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.
The small business economy is off to a great start this year.
Our Small Business Scorecard data has recorded three straight months of hiring growth in the small business economy.
In February, the SurePayroll Hiring Index increased 39 points, ending the month at 10,511.
This is a record high mark for the Hiring Index.
In one month, the SurePayroll Hiring Index jumped a remarkable 0.37%.
This was the largest single-month percentage increase in hiring that we've seen since December 2004, suggesting that the United States small business economy is starting off 2007 with a strong growth trend.
On a year to date basis, hiring is now up 0.7%, which puts small business hiring on track to grow a healthy 4.0% this year, if we are lucky enough to continue at that pace of small business hiring growth throughout 2007. In 2006, small business hiring declined by 0.2%.
Salary Data Shows 18th Consecutive Month of Salary Increases
We have recorded an amazing 18 months of continued salary growth in the small business economy.
The SurePayroll Pay Index clocked in at 1,032 at the end of February, up seven points from January, or 0.7%.
The average small business salary across the nation now stands at an annualized rate of $31,705.
That's the highest average salary we've seen since we started tracking the small business economy.
Note that our salary increase trend is consistent with the data recently released by the Commerce Department. They reported that personal incomes rose by 1 percent in January. Our Hiring Index rose by 0.72% in January. In February, our data suggests that average salaries rose by 0.59%.
These salary increases fuel consumer spending, the major force driving the economy.
However, at the same time, they are a burden on small business owners. Rising labor costs put pressure on owners to raise prices, which creates an inflationary environment. We see this inflationary pressure playing out in increases in the core personal consumption expenditure index that were reported this week.
The increase in jobless claims reported by the Labor Department took many by surprise last week. The number of claims rose by 7,000 last week to 338,000. I have written before about the growing problem of unemployment insurance fraud. I believe this is contributing to the higher-than-expected number of unemployment claims. This is a tight labor market, for workers above a certain caliber, and we should be seeing a decrease in unemployment claims right now. Congress simply needs to allocate more money to fighting unemployment insurance fraud.
Independent Contractors
As of the end of February, the SurePayroll Contractor Index stands at 3.42%. That means that for every 100 workers engaged by small business, 3.42 are 1099 independent contractors and 96.58 are W2 employees.
Although February showed a small drop in the use of independent contractors relative to January, the SurePayroll Contractor Index suggests an increased use of independent contractors in the small business economy relative to this time one year ago.
We would not be surprised to see the independent contractor index number jump to 5% within the next five years. More and more, businesses are enjoying the plug-and-play benefits of using independent contractors, and it's getting much easier to source talented contractors. Most importantly, contractors don't require benefits or payroll taxes - they are much more economical than employees.
Regional and State Performance
Small business hiring is up year to date in the Midwest, West, Northeast and South.
On the salary front, salaries are up year to date in all four regions: the Midwest, Northeast, South and West.
The West is leading all four regions in hiring growth and salary growth.
It appears that John Soule's nineteenth century advice to "go west, young man" is still good advice, especially if you are a small business employee looking for a new job.
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.
Firms increased in size in 18 of our 21 benchmark states in February. Florida, Virginia and Michigan are the outlier states that have experienced decreasing hiring year to date.
Year to date, salaries are up in 18 of our 21 benchmark states. Bucking the national trend of rising salaries, salaries have decreased year to date in New York, Indiana and North Carolina.
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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