Richmond Fed Survey Shows Small Businesses Impacted More by Tariffs

Local business conditions are negative for small and mid-sized businesses.

Assessing Manufacturing Business Conditions by Firm Size

Note: The graphs and discussion in this article are diffusion indexes. Values range from +-100 (e.g. every business reporting worsening conditions =-100 and every business reporting improving conditions =+100).

Please consider Assessing Manufacturing Business Conditions by Firm Size

Fifth District manufacturing activity, as measured by the Richmond Fed manufacturing composite index, has been sluggish over the past few years. To better understand these dynamics, we look at firms’ reported performance by size.

We find that large manufacturers are more likely to report improved activity compared to small and mid-sized firms. Specifically, large firms were more optimistic about local business conditions, employment, shipments, and new orders, and were more able to restructure supply chains to address changes in trade policy.

Local Business Conditions

Starting in late 2024, sentiment about current local business conditions began to differ between larger and smaller firms — a trend that intensified through 2025. For example, in 2025, the average local business conditions diffusion index — the share of firms that reported improved conditions minus the share that reported deteriorated conditions — was 13 for large manufacturers, indicating that more large firms thought conditions had improved than those who thought that conditions worsened. On the other hand, the index for small and mid-sized manufacturers were -23 and -18, respectively.

Richmond Fed Employment Diffusion Index

Employment

When we look at the employment diffusion index, we find that mid-sized manufacturers were more likely to report a monthly decline in employment starting in mid-2024. Then in mid-2025, small manufacturers also began reporting decreasing employee headcount. However, larger manufacturers continued to increase employment, as evidenced by a continually positive index for large firms.

Shipments Converge Near Zero

There was no consistent difference in reported monthly changes in shipments across different firm sizes until 2025 when mid-sized manufacturing firms began to report sharp declines in shipments. Since mid-2025, the shipments index for small and large manufacturing firms has declined. Interestingly, our shipments index across all firm sizes has converged to similar levels in the past month across firm sizes.

New Orders Collapse for Small and Mid-Sized Businesses

Beginning in July 2024, larger firms started to outpace smaller ones in reported changes in new orders. In 2025, the new orders index for large manufacturing firms reached its peak of 30 in March 2025, while small manufacturers reached a peak of 2 in April. Mid-sized manufacturers, on the other hand, never entered positive territory. Although the gap between large and small manufacturers narrowed throughout 2025, it persists. As of September, large manufacturing firms reported a noticeably higher diffusion index compared to small and mid-sized firms.

The survey shows new orders for large businesses in positive territory at +7.0. The diffusion index for small and medium businesses are respectively -18.3 and -28.0.

Large and Small Firms Reacted Differently to Tariffs

In our August 2025 survey, we asked firms about the impact of recent tariffs on their businesses. When asked about the level of uncertainty regarding their input costs, 40 percent of small manufacturers and 57 percent of mid-sized manufacturers reported having no certainty about their input costs. In comparison, only 23 percent of large manufacturers were not at all certain of their input costs.

75 percent of small and mid-sized manufacturers planned to increase prices in response to tariffs, compared to 50 percent of large firms. Investment decisions were different, too: Thirty-eight percent of small and mid-sized manufacturing firms delayed capital expenditures due to tariffs, compared to 17 percent of large firms.

Meanwhile, large firms were more likely to revisit their supply chains in response to tariffs. Half of large manufacturing firms sourced new domestic suppliers, compared to 40 percent of small manufacturers and 30 percent of mid-sized manufacturers. Additionally, 42 percent of large manufacturers sourced new international suppliers, a higher percentage than both small and mid-sized manufacturers.

As Expected

The survey result confirm what I have been saying for months. Small businesses are getting clobbered by Trump’s tariffs.

Worse yet, due to inventory stocking, the full impact has not yet been seen.

Larger firms had more warehouse viability and resourcing options than small businesses. Expect further deterioration in small and medium-size business conditions.

Other sources such as ADP payrolls confirm the Richmond Fed survey.

Private Employers Added 42,000 Jobs in October

This morning, I reported Private Employers Added 42,000 Jobs in October, First Increase Since July

Surprised by the Small Business Drop?

If so, you shouldn’t be. Tariffs are particularly hard on small businesses who have fewer means of tariff avoidance.

Year-over-year small business employment is negative for the third consecutive month. The small business employment trend is increasingly lower for five consecutive months.

This shows up in the polls as well. And it explains the dismal results on Tuesday’s elections.

ADP October Private Job Change

• Small: -10,000
• Medium: -22,000
• Large: +74,000

Year-Over-Year Change in Employment

• Small: -68,000
• Medium: +327,000
• Large: +836,000

This is a huge problem because small businesses are the key driver for job growth.

Current Employment by Business Size

ADP Current Employment Breakdown

• Small: 58.5 Million (and sinking)
• Medium: 36.9 Million
• Large: 39.1 Million

Voters are Angry

On Tuesday voters had a chance to elect a New York city mayor, governors in Virginia and New Jersey, and other offices in Pennsylvania, Georgia, and Texas.

It was a clean sweep across the board in every election.

For discussion, please see my November 5 post How Bad an Evening Did Republicans Have in Yesterday’s Elections?

Let’s discuss some election benchmarks, posted in advance.

Some dismiss the results as mid-term expected normality in blue states. Sorry, even Georgia, Pennsylvania, and Texas came into play. And the margins were amazing.

Tariffs are not working. The labor market is not good. And inflation is a huge problem.

That shows up in the polls and in Tuesday’s election. It shows in ADP payroll reports, and it shows up in the Richmond Fed survey.

Trump ran on a campaign of lowering inflation, improving housing, and bringing jobs back to the US. He has flunked on all of the above.

Please note his new battle cry Trump Adopts Chicago Cubs’ Perpetual Message, “Wait Till Next Year”

“One Big Beautiful Bill” did not resonate. Trump opts for “Wait Till 2026”.

I have news for you. Trump’s tariff policy is such that “wait till next” year is going to fail.