Here's what's happened in the small business economy this past month, based on payroll data for our over 16,000 small business customers.
Small business hiring decreased in July
It seems the signs of recovery in the small business economy that we saw in June did not have staying power. While hiring had bounced back into positive territory in June, it has been down in five of the last six months.
The Scorecard hiring index ended the month of July at 10,436 nationwide. That's a 3-point drop from where we were at the end of June.
In addition to the Scorecard’s payroll data analysis showing increased hiring, a SurePayroll survey of small business owners confirm that hiring is flat in the small business economy. 69% of respondents ended July with exactly the same number of small business employees as they had in June.
Salaries continue to trend higher. July marked the eleventh consecutive month in which small business salaries have increased.
The SurePayroll Pay Index clocked in at 990 at the end of July, up three points from June, or 0.36%. The average small business salary across the nation now stands at an annualized rate of $30,436.
In our survey of small business owners, we discovered that 36% of small business owners say that they now have to pay more for a given employee than they had to pay one year ago. Only 5% are able to pay the employee less money this year than they had to pay one year ago for an equivalent employee.
Year to Date Results
For 2006, our year-to-date growth number for small business hiring is -0.29%. If this pace continues, the average small business in the United States will have shrunk by approximately 0.5% at the end of the year.
Year to date, small business salaries have increased 4.5%. That translates to a projected annualized increase in salaries of 7.8% for 2006 if the current pace continues.
Small business salaries have now recovered to levels we have not seen since May 2004.
Independent Contractors
As of the end of July, the SurePayroll Contractor Index stands at 3.40 percent, slightly up from June. This means that for every 100 workers engaged by small business, 3.4 are 1099 independent contractors and 96.6 are W2 employees.
There has been a steady increase in contractor usage throughout 2006. It appears that small businesses are increasingly opting for engaging independent contractors over hiring new employees, a phenomenon that usually suggests that small business owners are uncertain about future prospects for their business and for the economy.
(In our recent survey of small business owners, we found that 46% of respondents indicated that they do not use independent contractors.)
Optimism Increase
Despite the slowness in the economy and higher salaries to pay, small business owners remain optimistic. 81% of our survey respondents said they are optimistic about the small business economy. In June, only 70% of survey respondents were optimistic.
Regional and State Performance
Three regions – the Midwest, Northeast, and South – have experienced year-to-date decreases in small business size. Only the West shows increased hiring, with a 0.6% year-to-date increase. The Northeast has experienced the biggest drop in small business hiring, with a 2.9% year-to-date decrease.
Salaries are up year to date in all four regions: the Midwest, Northeast, South and West. Salary gains are highest in the NorthEaset, where the average small business salary has risen 6.8% year to date. The West is a close second, with a 6.6% year-to-date increase.
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 have increased in size in 8 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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