November 2007 SurePayroll's Small Business Scorecard Review
Here’s what happened in the small business economy this past month.
Optimism rebounded in November as small business owners anticipated an interest rate cut by the Fed. On a national basis, salaries and hiring were both up in November, although salary growth was much slower than what we've seen in the past and salaries actually declined in the Midwest, Northeast and South.
Small Business Hiring Increases
The SurePayroll Hiring Index ended the month at 10,863, a 41-point increase (0.38%) from October. November marks the twelfth straight month of growth in the Hiring Index, which is based on employee counts reported in company payroll submissions.
However, in our recent survey of small business owners, 81.6% indicated that they had neither gained nor lost employees in November (up from 75% in the prior month's survey). 14.7% had gained employees, and 3.7% had reduced their headcount. Clearly, despite the overall growth in hiring, many companies are sitting on the sidelines right now and are not adding new employees. In other words, national hiring growth is being fueled by 15% of the companies out there.
This makes sense. In our frequent interactions with small business owners, we hear that some companies are doing very well while others are struggling. Although it's tough to generalize, white-collar companies (with mortgage brokers and real estate companies as a notable exception) appear to be doing fine, as are companies that are benefiting from a strong export market.
Year to date, with eleven months gone and one to go, small business hiring has increased 4.0%. On an annualized basis, small business hiring is on track to grow 4.2% this year. This will be a very strong performance indeed, given that last year small business hiring declined by 0.2%.
Small Business Optimism Recovers
We saw a rebound in small business optimism last month.
In November, 75.6% of surveyed business owners said they were optimistic about the economy, indicating a strong rebound from the prior month.
One business owner explained his optimism by noting that "There is always a niche for small businesses in our economy, and small businesses are quick to adapt to economic changes."
This is something we've discussed in the past in the SurePayroll Scorecard. Small business owners are resilient. They have to be, because for most of them the consequences of failing in a small business are much more dire than the consequences of a traditional employee doing poorly in their job.
While the media and certain economists attempt to shoot holes in their optimism - citing lower consumer spending, credit crunch, housing market issues, etc. - small business owners are very micro-focused on moving ahead and growing their businesses. As one small business owner put it: "You have to be optimistic to be in business. If you are pessimistic, don't start your own business."
Having said that, the owners who are optimistic are typically those who are doing well. One exporter, capitalizing on a weak dollar, noted that "Most of our sales are overseas. If our sales were domestic, I'd be far more pessimistic."
Here are the optimism levels for the three preceding months:
- October (64.2%);
- September (78.3%); and
- August (69.5%).
The high variability in optimism suggests that the economy is on a bit of a roller coaster ride these days…with a broad mix of good news and bad news.
Small Business Salaries Up Nationally, But Barely
The SurePayroll Pay Index was 1,057 at the end of November, up one point from the end of October.
This means the average small business salary in the United States increased last month, but just barely. In fact, on a regional basis, we saw salaries decline in the Midwest, Northeast and South. If it were not for salary growth in the West, the national salary average would have declined.
While the Pay Index is based on actual paycheck data, we also surveyed small business owners about pay trends in November. 52.8% of respondents indicated that they have to pay more to hire an employee this year than last year. That's up just slightly from 51.8% in the prior month. 44.7% of respondents (versus 45.9% last month) have not seen any material rise in their salary costs and a few lucky business owners, 2.5%, (versus 2.3% last month) are actually able to pay less now than they did one year ago.
The average small business salary for the United States now stands at an annualized rate of $32,500. Year to date, salaries are up 3.9% nationally. On an annualized basis, that would project out to a 4.2% increase in salaries for 2007. Last year, salaries increased 7.4%.
Reliance on Independent Contractors Increases
Reliance on independent contractors rose slowly in November. The SurePayroll Contractor Index stands at 3.44% as of the end of November 2007, up from 3.43% in the prior month. That means that for every 100 workers engaged by small business, 3.44 are 1099 independent contractors and 96.56 are W2 employees.
That's five months in a row of increased reliance on independent contractors, something we typically see when there is economic uncertainty.
Regional and State Performance
On a regional basis, hiring was up last month across the nation but salaries only increased in the West.
Our regional SurePayroll Small Business Scorecard hiring indices rose last month in the Midwest, Northeast, South and West.
However, our regional SurePayroll Small Business Scorecard pay indices rose last month only in the West. All other regions experienced a decline in average salaries in November, suggesting that the end may be near for the long run of salary increases we've been seeing.
On a year-to-date basis, every region is in positive territory, both in the hiring growth and 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 19 of our 21 benchmark states. Only two states - Maryland (down 2.1%) and Michigan (down 1.1%) - have experienced decreasing hiring year-to-date.
Year-to-date, salaries are up in 18 of our 21 benchmark states. Salaries have decreased year-to-date in three states: Utah (down 0.8%), Indiana (down 7.4%), and New York (down 5.8%).
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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