Here’s what happened in the small business economy this past month.
Salaries and hiring were both up in October, but the pace of hiring growth appears to be slowing down.
Small Business Hiring Increases
The SurePayroll Hiring Index ended the month at 10,822, a 35-point increase (0.32%) from September. October marks the eleventh straight month of hiring growth.
There does, however, appear to be a little bit of a slowdown in hiring.
Indeed, increases in hiring growth the last two months have been lower than any month-over-month percentages increases for prior months this year. In other words, prior to September (0.32% increase) and October (0.32% increase), we have to go back to the end of January (0.29% increase) to find a smaller month-over-month increase in small business hiring.
In our recent survey of small business owners, 75.3% indicated that they had neither gained nor lost employees in October. That was up from 73% in the prior month's survey. 18.4% indicated that they had hired employees in October. 6.3% of respondents had downsized.
With more than 75% of small businesses sitting on the sidelines, the data suggests that if there's hiring growth in the small business economy (and there is), it's being powered by a small number of businesses (18.4% of the total).
This is something we've seen before - it's a bit like the statistic that 1% of America's population earns 21% of the income. Similarly, in the small business world, there are many businesses that are doing well, but, unfortunately, the vast majority of small businesses are not making a big contribution to economic growth by hiring new employees.
Year to date, with ten months gone and two to go, small business hiring has increased 3.6%. On an annualized basis, that puts small business hiring on track to grow 4.4% this year. (In 2006, small business hiring declined by 0.2%.)
It's not too early to say it.
In spite of everything, 2007 has been a good year for the small business economy.
Small Business Optimism Drops
The facts (the small business economy appears to be doing fine) rarely match up well with public perception (the sky is falling).
To wit, we saw a big drop in small business optimism last month. In September, 78.3% of small business owners indicated they were optimistic about the economy.
However, only 64.2% of those who responded to our most recent October survey said they were feeling optimistic about the economy.
That's a big drop. That's even lower than our August results (69.5% optimistic).
Based on the optimism level, it seems likely that hiring will not increase considerably in November and December. More likely, over the next two months, even more businesses will sit on the sidelines when it comes to hiring. Bad news if you are currently unemployed and looking for work!
Small Business Salaries Increase
The SurePayroll Pay Index was 1,056 at the end of October, up three points (0.28%) from the end of September.
While the Pay Index is based on actual paycheck data, we also surveyed small business owners about pay trends in October. 51.8% of respondents indicated that they have to pay more to hire an employee this year than last year. That's up from 40% in the prior month. 45.9% of respondents have not seen any material rise in their salary costs and a few lucky business owners (2.3%) are actually able to pay less now than they did one year ago.
The average small business salary for the United States now stands at an annualized rate of $32,464. Year to date, salaries are up 3.7%. On an annualized basis, that would project out to a 4.5% increase in salaries for 2007.
If that pans out, salary growth in 2007 will have outpaced hiring growth.
Last year, salaries increased 7.4%. So, 2007 salary inflation is lower than that of 2006, which is good news for the inflation-phobic.
Reliance on Independent Contractors Increases
The SurePayroll Contractor Index stands at 3.43% as of the end of October 2007. That means that for every 100 workers engaged by small business, 3.43 are 1099 independent contractors and 96.57 are W2 employees.
That's four months in a row of increased reliance on independent contractors.
With hiring flattening and optimism dropping, this is to be expected. A bet on a full-time employee is a long-term commitment. A bet on a contractor is a short-term bet. It's like the difference between dating and getting married. Marriage is a high-risk proposition relative to dating.
Regional and State Performance
On a regional basis, everything was looking up last month across the nation.
Our regional SurePayroll Small Business Scorecard hiring indices rose last month in the Midwest, Northeast, South and West.
Similarly, our regional SurePayroll Small Business Scorecard pay indices rose last month in the Midwest, Northeast, South and West.
On a year-to-date basis, every region is in positive territory, both in the hiring growth and salary growth.
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, firms have increased in size in 19 of our 21 benchmark states. Only two states - Maryland (down 1.4%) and Michigan (down 1.5%) - have experienced decreasing hiring year-to-date.
Year-to-date, salaries are up in 18 of our 21 benchmark states. Salaries have decreased year-to-date in Utah (down 0.5%), Indiana (down 6.9%), New York (down 6.0%). Maryland, which had been in negative territory last month, recovered last month and is now showing positive year-to-date salary growth.
Data for our benchmark states are 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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