owner and CEO of Total Promotion Co. based in Las Vegas, said that due to ambiguity over who bears the tariff costs, the company frequently receives tariff bills from shippers, resulting in losses on certain orders. Plagued by slowing demand and rising costs, the company has reduced its workforce from 10 employees last year to just 6 now.

Similarly, STL-Style, a business located in St. Louis, was hit by tariffs this year following a lackluster holiday season last year. Randy Vines, co-owner of the company, described the tariffs as "the nail in the coffin", forcing them to cut employees’ working hours by approximately 25% in June and freeze holiday hiring.

## Consumer Downgrading and Cautious Spending

The predicament of small businesses is closely linked to the divergence among U.S. consumers.

The Federal Reserve’s latest *Beige Book* economic survey notes that overall consumer spending has declined further, while high-end retail spending has remained resilient. This reflects the reality that employees of small businesses have relatively lower incomes and cannot benefit from rising stock prices like affluent groups.

Such cautious consumer behavior has directly dealt a blow to businesses that rely on holiday sales. Sydney Rieckhoff, CEO of Almost Famous Popcorn headquartered in Iowa, said that during this time of year in previous years, the company would typically hire 10 to 15 additional employees to handle the holiday rush, but this year it only plans to hire 4 to 5.

She observed that corporate clients have placed smaller orders for customer and employee gifts, showing clear signs of "more thoughtful spending".

## Service Industry Facing Multiple Cost Pressures

In service sectors such as catering and entertainment, where over 90% of employers are small businesses, operators are grappling with the dual blow of sluggish customer traffic and skyrocketing costs.

Chad Moutray, chief economist at the National Restaurant Association, pointed out that these factors have severely eroded the profit margins of the catering industry.

Zach Negin, owner of Tabula Rasa Bar in Los Angeles, said that in addition to the impacts of wildfires and a slowdown in the entertainment industry, the prices of wine, cheese, and equipment replacement parts have risen due to tariffs, while labor, rent, and insurance costs have also surged.

In response, he has had to shorten employee shifts and refrain from filling vacancies when staff members leave. Negin admitted that his confidence in the company’s prospects is at its lowest point in a decade, and he can only sustain operations through constant adjustments.

## Risk Warning and Disclaimer

The market is risky, and investment requires caution. This article does not constitute personal investment advice, nor does it take into account the specific investment objectives, financial situations, or needs of individual users. Users should consider whether any opinions, views, or conclusions in this article are consistent with their specific circumstances. Any investment made based on this article shall be at the investor's own risk.