The Economy's Untold Story: Small Business

One story that the national media never seem to pick up, when focused on the admittedly horrible job losses coming from the enterprise segment of the economy: there is at least some evidence that hiring has been positive all of 2008, and has been growing through the first three months of 2009, even as national job losses continue.

 

That is congruent with discussions I've been having with providers of communication services to smaller businesses. Though everyone would agree that it now takes longer from pitch to order, as you would expect, many service providers say they have seen no dip in actual spending.

 

"Knock on wood, but we still are seeing growth," says Nick Voth, E Street Communications president. That is what is reported at many other companies focusing on the smaller business.

 

And there may be a reason. Small businesses typically are much more efficient than their enterprise kin. There is, as the saying goes, no fat.

 

Beyond that, small businesses typically cannot grow without hiring people, that being the case.

 

In fact, SurePayroll, a company that handles payroll for small businesses across the United States, reports that February data indicates small business hiring increased by 0.3 percent in February over January, and then 0.2 percent in March.

 

Despite the economic woes of 2008, small businesses managed to increase in size on average, SurePayroll says. For 2008, our SurePayroll Hiring Index started the year at 10,893 and ended the year at 11,274.

 

This index is a proxy for the average size of a small business in the United States. Hence, with all the numbers in for 2008, we can say that small businesses hiring was up 3.5 percent, though it can be noted that the rate of increase fairly steadily decreased throughout the year.

 

Over the course of 2008, hiring increases declined with each passing month, SurePayroll notes. October month-over-month growth was 0.28 percent. November dipped to 0.26 percent and December, at 0.22 percent.

 

The Hiring Index is calculated from the actual payments made by over 25,000 small businesses that use the payroll service. I

 

For the first quarter of 2009, the Hiring Index was up 0.8 percent. On an annualized basis, that puts hiring on track to increase 3.4 percent for calendar year 2009.

 

There is of course one caveat: SurePayroll's figures do not include data from firms that go out of business.

Under normal circumstances, though (we can argue about whether the present economy is an example of that), new small businesses add more net employees than are lost from business closures.

 

There is something else: SurePayroll's figures show payments for both employees and contractors. And there is no question but that small businesses are using contractors at a growing rate.

 

At the end of February 2009, for every 100 workers engaged by small businesses in January, 3.82 are 1099 independent contractors and 96.18 are W-2 employees.

 

This is up from 3.78 percent in the prior month, and "it's the highest level we've seen," SurePayroll says.

 

That might explain, in part, why small business communication demand has been steady. Small businesses haven't been shedding employees. It might also explain why demand is fairly steady: more contractors are being added, and contractors don’t increase communications spend very much.