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Small Business Indicator: Labor Market Continues to Be Soft 

Any time I speak with my contacts about jobs it always goes back to the small businessman. Being the driver of jobs, the health of small business is key to a growing U.S. economy.

Today Intuit released its monthly Small Business Employment Index which aggregates online employment data from approximately 60,000 small business employers that have less than 20 employees. I asked Susan Woodward, the economist who worked with Intuit to create the index on this month's highlights.

LL: Small business is the jobs generator in this country. How was the jobs growth for the month of February?

SW: First, only young small businesses really grow and create jobs. It is the youngness, not the smallness, that appears to be important. Think of your local dry cleaner. It is a small business, but it is more likely to stay small. But employment in small businesses, as measured by the Intuit smallbiz employment index, was up.

It is not up enough to get us back to full employment soon. So far in the recovery employment gains are much larger for small businesses than for large ones. Small businesses recover before big biz in a recovery because they use relatively more unskilled labor (the people laid off first, and unemployment among the less skilled is always higher, even in good times) and because they are quicker to respond to a soft labor market.

LL: What was the compensation and how does that characterize the labor market?

SW: Both compensation measures—compensation per employee and hourly wage, are essentially flat, and have been for a year. This is evidence that the labor market continues to be soft.

LL: Despite the flat compensation, are you seeing any positive signs in terms of hours?

SW: Yes, hours worked are up also. Based on a recent analysis we did of the fraction of hourly people who work full-time, my guess is that we are seeing this because more of the smallbiz employees are being returned to full time. The decline was from about 20 percent (of hourly workers who worked more than 160 hrs for the month) down to to 16 percent, and we are back now to 18 percent.

LL: Is the flat in compensation because of the amount of people out of work? They have more to choose from and they don't have to pay high salaries to attract workers?

SW: Yes, compensation is flat because there are so many people out of work. It is that simple.

LL: Which parts of the country are seeing growth? Which parts of the country are not seeing growth and why?

SW: This month we see the biggest growth in employment in the West, (we use Census Divisions for regional analysis). It is also notable that among the states in which we have more than a thousand customers, there are three "sand" states with employment growth above the national average—Arizona, California, and Florida. These are also among the states with the biggest property value busts and the highest unemployment, so perhaps they are making gains because they have the farthest to return to normal. But these month-to-month changes are pretty noisy, so don't read too much into them. What's more important is that the national trend for employment growth among smallbiz continues.

Small Business Employement by U.S. Census Division

U.S. CENSUS DIVISION
PERCENT CHANGE IN EMPLOYMENT
East North Central 0.1%
West North Central -0.0%
Middle Atlantic 0.2%
Mountain 0.5%
New England 0.2%
Pacific 0.5%
South Atlantic 0.3%
East South Central 0.2%
West South Central 0.3%
Source: Intuit Business Employment Index

Small Business Employment by U.S. Census Division continues to grow in most parts of the country except for the West North Central division. The data reflects employment from approximately 60,000 small business employers who use Intuit Online Payroll. The month-to-month changes are seasonally-adjusted and informative about the overall economy.

Small Business Employement by State

STATE
PERCENT CHANGE IN EMPLOYMENT
Arizona 0.7
California 0.4
Florida 0.5
Georgia -0.2
Illinois 0.3
Maryland 0.8
Massachusetts 0.2
New Jersey 0.6
New York -0.4
North Carolina -0.1
Texas 0.2
Virginia 0.4
Washington 0.6
Source: Intuit Business Employment Index

Small Business Employment by State is up for many states across the country. The states above reflect those for which Intuit Online Payroll has more than 1,000 small business firms represented. The month-to-month changes are seasonally-adjusted and informative about the overall economy.

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