Managing People
TRADE SECRETS | Michael Alter

Economy Shifts Into Neutral

 

The small business economy has shifted into neutral, with hiring and wages virtually flat month over month (both down 0.1 percent from March), according to the SurePayroll Small Business Scorecard.

While paychecks are flat for the year, energy and food prices continue to eat up more of an employee's pay. As we know, the more money we need to spend on necessities, the less money we have to spend everywhere else, namely buying the goods and services our small businesses sell.

When you do the math, it's eye-opening. On average, individuals spend 13 percent of their income on food. Food costs are rising steadily—up 4 percent over last year by some estimates. And right now the national average for a tank of gas is $3.90 per gallon—up 36 to 37 percent over last year. An average small business employee who drives 12,000 miles a year and earns $36,000 will mostly likely shell out an extra grand a year for these commodities. That's a big chunk of change, and we haven't even added in the increased cost of clothing and shelter.

With so much money being directed toward necessities and away from other purchases, my concern is that when we do shift out of neutral, it will be a downshift – a decrease in hiring and wages in the small business sector in upcoming months. And I'm not the only one with concerns. Only 52 percent of business owners say they are optimistic about the economy—17 percent fewer than in March. With lower optimism we'll most likely see more business owners spending cautiously, which could affect hiring and wages.

Let's hope that Ben Bernanke is right—that the increased costs of commodities are 'transitory' and that we'll soon see more money freed up and more demand for other items. But if he's not and food and energy prices continue to increase over the next few months, unfortunately, we can expect the economy to downshift very quickly.

Michael Alter is president of SurePayroll, America’s leading online payroll service. He received an MBA from the Harvard Business School and holds a bachelor's degree in economics from Northwestern University.