Small Businesses Add 37,100 Jobs: January 2026 Gusto Small Business Jobs Report

Hiring among America’s small businesses posted solid gains in January, adding +37,100 net new jobs for the month – slightly below the 12-month average of 52,400 jobs, but marking continued improvement from the October-November soft patch and a sharp year-over-year gain from January 2025’s -12,100 net job loss.

Below the surface, the January data reveal striking divergence by industry and company size. Healthcare posted solid gains (+17,100 jobs), as did consumer-facing sectors like hospitality and retail, while professional services saw sharp job losses. Meanwhile, the smallest businesses (with 1-4 employees) experienced significant weakness, even as larger small businesses continued adding workers at a healthy pace in January.

The overall picture suggests small business hiring remains on stable footing heading into 2026. With the Federal Reserve’s rate cuts likely to continue reducing borrowing costs – and our own revised hiring data showing December’s small-business hiring was even stronger than initially reported – the trajectory appears cautiously positive for the year ahead. This is broadly consistent with our recent finding that small businesses compensation also closed 2025 on a strong note, with average year-end bonuses paid to employees increasing 11.5% in December 2025 from one year ago.

The Big Picture: Steady Hiring Continues

Gusto data show that in January there were an estimated +37,100 net hires among small businesses nationally on a seasonally adjusted basis. While this represents a step down from December’s strong year-ending performance, it remains well above the pace from last January of -12,100 net job loss, and reveals continued stability in America’s small business hiring.

Here’s how January 2026 small-business net hiring compares to recent months:

• October 2025: +43,900 net hires

• November 2025: +500 net hires

• December 2025: +78,500 net hires

• January 2026: +37,100 net hires

U.S. small businesses hired 2.01 million workers in January, while terminations (employee separations for any reason) reached 1.97 million, resulting in solid net job growth nationally. The 12-month average now stands at +52,400 net hires per month for the nation overall (February 2025 – January 2026).

Notably, the overall pace of both hiring and terminations remains far below the pace we saw a year ago – a trend we’ve repeatedly referred to as the “Great Freeze” in the labor market. Hiring for small businesses peaked at 3.4 million per month in January 2022. Hirings by small businesses were down -15.5% from one year ago in January, and separations were down -17.5%.

Most economists believe this slowdown in both the pace of hiring and terminations reflects persistent caution among business owners and workers despite improving interest rate conditions, as uncertainty around tariffs and AI’s impact on work continues to weigh on Americans’ minds.

A note on revisions: Each month we revise our initial estimate from past months to reflect payroll changes by small business owners recorded since our last report. This month, our December net hires figure was revised upward from our initial estimate of +47,900 to +78,500 net hires – suggesting that year-end hiring was considerably stronger than initially reported.

Consumer-Facing Sectors Surge, Professional Services Decline

The January small business hiring picture showed sharp divergence across sectors. Consumer-facing and healthcare industries posted strong gains:

• Health Care and Social Assistance: +17,100 net hires

• Accommodation and Food Services: +16,200 net hires

• Retail Trade: +11,900 net hires

• Manufacturing: +6,300 net hires

• Administrative and Support Services: +4,300 net hires

As in previous months, healthcare remains the standout performer among America’s small businesses. Over the last 12 months, healthcare small businesses have added an average of 16,200 jobs monthly, far outpacing every other sector. January’s surge in hospitality hiring (+16,200) is particularly notable, suggesting consumer spending on dining and travel remained strong to start 2026.

However, several sectors posted notable job losses in January:

• Professional, Scientific, and Technical Services: -14,000 net hires

• Wholesale Trade: -4,400 net hires

• Real Estate and Rental and Leasing: -3,300 net hires

• Arts, Entertainment, and Recreation: -2,500 net hires

The sharp pullback in professional services – a large sector that includes some tech companies as well – is the most significant development, suggesting that white-collar small businesses may be experiencing renewed caution despite overall economic stability.

