Small Business Optimism Plunges in July: Government is the Reason

Small businesses create 80 percent of new jobs, virtually all observers agree. So what's happening with small business hiring? The good news: year-to-date small business hiring, as measured by changes in the average size of a U.S. small business, is up 1.7 percent in 2009. The bad news: Salaries, on the other hand, have consistently been trending in the opposite direction. Year to date, the average small business salary has dropped 5.1 percent, says SurePayroll, which handles payroll functions for U.S. small businesses.

Year to date, salaries have dropped 5.1 percent. The average small business annual paycheck in the United States now is $29,995. One year ago, in July 2008, it was $32,290. The last time the average small business paycheck dipped under $30,000 was March 2006. Since we began the Small Business Scorecard in January 2004, the lowest average small business paycheck was $28,589 in August 2005.

The other potential worrisome finding is that, although optimism is growing on the job front, small business owner optimism has plummeted lately. To the extent that optimism is an underpinning for more hiring, that is troubling.

"For July 2009, we saw a substantial decrease in business owner optimism levels," SurePayroll says.

"In response to a survey we conducted at the end of July, only 56 percent of responding small business owners indicated that they were optimistic about the small business economy," SurePayroll says.

"That represents a big drop in optimism from June 2009 when 79 percent of respondents indicated they were optimistic about the small business economy. In May 2009, 73 percent of respondents were optimistic," the firm says.

It may seem odd that optimism is dropping at the same time that there are many reports about how the economy appears to have turned the corner toward recovery.

But many respondents indicated that their pessimism is powered primarily by increased government spending and concerns about the costs of health care reform. That should be a big warning signal for government policymakers who claim to want a fast return to higher employment.