Increased Spending, No Increased Pay

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Every month before I report on the results of the SurePayroll Small Business Scorecard I'm sure to create a mental checklist consisting of two columns: One includes all of the news items I've heard that could possibly indicate that the economy is improving, and the second includes the news items that would indicate the opposite.  I consider these while reviewing Scorecard data to help formulate my thoughts on the state of the small business economy.

When the Commerce Department's news of disappointing housing sales came out last week, I mentally stored it away in my negatives column. And when the Commerce Department told us on Monday that spending rose at the fastest pace in four months, due to increased auto sales, I put that in the positives column. The categorization seemed pretty clear cut until I reviewed our August Scorecard data.

Small business hiring continued its very slow and steady climb up since the beginning of the year, increasing 0.1 percent over July to bring us to a year-to-date increase of 4.2 percent.

With the positive news of increased spending, I expected to see an increase in pay, even if slight. But that's not the case. According to the Small Business Scorecard, pay continues to head the opposite way. While we saw an increase in pay each month in the first quarter of the year, small business workers experienced a slow and steady decrease in pay each month since April. August pay decreased 0.2 percent from July to bring us to a year-to-date decrease of 0.5 percent.

I've written about the vicious cycle we've been caught in regarding pay versus spending. No pay, no spending, no increase in business, no increase in employment, and so on and so forth. While the consumer spending report is only one small data point among a dozen factors, it could be a sign that we will see pay stabilization, and even show us a slight increase over the next few months. Or it could simply be telling us that consumers finally decided to take advantage of strong automobile promotions that were nearing an end, and that we'll see disappointing sales next month.

With small business owner sentiment remaining low (only 54 percent of business owners reported to SurePayroll that they are optimistic about the small business economy in August), I'd count on the latter to be true. Many economists may be speculating about this being a W-shaped recession, or double dip recession, but I firmly believe we're at the trough of an L-shaped recession, with expected prolonged periods of underperformance.

It will most likely be quite a while before we see pay increase to the levels we saw a few years ago. For new businesses and established businesses that have not been negatively affected by the economy, it means one of your top priorities should be to scope out and hire top talent that you'll be getting for a steal. For business owners still caught in a slump, it leaves you in the same position you and many employees out there are  all getting  too used to – wait and see. 

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.