Regions: Midwest and South Lead, West Struggles

January’s regional numbers showed strong performance in the nation’s interior, while coastal regions faced headwinds:

• Midwest: +23,800 net hires

• South: +19,400 net hires

• Northeast: +6,400 net hires

• West: -12,600 net hires

Small businesses in the Midwest led the pack among U.S. regions for hiring in January. However, over the past 12 months the South has been the clear leader, averaging +19,300 net hires monthly, followed by the Midwest at +11,700. The West’s January weakness is notable given the region’s historically strong tech sector presence.

Company Size: Largest Businesses Thrive, Smallest Struggle

Breaking down the numbers by company size reveals another interesting divergence in January:

• 20-49 employees: +52,900 net hires

• 5-9 employees: +8,700 net hires

• 10-19 employees: +8,100 net hires

• 1-4 employees: -32,700 net hires

This divergence between the largest and smallest small businesses in January is a concerning trend worth monitoring closely in coming months. Larger small businesses with 20–49 employees posted exceptional gains of +52,900 net hires, while the smallest businesses with 1–4 employees experienced substantial job losses of -32,700.

This pattern suggests that more established small businesses are finding opportunities to grow, while the very smallest businesses are facing headwinds today. That is especially notable given that new business formation in the U.S. remains at historically elevated levels, meaning more businesses than ever are entering this fragile early stage of growth. With so many new firms being created, ensuring their survival and ability to scale is increasingly important for the long-term health of the small business economy. Over the past 12 months, businesses with 20–49 employees have averaged +19,500 net hires monthly, followed by those with 5–9 employees at +14,300. Businesses with 10–19 employees hired an average of +14,000 per month, while the smallest companies averaged just +4,600 monthly.

Takeaways for Small Businesses

January’s solid overall small-business hiring numbers – coupled with strong upward revisions to our previous December estimates – suggests small business hiring remains on a stable trajectory heading into 2026. The year-over-year improvement of nearly 50,000 net hires compared to January 2025’s net job losses underscores that stability.

However, the data reveal important fault lines beneath the surface. Healthcare and consumer-facing sectors continue to show strength, with hospitality and retail posting robust gains alongside healthcare’s continued dominance. But the sharp pullback in professional services and the struggles of the very smallest businesses suggest that economic uncertainty remains a concern for some segments of the small business economy.

Looking ahead to the rest of 2026, the continued effects of likely Federal Reserve rate cuts should progressively improve conditions for small businesses, particularly those seeking to invest or expand. The key question will be whether the strength in larger, more established small businesses can broaden to include the microenterprises and solopreneurs that appear to have struggled (at least in terms of net hiring) in recent months. However, as of today the overall trajectory for America’s small businesses remains cautiously positive.

Methodology

The Gusto Small Business Jobs Report tracks anonymized payroll data from a stratified random sample of roughly 100,000 small businesses across the United States with 1-49 employees, drawn from the 400,000+ companies on Gusto. All figures in this report are seasonally adjusted unless otherwise noted.

To ensure the findings represent small businesses across the United States, Gusto uses a two-stage weighting process. First, we randomly select a representative sample of companies (roughly 100,000 businesses annually) that match the national distribution of small businesses by industry, company size, and geographic region, using U.S. Bureau of Labor Statistics “Quarterly Census of Employment and Wages” data as a benchmark. Second, we adjust the sample to reflect the national distribution of company ages based on data from the Census Bureau’s “Business Dynamics Statistics”.

This report provides three key metrics for small businesses each month: Hires (new employees starting work), terminations (employees leaving for any reason), and net hires (the difference between hires and terminations, showing whether small businesses are creating or losing jobs overall). All data are seasonally adjusted using the U.S. Census Bureau’s X-13ARIMA-SEATS methodology to account for predictable fluctuations throughout the year, making it easier to identify meaningful trends in small business employment. All data are freely available for download at http://gusto.com/insights.