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.
Hiring remains flat in the small business economy, but small business paychecks are rising.
Small business hiring was flat once again in January, marking a second straight month in which small businesses in the United States stayed roughly the same size on average. The Scorecard hiring index ended the month of January at 10,466 nationwide. That's exactly where we were at the end of December.
It would appear that, on average, small businesses are appropriately staffed to handle their current volume of business. There are no major negative trends inducing small businesses to let employees go. At the same time, they remain cautious about the future and are not willing to invest in new employees until they see some concrete evidence that revenues will increase.
Salaries Appear to Be Rebounding in 2006
Small business salaries experienced a big up-tick in January.
The SurePayroll Pay Index clocked in at 966 at the end of January, up eighteen points from December, or 2.0%. The average small business salary across the nation now stands at an annualized rate of $29,697.
This is a strong rebound in small business salaries, taking us to levels we haven’t seen since October 2004. The turnaround started in June 2005 but gained strong momentum in August 2005. We’ve now had five straight months of rising salaries.
It's starting to get tougher to find good people, and small business owners are having to up the ante with higher salaries -- even though the pace of hiring is slowing down. In effect, they are competing with larger companies for talent. There appears to be strength in economic recovery for larger companies but the small business economy’s recovery is lagging behind for reasons we discussed in last month’s Small Business Scorecard.
The net effect of higher wage costs for small business owners may be inflationary pressure on pricing. With their input costs rising, small business owners may have only two choices: accept lower profitability levels or increase their prices. A third option of increasing productivity exists, but many small businesses are already running in a highly productive mode, doing more with less. Mind you, we’re not really worried about the small business economy. If we’ve learned one thing from all of our data analysis and our interactions with small business owners, it’s that somehow someway most small business owners figure out ways to ride out the storm and persevere.
Independent Contractors
As of the end of January, the SurePayroll Contractor Index stands at 3.28%. That means that for every 100 workers engaged by small business, 3.28 are 1099 independent contractors and 96.72 are W2 employees. It's been hovering close to that range consistently for quite a while now. Flatness in our contractor index can be read as an indicator of economic strength. When small business owners are more cautious about the economy, we tend to see increased use of independent contractors.
Regional and State Performance
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.
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 January. Firms increased in size in 11 of our 21 benchmark states in January. 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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