Here's what's happened in the small business economy this past month, based on payroll data for our over 18,000 small business customers.
As we release this month's Small Business Scorecard, there is a growing global credit crunch, unemployment claims are increasing, and major stock indices are down 5% to 10% from their record highs of recent months.
Stock market prices are not alone in their free fall. Small business optimism is also along for the downward ride.
Based on our survey data, small business optimism has experienced a steep decline over the past few months. In May 2007, 80.7% of surveyed small business owners were optimistic about the small business economy In June 2007, the number dropped slightly to 80.4%. In July 2007, it fell to 76.6%. In August 2007, the percentage of optimistic small business owners dropped once again, this time to 69.5%. (Survey data for August was based on a survey of 275 randomly selected small businesses.)
Despite growing pessimism, we continue to see hiring growth in the small business economy.
The SurePayroll Hiring Index ended the month at 10,754, a 38-point increase (0.36%) from July. August marks the ninth straight month of hiring growth.
Year-to-date, small business hiring has increased 3%. On an annualized basis, that puts small business hiring on track to grow 4.5% this year. (In 2006, small business hiring declined by 0.2%.)
Expect hiring to decline in the months to come. Swings in optimism don't have an instantaneous impact on small business hiring, but we do expect lower business optimism to curtail hiring in the next few months.
The News of Salary Declines Has Been Greatly Exaggerated
Last month, salary growth appeared to have finally hit a plateau and we predicted salary declines for this month. Well, it didn't happen.
Small business salaries remind us of the famous Terminator movie line: "I'll be back." We keep thinking the end of rising salaries is near, but salaries continue to move up.
The SurePayroll Pay Index was 1,051 at the end of August, up three points (0.28%) from the end of July.
The average small business salary for the United States now stands at an annualized rate of $32,317. Year-to-date, salaries are up 3.3%. On an annualized basis, that would project out to a 4.95% increase in salaries for 2007.
Salaries are not the only cost category that is on the rise for small business owners. In our survey of small business owners, 91.3% of small business owners indicated that their costs of doing business have increased this year.
While salaries were cited most frequently (38.0%) as being the biggest driver of cost increases, small business owners also noted large cost increases in employee benefits; indeed, 15.8% indicated that benefits expense increases are their major source of rising costs. Raw material cost increases were deemed by 14.2% of respondents to be the major source of increases in expenses.
With softening in real estate prices, decreased access to credit, rising unemployment and lower stock prices, we of course expect that salary increases will slow down considerably during the rest of the year.
Independent Contractors
The SurePayroll Contractor Index stands at 3.39% as of the end of August 2007. That means that for every 100 workers engaged by small business, 3.39 are 1099 independent contractors and 96.61 are W2 employees.
Use of contractors is down this year relative to last year, but contractor usage has not changed much in the last six months.
Regional and State Performance
It's great to live in the West if you are a small business owner…and a small business employee. There appears to be enough business to hire more employees, even as salary costs rise.
Small businesses in the West have grown 4.6% year-to-date.
Small business hiring is up in the other regions as well, but not nearly as much as in the West. Midwest hiring is up 1.9% year-to-date. Hiring in the Northeast is up 2.1% year-to-date. The South is the laggard in hiring growth, but hiring there is still up 1.7%.
On the salary front, salaries are also up year-to-date in all four regions.
The West has the highest salary growth. Salaries there are up 4.9% year-to-date. If you want a job with a good salary, the West appears to be the place to go.
Salaries are up 1.8% in the Midwest, 0.2% in the Northeast, and 2.7% in the South
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 18 of our 21 benchmark states in August. Only three states - Indiana, Virginia and Michigan - have experienced decreasing hiring year-to-date.
Year-to-date, salaries are up in 17 of our 21 benchmark states. Salaries have decreased year-to-date in Utah, New York, Indiana and Maryland. Michigan and New York are neck and neck for the largest salary drop, with both showing a 5.8% decline year-to-date.
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.
Small Business Scorecards Archive:
