SurePayroll's Small Business Scorecard Review
Here's the latest update on the U.S. economy, according to our November 2006 SurePayroll Small Business Scorecard.
As you know, our economic indices track the health of U.S. small businesses. We crunch the payroll data for over 18,000 small businesses and determine whether businesses are hiring or firing on average, whether salaries are up or down, and how dependent businesses are on independent contractors.
If you are looking for great economic news, leave now and go somewhere else.
The small business economy has been shrinking all year long, and the trend continued in November. If you need to ascribe a movie analogy to the small business economy, you might say it's a bit like the protagonist in The Incredible Shrinking Man (1957).
As discussed in detail below, the data shows that small businesses are getting smaller on average, which suggests that business owners are not doing well enough to hire new employees.
For business owners, that's just part of the bad news. Small business salaries have been increasing, exacerbating the problems of business owners. They have to pay more to hire and keep talent. That means they take less out of the business in profits or they raise prices to stay even. That puts inflationary pressure on an economy that is desperately trying to shake the doldrums.
The good news? There's plenty of money in the pockets of consumers for holiday season shopping. Small business employees are making more money. Let's hope that means they'll be spending more this holiday season. A strong shopping season may be just the medicine this economy needs.
Those are the highlights of the SurePayroll Small Business Scorecard for November 2006 in the aftermath of the November mid-term elections. Let's take a look at things on a more detailed level.
Based on our payroll data for our over 18,000 small business customers, here's what's happened in the small business economy this past month.
Small Business Hiring is Down — Again
Small business hiring decreased in November.
The Scorecard hiring index ended the month of November at 10,427 nationwide. That's a 5-point drop from where we were at the end of October.
November's hiring decrease is relatively small, but the trend has been down all year. Year to date, small business hiring has decreased 0.4%.
In addition to the Scorecard’s payroll data analysis showing decreased hiring in November, a SurePayroll survey of 210 small business owners confirms that employers are not doing much hiring.
83.4% of the survey respondents said that they ended November with exactly the same number of employees that they had at the end of October. Last month, that percentage was at 80.5%, suggesting that more employers are taking a "wait and see" approach to hiring.
12.8% of respondents indicated that they had hired new employees, while 3.7% indicated that they had downsized in November.
Small Business Salaries — Pay Increases Continue
Salaries continue to trend higher. November marked the fifteenth consecutive month in which small business
salaries have increased!
The SurePayroll Pay Index clocked in at 1,018 at the end of November, up seven points from October, or 0.67%. The average small business salary across the nation now stands at an annualized rate of $31,288.
That's the highest salary level we've seen since we released the first Scorecard in January 2004. The low point was in August 2005, when the average salary for a small business employee was $28,589.
In our survey of small business owners, we discovered that 35.3% of small business owners say that they now have to pay more for a given employee than they had to pay one year ago. This represents a decrease from the prior month’s survey, in which 47.3% of employers indicated that they had to pay higher salaries.
This might suggest that the increase in salaries has run its course, and we will see salaries flatten in the months to come.
As we have mentioned in the past, despite rising salary costs this year, the average small business hasn't had to downsize much. That's a testimony to the resilience of the small business economy. Knock it down and it comes right back up at you.
Year to Date Results and 2006 Projections
For 2006, our year-to-date growth number for small business hiring is -0.4%. Given that it's November,
that's likely where we will end up for the year.
Given the huge role small business plays in the overall economy, it's no surprise to us that the GDP numbers are a bit depressing this year. We’ve seen that coming for a long while.
Year to date, small business salaries have increased 7.4%. That translates to a projected annualized increase in salaries of 8.1% for 2006.
Independent Contractors
As of the end of November, the SurePayroll Contractor Index stands at 3.4 percent, exactly where we were at
last month. This means that for every 100 workers engaged by small business, 3.4 are 1099 independent
contractors and 96.6 are W2 employees.
In our November survey of small business owners, we found that 58% of respondents indicated that they do not use independent contractors. In October that number was the same, suggesting that the dependence of small businesses on independent contractors hasn’t changed much.
Optimism Surges
Small business optimism was on the rise last month. 86% of the small business owners we surveyed in our
November survey indicated they are optimistic about the economy.
In October, 78% of survey respondents were optimistic. In September, 82% of survey respondents were optimistic.
November's rise in optimism was not attributable to any single factor. Notably, November election results were not cited by many small business owners as causing increased optimism.
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 1.1% year-to-date increase. The Northeast
has experienced the biggest drop in small business hiring, with a 6.1% 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 West, where the average small business salary has risen 17.2% year to date. The Northeast is in second place, with a 11.9% year-to-date increase.
If you are looking for a job, the West is a great place to be. Small businesses are hiring and salaries are trending up.
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 10 of our 21 benchmark states. Data for our benchmark states is available — just send me an e-mail 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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