Struggles Continue for Small Businesses in New York, New Jersey, and Connecticut as Pessimism Grows

Recent data from the Federal Reserve Banks reveals a concerning trend for small businesses in the Second District, which encompasses New York, New Jersey, and Connecticut. Companies in this region experienced a notable decrease in both employment and revenue growth during 2025, accompanied by deepening pessimism regarding their prospects for 2026. This report contrasts sharply with the national picture, where small firms maintained stable revenue and employment levels in the same year.

Performance Indicators: A Mixed Bag

The indicators established by the New York Fed utilize information from the Small Business Credit Survey (SBCS), an annual evaluation of businesses with fewer than 500 employees conducted by the twelve Federal Reserve Banks. Importantly, this analysis focuses specifically on employer firms—those employing at least one individual besides the owner. While insights are drawn from national performance data, the stark contrast between Second District businesses and their national counterparts is concerning.

Revenue Trends

Data from 2025 presents a disheartening scenario for regional firms. Revenue growth declined by over 8 percentage points compared to the previous year, in stark contrast to national firms, which reported stable revenues. The struggle appears most severe among smaller companies, particularly those employing fewer than ten individuals, yet all sizes faced challenges in the Second District. As firms look to 2026, the outlook is bleak: expectations for revenue growth have fallen drastically, with national firms anticipating a 6 percentage-point decline, while regional firms expect a staggering drop of between 20 and 30 percentage points. This steep decline marks the most pessimistic outlook reported since 2020.

Insights on Profitability

Interestingly, while revenue appears to be in a state of decline, profitability metrics tell a slightly more optimistic story. National firms reported profits 13 percentage points more than losses, whereas regional firms noted profits 8 percentage points ahead of losses. This improved profitability could reflect better conditions in 2024 compared to 2025; nevertheless, profitability levels remain significantly below pre-pandemic benchmarks, which were 46 percentage points for national firms and 41 percentage points for regional firms in December 2019.

Employment Concerns

Employee growth statistics continue to underscore the regional firms' struggles. Whereas national firms—except larger ones—saw steady employment growth, the regional businesses encountered an overall decrease of 9 percentage points in employment in 2025. This sentiment is echoed in expectations for 2026, where businesses across the Second District anticipate even lower employment growth. Significantly, a notable decline of 16 percentage points is expected among regional firms, contrasting with lesser declines of fewer than 4 percentage points for national businesses. Alarmingly, large regional firms are anticipating negative employment growth for the first time in the survey's history, reflecting ongoing struggles to regain pre-pandemic employment levels.

Debt Levels and Financial Challenges

The financial landscape for Small Businesses in the region remains precarious, with debt levels per employee reaching approximately $81,000 for regional firms, increased slightly from 2024. Conversely, national firms reported debt of around $67,000 per employee. Despite these high debt levels, a similar proportion of firms did not receive the full credit for which they applied and cited not requiring additional funds as the reason for not seeking credit. This indicates that, unlike in previous years, credit availability hasn't emerged as a significant constraint on growth.

Technology Utilization and Supply Chain Issues

Regrettably, technology adoption remains a challenge for small businesses in the Second District. There has been a marked increase in the number of firms citing technological difficulties, contrasting with national trends where supply chain issues appear to be declining. This technological struggle could further impede small businesses’ abilities to compete and innovate, exacerbating their already precarious standing.

Conclusions on Small Business Outlook

In summary, the data indicates that small businesses in the Second District are facing significant hurdles. The deterioration in revenue and employment, paired with an overwhelmingly pessimistic outlook for 2026, foreshadows deep challenges ahead. Comparatively, regional expectations for 2026 are depressed compared to those of small firms nationwide, where declines were less significant. For regulators and policymakers, understanding these regional disparities is vital for tailoring effective responses to support small businesses in their recovery and growth efforts.

Will Aarons is a research analyst in the Federal Reserve Bank of New York’s Research and Statistics Group.

Asani Sarkar is a financial research advisor in the Federal Reserve Bank of New York’s Research and Statistics Group.

@article{AaronsSarkar2026,
author={Aarons, Will and Sarkar, Asani},
title={Struggling Regional Small Businesses Deeply Pessimistic About 2026 Prospects},
journal={Liberty Street Economics},
note={Liberty Street Economics Blog},
number={June 2},
year={2026},
url={https://doi.org/10.59576/lse.20260602}
}

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