SurePayroll's Small Business Scorecard Review
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 SurePayroll Hiring Index ended the month at 10,634, a 34-point increase (0.32%) from April.
That's the sixth straight month of hiring growth. Based on our data, it's no surprise to us that the number of Americans joining the unemployment lines has fallen recently.
Year-to-date, small business hiring has increased 1.8%. On an annualized basis, that puts small business hiring on track to grow an impressive 4.5% this year. (In 2006, small business hiring declined by 0.2%.)
This economic growth is taking many by surprise, in large part because recent GDP growth numbers are fairly unimpressive.
It's an intriguing question. If we are producing less, why is it that businesses are hiring more and how on earth are they able to pay higher salaries?
It's a bit like the local weatherman is forecasting a rainy day and you look out the window and there's not a cloud in the sky. All we can say is what we see: small businesses are hiring, so the economy must be doing reasonably well.
Salaries Still Rising
On the salary front, we continue to see rising salaries.
The SurePayroll Pay Index was 1,046 at the end of May, up eight points from April, or 0.3%.
The average small business salary for the United States now stands at an annualized rate of $32,142.
Since the beginning of the year, we've seen average small business salaries in the country jump by $850. Within an estimated 50 million small business employees in the country, that statistic suggests that $42.5 billion dollars of incremental salary monies (pre-tax dollars, mind you) are entering the pockets and savings accounts of small business employees.
That's an excellent stimulus to consumer spending that will likely be buoyed by the strong stock market. It's not a huge number — total GDP is $13 trillion after all — but it still provides a nice stimulus to the economy.
At the same time, increasing salaries are a burden to small business owners who are experiencing higher labor costs and must either raise prices, become more productive or accept lower profitability.
To be sure, the run-up in salaries is quite remarkable. We've seen twenty-one consecutive months of continued salary growth in the small business economy. We have not seen salaries this high since we started tracking the small business economy.
So why are salaries rising?
We view increasing salaries as a sure sign that there's a growing labor shortage issue in the country. Talented workers are getting tougher and tougher to find. To attract them, companies must pay more in salary and improve their benefits packages.
While a labor shortage will tend to have inflationary pressures on the economy, we believe two factors are slowing inflation in the marketplace.
First, small business owners have crawled out of the abyss of a bad economy that started when the dot com bubble burst in 2001. Many business owners watched their revenues get cut in half during this timeframe and had to layoff many employees. Having painstakingly resuscitated their companies over the past six years, small business owners are hesitant to do anything that puts their current business levels at risk. Raising prices is a move that only the bravest entrepreneurs are willing to undertake at this time.
Second, the small business economy is more competitive these days. Unless a company has a proprietary offering, intense customer stickiness or formidable barriers to entry in their marketplace, it's easier than ever for a competitor to set up shop. Raise prices and you'll hear a massive sucking sound as your customers go across the street — or around the world — to your competitors.
Independent Contractors
The SurePayroll Contractor Index stands at 3.38% as of the end of May 2007. That means that for every 100 workers engaged by small business, 3.38 are 1099 independent contractors and 96.62 are W2 employees.
In other words, 3.4% of the small business economy is powered by independent contractors. Contractors are an attractive option for small business owners because there are no employer payroll taxes and no benefits need to be offered to contractors.
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 also up year-to-date in all four regions.
The West continues to lead the country in hiring growth and salary growth. The South is this month's laggard in hiring growth, and the Northeast is the region with the lowest 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 18 of our 21 benchmark states in May. 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 New York, Indiana, Maryland and Michigan. Small business salaries have fallen most sharply in New York. In contrast, Nevada boasts the year-to-date highest salary growth levels.
Data for our benchmark states is available — just send me an e-mail 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:
Scorecard |
2008 |
2007 |
2006 |
2005 |
2004
