The economy may be turning a corner, but for small businesses, the improvements so far have been anemic, according to Intuit’s latest Small Business and Employment Revenue Index.
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“Everybody was improving from the beginning of 2009 to the beginning of 2012,” says Susan Woodward, the economist who worked with Intuit on the indexes. “In the beginning of 2012 businesses started to turn down, and some turned down more than others and now it’s continuing to decline.”
Each month, Intuit culls data from 170,000 small business employers who use Intuit Online Payroll and QuickBooks Online to gauge hiring and revenue trends across the country. The aim is to provide a leading indicator of the economic health of the small business sector.
According to the employment data for February, employment increased slightly by 0.07%, adding 15,000 new jobs while monthly compensation increased 0.4% on a seasonally adjusted basis, or $12. That compared to a $6 decrease in January. The average monthly hours worked increased 12 minutes compared to a decrease of nearly an hour last month. Compared to this time last year, small business employment rose by 75,000 jobs, which may seem strong but according to Woodward is actually rather lackluster.
“The gains in small business are not very big,” says Woodward. “If small business employment were growing at its usual proportionate rate of 15% of national employment, that number would be 300,000, a 400% difference.”
So what’s hurting small business?
According to Woodward, two big sectors within small business are construction and retail, which of course took a big hit during the recession and are now taking longer to recover.
“Construction has a long way to go before we can declare a recovery and small retail sales have grown feebly,” says Woodward. For the year retail sales grew less than 2% while online sales grew 10%, which means all retail, but especially small retail, is losing out to online sales, she says.
From a geographic perspective, employment growth was mixed in February. Of the 34 states Intuit’s Small Business Employment Index tracks, employment increased in 13 states, was flat in three and declined in 18 states. For the second month in a row, Utah and Nevada saw the greatest increases in employment growth. Alabama, Indiana and Kentucky had the greatest declines.
Things aren’t looking any brighter on the revenue side, according to Intuit. The January Small Business Revenue Index showed a 0.6% overall revenue decline on a per-business basis. The small business retail industry saw the greatest revenue decline at 1.3% for January and is down 5.3% since its peak in February 2012. Health care, another driver of January’s decline, saw revenues fall 0.5% and are down 3.7% since its peak in March of 2012. The declines in health care are noteworthy, given it is an area that seemed immune during the downturn. Woodward says the decline in revenue in the health-care industry could be attributed to Obamacare’s rollout and increases in payments going through insurance companies.
The accommodation and food services sector, which was also down in January, saw a decrease of 0.3% and is down 2.2% since its peak in March of 2012. The sectors that had the smallest decline were construction and real estate services, both of which were down less than 1% in January.
While revenue during February was on the decline, income during the same period was stable which suggests small businesses are still reigning in costs.
“Small businesses have to realize that other small businesses are having a hard time and it’s not just you,” says Woodward. “Incomes are not dropping but revenue is, which means businesses are cutting costs and belt tightening.”