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Small Business Optimism Hits 2-Year High, Hiring Still Lags

Inc. columnist Michael Alter describes what needs to happen to fix a jobless economic recovery.

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Seventy-five percent of entrepreneurs reported they were optimistic about the economy in May--more than any month in two years--according to SurePayroll's Scorecard survey of 40,000 small business owners. In September 2012, small business optimism had fallen as low as 45 percent. The five-straight-month optimism rise, including a 20 percent increase, says many small business owners are doing well and even growing.

But, at the same time, month-over-month hiring numbers were down 0.3 percent in May, in line with the flat-or-slightly-down hiring trend SurePayroll has identified throughout the last year. A new Gallup poll also found that more small business owners report letting employees go than hiring them on average over the past year.

The overall picture suggests a jobless recovery for the small business economy. Small businesses (87 percent of those SurePayroll surveys have 10 employees or fewer) are growing but not fast enough to hire more people. They're becoming more efficient and innovative, which is good for business, but also means there's less need for new jobs.

Small businesses are using technology to increase productivity, so they're not necessarily overwhelmed with work. When they need something very specific they outsource or use an independent contractor; SurePayroll data shows the number of 1099 workers steadily rising. Also, revenue just hasn't grown to the point where businesses need more people.

In addition, those who do look to hire are hard-pressed to find qualified candidates, identify exactly what they need, and pay a market-rate salary.

So, how can the country go from a jobless recovery to a full recovery? It will take a combination of increased sales growth, new start-ups that have no choice but to hire, and more positive signs in the housing market. (It takes people to build, paint, and decorate homes, of course.)

You're not there yet. And with the slow pace of this type of recovery, it may be a while.

Last updated: May 31, 2013

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.
@michaelalter




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