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.
Small business salaries are rising from the dead. That’s good news for small business employees but it may not be great news for the overall economy.
Hiring declined in February, after two months of virtually no change in the small business economy. Small business paychecks rose for the sixth straight month, suggesting that inflation is looming large on the economic horizon.
Small business hiring was down in February, marking six consecutive months of negative or zero growth. The Scorecard hiring index ended the month of February at 10,461 nationwide, which is five points below January’s number.
As we mentioned last month, rising average paychecks could be a leading indicator of inflation. If labor costs continue to climb, small businesses will increasingly seek to offset those higher costs through higher prices to customers.
Rising salaries should be put in some context. While salaries have been rising lately, they are still only now getting back to levels we saw back in September 2004. It’s also relevant to note that the retirement of baby boomers, now underway in full force, may start putting more upward pressure on salaries – as the baby boomers retire, a smaller work force will find employers bidding up salaries to access domestic workers.
Rising interest rates may begin to put the brakes on inflationary pressures during 2006. The Livingston Survey, a survey of economists conducted by the Federal Reserve Bank of Philadelphia, predicts that growth in the Producer Price Index (PPI) will drop from 4.9 percent in 2005 to 1.9 percent by 2007. It appears that the Fed fully recognizes the threat of inflation that is apparent in our data and is taking the necessary precautions.
Despite the varied opinions of economists and economic indicator values, one thing is clear in our data: small business owners are still taking a wait-and-see attitude toward new hires.
Salaries Still Climbing
Small business salaries experienced another uptick in February, growing almost half a percent from the previous month.
The SurePayroll Pay Index clocked in at 970 at the end of February, up four points from January, or 0.4%. The average small business salary across the nation now stands at an annualized rate of $29,807, over two-and-a-half percent greater than this time last year. This is the sixth straight month of rising salaries, the longest streak since we began the Scorecard in January 2004.
We talked about it last month, and again, the situation is simply supply and demand. Since hitting a high in June 2003, the number of unemployed has steadily declined, from over 9.2 million then to just over 7 million now. With an ever decreasing supply of workers, business owners have no choice but to pay more for talent. The rising cost of healthcare and other benefits means even more dollars out the door for each new hire, which of course, goes straight to the bottom line.
Independent Contractors
As of the end of February, the SurePayroll Contractor Index stands at 3.3%. That means that for every 100 workers engaged by small business, 3.3 are 1099 independent contractors and 96.7 are W2 employees. Although this is also the highest this metric has been since we began the Scorecard, the recent changes have been slight, and, we believe, immaterial. In general, outsourcing has grown for two reasons: it is a quick way to cut overhead costs and it provides flexibility in the event of sharp downturns. We believe that slight increases will continue in the near future.
Regional and State Performance
Like last month, small business size is down year to date in the South and Midwest, but small businesses are growing in the West and Northeast.
On the salary front, salaries are up year-to-date in all four regions: the Midwest, Northeast, South and West.
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, with Florida being the only state where salaries shrank in February. Firms increased in size in 11 of our 21 benchmark states in February. This month, the only year to date changes in direction were in Florida and New York. Last month, Florida’s number of employees was on the upswing, but this month it’s down. New York was losing in January, but now has a net increase for the year. 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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