SurePayroll's Small Business Scorecard Review
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 of April at 10,470 nationwide. That's a 0.12% decrease from where we were at the end of March, indicating a moderate decline in small business hiring last month.
Salaries are trending in the opposite direction. April marked the eighth consecutive month in which small business salaries have increased.
The SurePayroll Pay Index clocked in at 982 at the end of April, up nine points from March, or 0.93%. The average small business salary across the nation now stands at an annualized rate of $30,195.84.
Year to Date Results
For 2006, our year-to-date growth number for small business hiring is -0.3%. That tracks to an annual decrease in small business hiring of just over 0.7% for 2006 if things were to continue at the current pace.
That pace of growth in small business hiring is quite weak. It's also quite surprising given that the economy is said to be on fire. Last week, the nation's gross domestic product posted its fastest pace of gain in more than two years, growing at a 4.8 percent annual rate. Even as gasoline prices approach a record high, the economy soldiers on - in fact, economists are predicting that 200,000 jobs were created in April. The official numbers from the Bureau of Labor Statistics will be announced on Friday, May 5.
Yet, it does not appear that growth in the economy is giving small businesses enough new business to justify adding new staff. The implication is that, relative to bigger businesses, small businesses are not prospering as much from recent economic growth. It may also suggest that small business owners, on average, anticipate a slowdown in growth. They prefer not to hire new employees and be stuck with high costs in the event of a slowdown.
Small business owners may also not be doing much hiring because their costs of labor are rising.
Year to date, small business salaries have increased 3.7%. That translates to a projected annualized increase in salaries of 11.4% for 2006 if the current pace continues.
The larger salaries can have a significant inflationary effect on the economy because business owners must either raise prices or take less profit out of the business. Generally speaking, most business owners prefer to raise prices.
However, the inflationary effect of rising salaries is mitigated by the recognition that much of the increase in salary can be attributed to catch-up. Indeed, salaries have only now recovered to levels that we saw in July 2004 - almost two years ago!
It's entirely possible that increased small business salaries are fueling resurgent consumer spending, which is driving recent economic growth to a great extent. Small business employees have a little more money in their pocket and they are putting it right back into the economy.
With gas prices rising and the housing market softening, the question is whether consumer spending can continue at the current pace for the rest of 2006. With international issues - i.e. the lingering war in Iraq and the prospect of escalation with Iran - looming large on the horizon, it seems likely that consumers will soon be more cautious and start spending less.
Independent Contractors
As of the end of April, the SurePayroll Contractor Index stands at 3.3 percent, virtually unchanged from March. 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
All four regions -- the Midwest, Northeast, South and West - have experienced year-to-date decreases in small business size. The Midwest appears to be struggling the most, with a year-to-date decrease of 1% in small business hiring. The West has lost the least amount of ground, down only 0.1% year to date.
Salaries are up year to date in all four regions: the Midwest, Northeast, South and West. Salary gains are highest in the West, where the average small business salary has risen 5.6% year to date.
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 11 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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