Holding Pattern

The bad news about small-business hiring this year is that it has been going nowhere. The good news is, the year isn't over.

"It's almost as if small businesses [hit] the pause button," says Michael Alter, president of Skokie, Illinois, payroll service firm SurePayroll Inc. "They're holding to see what happens in the economy."

The SurePayroll Hiring Index, which measures the number of small-business employees, remained unchanged from May to June, and was up only slightly from 2004's end. But it was a healthy 3.6 percent higher than the previous June. The explanation? Entrepreneurs hit "play" in 2004's fourth quarter, Alter says. Despite the absence of tax refunds that brightened consumer spending last fall, a bounce may yet occur this year as well.

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The salary picture is darker. SurePayroll's Pay Index, which looks at small-business salaries, fell 2.2 percent from January to June. That suggests this year's overall pay drop will be only slightly less than 2004's precipitous 4.8 percent decline. That's a mixed blessing: Lower pay reduces labor costs, but also hurts consumer spending.

Small firms continued to rely on subcontractors to provide expanded capacity, although at a slightly slower pace than the month before. Regionally, small-business staff size trended down everywhere but the Northeast, where growth was robust at 4.1 percent year to date. Paychecks rose in the South but fell everywhere else.

Alter says the stable hiring scenario provides a benchmark for entrepreneurs to compare their performance with peers. He says, "If you're a small-business owner who's growing and adding employees, hats off to you."