Here's what's happened in the small business economy this past month, based on payroll data for our over 17,000 small business customers.
It appears that the Fed’s decision last month to leave interest rates unchanged has had a positive effect on the small business economy.
Small business hiring increased in September
If you’ve been following the Scorecard, you know that increases in hiring have been rare this year. In fact, we’ve only had hiring increases in three of this year’s nine months to date.
The Scorecard hiring index ended the month of September at 10,439 nationwide. That's an 8-point increase from where we were at the end of August.
In addition to the Scorecard’s payroll data analysis showing increased hiring, a SurePayroll survey of 401 small business owners confirms that employers are in a hiring mood. 14.6% of respondents indicated that they had hired new employees in September, — in the prior month’s survey, only 12% of respondents indicated that they had hired new employees. In addition, only 3.6% indicated that they had downsized their staff in September — in the prior month’s survey, 6.5% of respondents indicated that they had downsized.
Salaries continue to trend higher. September marked the thirteen consecutive month in which small business salaries have increased.
The SurePayroll Pay Index clocked in at 1007 at the end of September, up six points from August, or 0.6%. The average small business salary across the nation now stands at an annualized rate of $30,942.
In our survey of small business owners, we discovered that 37% 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 an increase from the prior month’s survey, in which 35% of employers indicated that they had to pay higher salaries.
Given that wage inflation is a major concern of Fed policymakers, our data suggests that the Fed would do well to leave interest rates unchanged again when they hold their August meeting. They’ve applied the brakes on salary inflation, but the car hasn’t slowed down much. They need to press down on the brakes a little harder.
Year to Date Results
For 2006, our year-to-date growth number for small business hiring is -0.3%. If this pace continues, the average small business in the United States will have shrunk by approximately 0.35% at the end of the year. It’s a decline — but it’s a fairly modest decline.
Year to date, small business salaries have increased 6.2%. That translates to a projected annualized increase in salaries of 8.4% for 2006 if the current pace continues.
Small business salaries are now at the highest levels we have seen since the inception of the Small Business Scorecard in January 2004.
Independent Contractors
As of the end of September, 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 September survey of small business owners, we found that 69% of respondents indicated that they do not use independent contractors.
Optimism Increases
The Fed’s interest rate moves last month and lower gas prices appear to have put small business owners in a better mood. 82% of the small business owners we surveyed in our September survey indicated they are optimistic about the economy. In August, 78% 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 0.7% year-to-date increase. The Northeast has experienced the biggest drop in small business hiring, with a 4.3% 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 Northeast, where the average small business salary has risen 9.6% year to date. The West is a close second, with a 9.4% 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 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.
Questions regarding the SurePayroll Small Business Scorecard can be directed to Marissa Hermo. Marissa can be reached at mhermo@kruppnyc.com or by phone at 212.886.6711.
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