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.
Although we don't attempt to predict the national jobs numbers, we believe our economic indicators do provide excellent insights on national hiring trends.
Consider what happened with our December 2006 data.
After watching small business hiring contract throughout most of 2006, our Small Business Scorecard data showed a surprising jump in hiring in December. Indeed, the SurePayroll Hiring Index increased 15 points. That jump in December turned out to be an accurate predictor of the national jobs numbers. The Labor Department reported that non-farm employment grew by a net 167,000 jobs in December, surprising many economists but not surprising those economists who track the SurePayroll Small Business Scorecard indicators.
If our small business data is a good indicator of trends in the national economy, we can humbly predict that many economists will once again be surprised by the strong job growth that occurred in January 2007.
January was a great month for job creation. That's the story that our data tells this month.
The SurePayroll Hiring Index jumped 30 points in January, ending the month at 10,472. That's a 0.3% increase, which puts small business hiring on track to grow a healthy 3.5% this year, if we are lucky enough to continue at that pace of small business hiring growth throughout 2007. In 2006, small business hiring growth was non-existent; in fact, hiring declined by 0.2% last year.
January's gains, coupled with a strong December increase, actually erase all of the shrinkage we saw in 2006. The SurePayroll Hiring Index is now at a level we have not seen since October 2005.
It would appear that, on average, small businesses are ramping up for 2007.
Salaries Still Rising in 2007
The SurePayroll Pay Index clocked in at 1,025 at the end of January, up seven points from December, or 0.7%.
The average small business salary across the nation now stands at an annualized rate of $31,519.
That's the highest average salary we've seen since we started tracking the small business economy in January 2004.
It's no surprise that consumer confidence reached the highest level in almost five years in January. In addition to the expanding labor market we've seen in the past two months, Americans have more money to spend as a result of rising salaries. That's two doses of good news for consumers. There are more jobs and they are paying more than they used to!
A growing economy and a tightening labor market are clearly in play in the small business economy. For small business owners, there's a need for employees to handle growth but employees are harder to find and cost more. Still, given that small firms are hiring, it suggests that there is a strong perception of current and future opportunity. The wildcard is whether that opportunity continues to materialize in 2007 and whether higher salary costs might put inflationary pressure on the economy, should small business owners decide to pass those labor cost increases along to their customers.
Independent Contractors
As of the end of January, the SurePayroll Contractor Index stands at 3.43%. That means that for every 100
workers engaged by small business, 3.43 are 1099 independent contractors and 96.57 are W2 employees.
That 3.43% index value is up from 3.28% one year ago. The SurePayroll Contractor Index has been steadily rising, suggesting an increased use of independent contractors in the small business economy.
We view this statistic as part of a larger trend in which small businesses are using contractors whenever possible, rather than employees. Employees cost small business owners payroll taxes and often healthcare benefit expenses; with rising healthcare costs, it's natural that many businesses will shift some full-time employment positions over to independent contractor positions. They also can tap into the plug-and-play nature of independent contractors. You only need to pay them when you are using them — no need to have unproductive payroll costs when you don't have to!
Regional and State Performance
Small business size is up year-to-date in the Midwest, West and Northeast. Hiring is down only in the South
but just barely. As 2007 gets underway, across the United States, things are looking good.
On the salary front, salaries are up year-to-date in all four regions: the Midwest, Northeast, South and West.
As depicted in the graphic below, results varied from state to state. The Scorecard comprises data from all 50 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 19 of our 21 benchmark states, with Georgia and North Carolina being the only states where salaries declined.
Year-to-date, salaries are up in 17 of our 21 benchmark states, with Florida being the only state where salaries shrank in January. Firms increased in size in 16 of our 21 benchmark states in January. 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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