What a difference a day makes when it comes to a small business owner's outlook on the economy.
You might recall that back in August, we happily reported that small business owner confidence in the economy was rebounding. Back then, we noted that 79.8% of surveyed business owners indicated they were optimistic about the small business economy, up from 63% in July and from 62% in June.
Well, our September poll on small business optimism found that only 44% of small business owners are optimistic. That's the first time we've ever seen small business owner optimism drop below the 50% mark.
It's particularly remarkable given that small business owners tend to be more optimistic than the average citizen. Pessimists generally don't put all their savings on the line to start a business venture.
Mind you, this particular survey of small business owners was conducted on 2008's Blood Monday, when the Dow dropped 777 points. It's perhaps understandable on that particular day that even the most optimistic among us were feeling down in the dumps. It was a wake-up call to many, letting them know that, unfortunately, the worst is yet to come.
What's happened on Wall Street is a bit like Hurricane Ike gathering strength off the coast. We know the damage is imminent on Main Street. I've talked to enough business owners to know that Main Street hasn't been hit yet, but small business owners see it coming. That's why optimism is down.
The real question is whether this is a category 2 or a category 4 hurricane. And, the key difference here is that government can intervene to slow down a financial hurricane. We don't have that option with a real hurricane!
To see what small business owners think of the bailout, see Small Business Owners' Perspective on Wall Street Bailout.
The Good News: Small Businesses Are Still Hiring Despite the Economic Storm Clouds
Despite the economy's problems, small businesses grew on average in the month of September. This is a clear indication that the financial market problems did not hit Main Street business owners too hard in September.
Indeed, U.S. small businesses increased their staff levels by 0.27% in September. The SurePayroll Hiring Index ended the month at 11,188, a 30-point increase from August.
For the entire Third Quarter, small business hiring was up 1.1%. Year to date, small business hiring is up 2.7% nationwide.
This is consistent with all the other national labor statistics that are available from the Bureau of Labor Statistics and other public and private sector data sources: to the extent there is any job growth in the economy right now, it is coming from small business.
Salaries Still Declining
Dropping salaries have made it easier for small business owners to hire new employees. In fact, salaries declined by 0.51% in September. That's the largest one-month drop in the national average small business salary that we've ever seen!
The SurePayroll Hiring Index clocked in at 1,042 in September, dropping 5 points. The average annualized small business salary for a U.S. employee now stands at $32,182.39.
In the Third Quarter, salaries dipped 1.1%. Year to date, salaries have declined 1.8%.
Long story short, it's a bad time to be unemployed. If you can get a job, the odds are it will pay less than your last job, even if it's exactly the same work. However, if you are an employer looking to hire a new employee, good news -- it's a buyers' market.
Contractors
Use of contractors was up 1.05% last month. This is a trend we've been watching closely, and it appears that small business owners are getting more reliant on contractors.
The SurePayroll Contractor Index ended September at 3.64%, up from 3.61% in August.
When we say the Contract Index is 3.64%, that means that for every 100 workers engaged by small businesses in September, 3.64 are 1099 independent contractors and 96.36 are W2 employees.
Small business owners that lean more on contractors now than in the past are effectively saying: "I'm hedging my bets. I'm not willing to invest in full-time employees, and I'd love to save a little money on benefits and employer payroll taxes."
What's Around the Corner for the Nation's Small Businesses
Given the low optimism levels out there, it's clear that small businesses are bracing for the impact of this storm. There are four key factors to consider:
Regional and State Performance
On a regional basis, the Midwest, Northeast, South and West experienced hiring growth in August. Monthly hiring gains for these regions were 0.8%, 1.0%, 0.5% and 0.1% respectively. The Northeast is leading the country in small business growth.
In September, average salaries declined in all regions, except the West. Salary changes for the Midwest, Northeast, South and West were -0.2%, -0.9%, -0.9% and 0.2% respectively.
On a year-to-date basis, hiring changes for the Midwest, Northeast, South and West now stand at 5.5%, 6.9%, 5.3% and -0.2% respectively. The West is the only region where hiring is down year to date.
Year to date salary changes for the Midwest, Northeast, South and West are -1.4%, -5.4%, -7.1% and 4.4% respectively.
As depicted in the graphic below, year-to-date results vary from state to state. The Scorecard comprises data from all 50 states but we pay close attention to states that we have earmarked as "benchmark states": Arizona, California, Colorado, Florida, Illinois, Maryland, Michigan, Minnesota, Nevada, New Jersey, New York, Oregon, Pennsylvania, Texas, Utah 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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