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.
What recovery?
With the release of the March 2005 jobs numbers from the Department of Labor last week, many expressed surprise at the
surprisingly weak growth in jobs. The final tally was an anemic 110,000 increase in nonfarm jobs. The market consensus
had predicted a 225,000-job gain.
Weakness in hiring came as no surprise to us at SurePayroll. In the small business economy, we've seen near-zero growth in hiring since the beginning of 2005. Our SurePayroll Hiring Index, which measures small business hiring, ended March at 10,440. Simply put, small business growth is stagnant. Year-to-date growth in our SurePayroll Hiring Index has been 0.045%. That's less than one half of one-tenth of a percent! At this pace, if nothing changes, we will end up with 0.18% growth in small business hiring for 2005.
Our data should allay any fears that the economy is overheating. The small business economy is ice cold. And don't forget that the small business economy represents a huge portion of the overall economy. When small business isn't growing, it's hard for big business to grow.
It seems that some of the economic stimulants that got us on the road to recovery in late 2004 may have stalled out. With the Federal Reserve raising rates to stave off inflation, the slowdown in the small business recovery will likely continue. Given what we see in our data and on the horizon, we expect little to no growth in small business hiring for the rest of the year.
Use of contractors, however, does seem to be on the rise. At the end of March, our contractor metric was at 3.27% for the nation. That means that for every 100 workers that a small business pays, 3.27 are 1099 contractors and 96.73 are W2 employees. One year ago, our contractor metric was at 2.99% and at the end of 2004, the metric clocked in at 3.20%.
What does this mean? It means that year to date, use of contractors has grown by 2.2%. Compare that to 0.045% growth in employee hiring year to date, and you can quickly see that the small business economy is increasing its reliance on contractors in lieu of hiring full-time employees. We tend to see this when small business are in a cautious mode, when they don't feel that future revenue growth will support hiring employees today. The obvious benefits of using contractors are increased flexibility and lower costs. These lower costs come from not having to pay for as much time, not having to offer benefits, and not having to pay employer taxes.
What's happening on the salary front? As you may know, the SurePayroll Small Business Scorecard tracks employee and contractor payments for over 15,000 businesses, so we have good insider insights on small business salaries. Our Hiring Pay Index ended March 2005 at 942. It ended December 2004 at 952. In other words, average small business salaries are down 1.0% year to date. That translates to a nearly 4.1% annual drop in average salaries if the pace were to continue through the rest of the year. At the beginning of the year, SurePayroll predicted a 3.0% decline in average paychecks for 2005. It seems as if salaries are still getting lower this year, and doing so at a more rapid pace than we expected.
On a regional basis, small business size is trending down in the Midwest and the South year to date, and is increasing in the Northeast and West. Regionally, paychecks trended in the opposite direction, up in the Midwest and the South year to date, and down in the NorthEast and West. Apparently, if you are a small business owner, it's good to be on the coasts.
At the state level, as depicted in the graphic below, results were mixed. We track data in 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 12 of our 21 benchmark states. Firms grew in size in 13 of our 21 benchmark states.
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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