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.
America’s small businesses are not in a mood to hire new employees.
But they do seem willing to write bigger checks to the employees they already have on staff.
The average paycheck for the small business employee continues to climb. Evidently, the Fed’s steady efforts to slow inflationary pressures by raising interest rates aren’t putting a damper on small business salaries.
Indeed, small business paychecks were up again in March, marking the seventh straight month of increasing small business employee salaries.
Mind you, the pace of salary growth has slowed a little. For example, the percentage increases in February and March (0.37%, 0.37% respectively) were much lower than those we saw in December and January (0.82%, 1.96%).
Hiring is headed in the opposite direction. Small business hiring declined in March, continuing a trend of slow hiring in the small business economy. In fact, March marks the seventh consecutive month of negative or zero growth in hiring. The last upswing in hiring was in August 2005.
The Scorecard hiring index ended the month of March at 10,453 nationwide, which is eight points off of February’s number. The SurePayroll Pay Index came in at 973 at the end of March, up 26 points from December, or a strong 2.7 percent.
It’s Economics 101 in action. We continue to see a strong negative correlation between salaries and hiring.
Inflationary Pressures in the Economy
Higher salary requirements from employees will inevitably put pressure on small businesses to raise their prices.
Given the huge role that small business plays in our economy, when the Fed meets again on May 10, there will likely be a quarter percent increase in interest rates – especially if we see another bump in salaries in April while hiring remains flat or down.
Small business salaries need to rise, but not so rapidly that they damage the economy or prevent small businesses from hiring new employees.
Will Salaries Reach Early 2004 Levels Soon?
Rising salaries need to be put in some historical context.
Small business salaries, up 0.37 percent in March from February, are still down almost three percent from when we launched the Scorecard in January 2004.
Given the growth thus far in 2006, however, we could get back to early 2004 levels by June or July of this year. That will be a boon to small business employees who have been losing purchasing power since the economy crashed back in 2000.
The average small business salary across the nation now stands at an annualized rate of $29,918, about 3.3 percent greater than this time last year.
Independent Contractors
As of the end of March, the SurePayroll Contractor Index stands at 3.3 percent, virtually unchanged from February. This means that for every 100 workers engaged by small business, 3.3 are 1099 independent contractors and 96.7 are W2 employees. We continue to predict slight increases in contractor use in the near future.
Regional and State Performance
In February, the Northeast and West showed year-to-date growth in small business size, but March’s only winner is the South. The region reversed two months of downticks to be up for the year by about 0.2 percent.
Again, like last month, salaries are up year to date in all four regions: the Midwest, Northeast, South and 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 20 of our 21 benchmark states. Florida remains the only state where salaries have shrunk since December 2005. Firms increased in size in 12 of our 21 benchmark states. This month, the only year-to-date change in direction was Georgia, which went from negative to positive. 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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