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.
Small Business Owners Wobble But They Don't Fall Down
You can knock down American small business owners, but they'll get right back up again.
Perhaps the most interesting trend in this month's Small Business Scorecard is the continued resilience of American small business owners.
We've seen six straight months of increased hiring. In fact, we've only had one down month in the past seventeen months.
Small business owners refuse to fold their hand.
Despite numerous economic factors that make it tough to do business — rising energy prices, a widening trade deficit, and increasing interest rates — small businesses continue to find ways to grow their businesses and add new staff.
The Scorecard hiring index ended the month of August at 10,494 nationwide. That's a 0.2% increase from where we were at the end of July, suggesting a moderate uptick in hiring last month.
For 2005, our year-to-date growth number for small business hiring is 0.6%. That tracks to an annual growth in small business hiring of just under 0.9% for 2005. The projection for 2005 has steadily been rising. In July, we were projecting only 0.7% growth for 2005.
August was a good month for small businesses, and hopefully we can build on August and finish strong in 2005. Even with a strong finish, the 2005 small business economy will undoubtedly underperform the 2004 small business economy. In 2004, we saw small business hiring increase by 4.4%.
In a world where you can look at the glass as being half full or half empty, our takeaway from this month's Scorecard is that the glass is half full. Sure, 2005 has been tougher than 2004. Who cares? We are on an upward trend in 2005, and that's all that matters. Things could be much worse.
Stealth Inflation
Salary deflation does, however, remain a concern. Small business salaries dropped in August relative
to July, breaking a shortlived win streak of two straight months of payroll increases.
The SurePayroll Pay Index dropped 0.5% to 930 in August. It had been at 935 at the end of July.
Year-to-date, small business salaries have dropped 2.3%. That translates to an annualized decrease in salaries of 3.4%.
When salaries drop and everything else stays the same, it's stealth inflation. While recent data on the Federal Reserve's favorite inflation gauge showed a benign inflation reading in July, we continue to maintain that economists are not taking salary deflation seriously enough. Salary deflation is inflation. Period. End of story.
Data released recently by the U.S. Census Bureau confirms what we've been saying for a while now. Average salaries are trending down. The Census data indicates that, nationwide, the median household income fell after adjusting for inflation.
The downward trend in salaries was enough to push the American poverty rate up to 12.7%. The threshold metric for poverty in America is an income of $19,157 or less for a four-member family (with two children). The average small business salary for our Scorecard businesses was an annualized $28,588. If only one parent is working in our average small business family, that suggests that that average family is only $9,431 dollars away from the poverty line.
Independent Contractors
As of the end of August, the SurePayroll Contractor Index stands at 3.29%. That means that for every
100 workers engaged by small business, 3.29 are 1099 independent contractors and 96.71 are W2 employees.
Use of contractors is generally on the rise relative to prior months. One year ago, our contractor metric was at 3.12% and at the end of 2004, the metric clocked in at 3.20%. It's our expectation that contractor usage will continue to grow in the years and months to come. Using workers on a just-in-time, plug-and-play basis is a more efficient and more profitable way to operate. Plus, many workers enjoy the flexibility and control that comes with being an independent contractor.
Regional and State Performance
On a regional basis, the hiring story has been the same for the past three months. Small business
size trended down in every region except the Northeast. Small business size in the Northeast,
measured by the number of employees, is up 7% year to date.
On the salary front, the South and the Midwest remain in positive territory, with year-to-date increases of 0.7% snd 0.1% respectively. Salaries remain down year to date in the Northeast and the West.
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 11 of our 21 benchmark states, the same number as in the previous month. Year to date, firms grew in size in 11 of our 21 benchmark states, again the same number of "up" states we saw at the end of July.
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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