Here's what's happened in the small business economy this past month.
There are some growing signs of chinks in the armor of what has otherwise been a very resilient small business economy.
As you know, the SurePayroll Scorecard is data-driven, powered by payroll data from over 18,000 small businesses. The data offers insights on trends in small business hiring, small business salaries and small business use of independent contractors.
However, every month we also survey small business owners about how they think the economy is doing.
This month, we saw a substantial decline in small business optimism. 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, the ranks of the optimistic dropped considerably, down to 76.6%.
Not surprisingly, businesses that are doing well continue to be optimistic, and we have a number of business owners who tell us they are optimistic by nature all the time, regardless of external events.
However, a growing number of businesses we surveyed articulated that business is slowing down or less profitable as a result of a slumping real estate market, higher gas prices and higher food prices.
So does the data confirm an economic slowdown as a result of inflation and the real estate industry slowdown?
Absolutely not. We continue to see substantial hiring growth in the small business economy.
The SurePayroll Hiring Index ended the month at 10,716, a 40-point increase (0.39%) from June.
July marks the eighth straight month of hiring growth.
Year to date, small business hiring has increased 2.6%. 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%.)
Our survey data confirms this growth in hiring. Over 15% of small businesses added employees last month, and 85% of the surveyed businesses neither increased nor decreased in size. In other words, only 5% of small businesses in our survey decreased in size last month. We keep our eye on the percentage of shrinking small businesses, and 5% is a number that suggests a strong small business economy.
Nonetheless, the drop in business owner optimism we saw in July is a bit concerning. Swings in optimism often take some time to play out in the marketplace, and it may be that we will see an economic slowdown as we head towards the finish line for 2007.
Salaries Growth Stalls Out
They say what goes up must come down, but that hasn't seemed to be the case with salaries this year. Prior to this month, we had seen salaries increase for twenty-two straight months.
However, this month salary growth appeared to have finally hit a plateau.
The SurePayroll Pay Index was 1,048 at the end of July, exactly where it ended at the end of June.
To be precise, average salaries were still up but only very slightly. The average small business salary increased by 0.03% (three one-hundredths of a percent); that salary bump puts very little additional money into the pockets of consumers, who are already struggling with high gas, healthcare and food prices.
The average small business salary for the United States now stands at an annualized rate of $32,225. Year to date, salaries are up 3.0%. On an annualized basis, that would project out to a meaningful 5.2% increase in salaries for 2007. However, it appears to us that salary growth is slowing down - so we now project that salaries will have risen by 4.6% on an annual basis by the end of 2007.
Our SurePayroll survey data confirms the upward trends we have been seeing in salaries. 47% of business owners say they have to pay more this year for a new employee than they did one year ago. 52% see salaries as being flat, allowing them to pay the same salaries today that they paid one year ago. The remaining small business owners (1%) are able to pay less this year than they did last year.
Independent Contractors
The SurePayroll Contractor Index stands at 3.38% as of the end of July 2007. That means that for every 100 workers engaged by small business, 3.38 are 1099 independent contractors and 96.62 are W2 employees.
Use of contractors has declined slightly throughout the year. When businesses are optimistic about the economy, we tend to see them hire employees rather than contractors. As such, the trend in contractor usage conflicts with this month's decline in small business optimism. However, we believe there is a lag effect on optimism. We expect to see declining optimism play out over the next few months in our data, and our expectation is that the use of contractors will grow over the remaining months of 2007.
Regional and State Performance
The West continues to lead the economy in small business growth.
Small businesses in the West have grown 4.1% 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 1.7% year-to-date. Hiring in the Northeast is up 1.8% year to date. The South is the laggard in hiring growth, but hiring there is still up 1.3%.
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 4.5% year to date. If you want a job with a good salary, the West appears to be the place to go.
Salaries are up 1.5% in the Midwest, 0.2% in the Northeast, and 2.4% 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 July. Only three states - Indiana, Virginia and Michigan - have experienced decreasing hiring year-to-date.
Year-to-date, salaries are up in 16 of our 21 benchmark states. Salaries have decreased year-to-date in Utah, New York, Indiana, Maryland and Michigan. Salaries have fallen most sharply in New York, where we have seen a 6.1% 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.
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