April 2008 SurePayroll's Small Business Scorecard Review
The average small business in the United States increased in size in April, but growth is clearly slowing down.
We continue to move forward but we are moving ahead at a decelerating rate.
Slowing growth is bad news, but every economic storm cloud has a silver lining.
In this case, the good news is that we are not going backward.
When we start to see small businesses shrinking, if it comes to that, then we have cause to be alarmed.
The SurePayroll Hiring Index ended the month at 11,003, a 13-point increase (0.12%) from March.
In March, small businesses grew by 0.29%, and in February growth clocked in at 0.32%.
Influencing the slowdown, some large states, most notably California and Texas, transitioned from positive small business growth in March to negative small business growth in April.
Clearly, the resiliency of the small business economy is being challenged, but small business owners are never prone to throw in the towel.
April marked the 17th straight month of growth in the national Hiring Index. If there's a recession underway, somebody forgot to tell the entrepreneurs.
Salaries Flatlined in April
Average small business salaries dropped 0.04%, effectively flat for all practical purposes.
To put this in perspective, the average small business employee lost just over $13 in annualized purchasing power as a result of economic changes in April. To be precise, the average annualized small business employee salary in the country is now at $32,566.57, down from $32,579.85 in March.
Decimal points aside, the SurePayroll Pay Index was 1,060 at the end of April, exactly where it stood at the end of March.
A slowdown in salary declines may be welcome news for American consumers, most of whom are employed by small businesses, who are struggling with rising costs for food, gas and just about everything else.
At the same time, had salaries continued to decline, we may very well not have seen a slowdown in hiring. As always, there is a delicate balance between salary levels and hiring demands.
However, at the end of the day, it's business opportunity that defines hiring levels, more so than costs and profitability levels. On aggregate, we would have to infer that small business opportunity retreated in April, to the point where many small business owners had to press the pause button on hiring new employees.
Small Business Optimism Wanes
Aside from the slowing pace of hiring, there are other indications that life is getting tougher for small business owners.
Every month, we survey small business owners to find out if they are optimistic or pessimistic about the economy.
Small business optimism levels decreased from March to April. The percentage of optimistic small business owners was 52.1% in April. This is the lowest optimism reading we've seen to date.
Here are the optimism levels for the three preceding months:
Increased Reliance on Independent Contractors
The SurePayroll Contractor Index ended April at 3.5%, just slightly up from April.
That means that for every 100 workers engaged by small business, 3.5 are 1099 independent contractors and 96.5 are W2 employees.
This is the highest level for our Contractor Index since we started tracking it in January 2004. It's also our third straight month in which small business reliance on independent contractors has risen.
As we have discussed in the past, this suggests that business owners are not confident about future business levels and therefore do not want to add full-time employees (FTEs) to their payrolls. It can also mean that they are trying to avoid the costly burden of benefits, such as health insurance, and payroll taxes.
Slower hiring, lower optimism and increased reliance on contractors - it's all part and parcel of the same story. Despite the resilience of small business owners, we are starting to experience some pain in the small business economy.
Regional and State Performance
On a regional basis, the Midwest, Northeast, and South experienced hiring growth in April. However, in the West our Small Business Hiring Index reversed course from the prior month and ventured into negative territory.
Even in the Midwest, Northeast, and South where hiring increased, the pace of hiring growth decreased relative to the prior month, in lockstep with the trend we see at the national level.
In April, average salaries declined in all four regions.
On a year-to-date basis, all four regions remain in positive territory with respect to hiring, but the West is just barely positive. Salaries, on the other hand, are down in all four regions year to date.
As depicted in the graphic below, year-to-date results vary from state to state. The Scorecard comprises data from all fifty states but we pay close attention to 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, Oregon, Pennsylvania, Texas, Utah, Virginia, and Washington.
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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