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.
While economists are predicting that rising borrowing costs, higher oil prices and declining home values will soon slow down consumer spending and negatively impact the economy, we still have not yet seen a definitive slowdown in the small business economy.
Small Business Hiring Increases
The SurePayroll Hiring Index ended the month at 10,788, a 34-point increase (0.32%) from August. September marks the tenth straight month of hiring growth.
Many companies continued to hire in September, in spite of rumors of economic trouble ahead. Indeed, in our recent survey of small business owners, 19% indicated that they had hired employees in September. 8% of respondents had downsized, and 73% indicated that they had neither gained nor lost employees.
Year to date, small business hiring has increased 3.3%. On an annualized basis, that puts small business hiring on track to grow 4.4% this year. (In 2006, small business hiring declined by 0.2%.)
Small Business Optimism Rebounds
What's powering the small business economy's resiliency?
Certainly, the Fed's decision to lower rates was encouraging to small business owners. As we write this, the Dow is now roughly 104 points away from its record closing high. While the subprime debacle was front-page news, there is a growing awareness that the subprime market, relative to the entire real estate market, is relatively quite small.
At the same time, we know from our payroll data that small business employees have more money in their pockets due to rising salaries. Undoubtedly, this has helped to keep consumer spending reasonably vibrant, which helps small businesses that sell goods and services to consumers.
For small business owners, the good news last month apparently outweighed the bad news. We saw a rebound in small business optimism. Whereas in August only 69.5% of small business owners, 78.3% of small business owners who responded to our most recent September survey said they were feeling optimistic about the economy.
This bodes well for the rest of the year. The pundits will talk recession and downturn, but it appears that the "Average Joe" is viewing the economy's cup as being half full, not half empty.
Indeed, economies often have nothing to fear but fear itself. There is a mass psychology at play that determines how individuals decide to behave. Our optimism indicator makes us hopeful that confidence will win the day. While the end of 2007 certainly will not be a boom time of any sort, it appears that there will be a softer landing than many expect.
Small Business Salaries Rise
The SurePayroll Pay Index was 1,053 at the end of September, up two points (0.17%) from the end of August.
While the Pay Index is based on actual paycheck data, we also surveyed small business owners about pay trends in September. 40% of respondents indicated that they have to pay more to hire an employee this year than last year. Surprisingly, 56% of respondents have not seen any material rise in their salary costs.
The average small business salary for the United States now stands at an annualized rate of $32,373. Year to date, salaries are up 3.5%. On an annualized basis, that would project out to a 4.6% increase in salaries for 2007.
Note that while salaries continue to rise, the pace of growth is slowing considerably. This should alleviate some of the inflation concerns that have arisen in light of the Fed's recent rate cuts.
Independent Contractors
The SurePayroll Contractor Index stands at 3.41% as of the end of September 2007. That means that for every 100 workers engaged by small business, 3.41 are 1099 independent contractors and 96.59 are W2 employees.
Use of contractors increased last month. This is something we typically see when business owners become uncertain about the economy. In uncertain times, there is a tendency to use contractors rather than hire full-time employees.
Regional and State Performance
Aside from a dip in salaries in the Midwest, everything was looking up last month across the nation.
Our regional SurePayroll Small Business Scorecard hiring indices rose last month in the Midwest, Northeast, South and West.
The SurePayroll Small Business Scorecard pay indices rose in the Northeast, South and West. The Midwest was the only region in which salaries declined, with salaries dipping 0.3%.
On a year-to-date basis, every region is in positive territory.
Midwest hiring is up 2.0% year-to-date. Hiring in the Northeast is up 2.4% year to date. Hiring in the South is up 2.0%. Last but not least, the West continues to be a big source of small business job growth for the nation; hiring in the West is up 5.0% year to date.
The West also leads in salary growth. Salaries in the West are up 5.3% year to date. Second place goes to the South, where salaries are up 3.0% year to date. Midwest salaries have risen 1.5% year to date. Salary growth is slowest in the Northeast, where salaries are only up a paltry 0.2% year to date.
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 0.6%) and Michigan (down 1.6%) - 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 Utah (down 0.3%), Indiana (down 6.7%), New York (down 5.8%) and Maryland (just barely down a small fraction of a percent).
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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