Here's what's happened in the small business economy this past month, based on payroll data for our over 15,000 small business customers.
The Scorecard hiring index ended the month at 10,466 nationwide. That's a .08% increase from the April figures. That marks three consecutive months of growth in the hiring index. In fact, in the past year, we've seen hiring index increases in eleven of twelve months.
That's good news. On average, small businesses have been growing in size in the United States, bringing on new employeees to meet increased demands for their product and services.
It's the pace of growth that concerns us. Year to date in 2005, small business hiring is up only a paltry 0.3%. With five months already behind us, that growth rate suggests that we might end up with a 0.7% increase in hiring for 2005.
That's far short of the performance we witnessed in 2004, when hiring at small businesses grew 4.4%. In the early days of 2005, we prediced that small business size would grow by 4.0% in 2005. It looks like we will be far off the mark.
Economists should take note of our numbers. It may be time to revise your estimates for 2005 economic growth.
Just prior to the elections last year, there were some predictions on GDP growth that are worth revisiting. The Federal Reserve was forecasting a 4 percent growth rate for 2005. The National Association for Business Economists put their estimate at 3.7 percent. Is it possible to hit those growth numbers for GDP when the small business economy is virtually standing still? We don't think so.
Salary Slide Continues
While job growth remained static, small business salaries continued their slow slide. The
SurePayroll Pay Index dropped yet again from 935 to 930. Average small business salaries have
decreased every month for the past fourteen months.
May's 2.3% year-to-date drop translates to an annualized rate of 5.34%, exceeding the salary declines we saw in 2004. Last year, average check size dropped by 4.8%.
Slowdown in the Free Agent Economy?
The streak is broken. After sixteen consecutive months of increased use of independent contractors
by small businesses, the Scorecard finally saw a decrease in the use of contractors in May. Is there
a chink in the armor of the free agent economy? It's probably too early to tell.
The bottomline? It's been a tougher year for small businesses than we had hoped for. There's growth but it's much slower than what we'd like to see. Most of the small businesses we talk to are not seeing as much new business as they'd like and are facing pricing pressure from rivals that are keeping profits down. All in all, they seem to be optimistic yet still fairly cautious about the future.
Regional and State Performance
On a regional basis, small business size is trending down in every region except the Northeast. If
it weren't for the Northeast, we'd have a real sob story on our hands. Of course, the Northeast
numbers should be taken in context. The Northeast had a terrible 2004, and most of the increase in
2005 is simply recovering from the downsizing small businesses in the Northeast experienced last
year.
On the salary front, one region is also a standout, but it's not the Northeast. The South has earned bragging rights as the only region where the average small business paycheck went up.
As depicted in the graphic below, results varied from state to state. The Scorecard comprises data from all fifty states but we pay close attention to 21 states that we have earmarked as "benchmark states:" Arizona, California, Colorado, Florida, Georgia, Illinois, Indiana, Maryland, Michigan, Minnesota, Nevada, New Jersey, New York, North Carolina, Ohio, Oregon, Pennsylvania, Texas, Utah, Virginia, and Washington.
Year to date, salaries are up in only 8 of our 21 benchmark states. In contrast, we had 12 states in positive territory at the end of April. Year to date, firms grew in size in 11 of our 21 benchmark states. As of the end of April, that number stood at 13.
Data for our benchmark states is available — just send me an email and let me know if you want the data for your state.
I welcome any and all questions or suggestions regarding our Small Business Scorecard initiative. Feel free to contact me at malter@surepayroll.com or by phone at (847) 676-8420 ext. 7229.
Best regards,
Michael Alter
President
SurePayroll, Inc.
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