Aug. 8 (Bloomberg) -- Chris Yura says it took about six months before he could afford to hire the first employee for the clothing company he started in June 2009. SustainU Clothing now has 20 workers, about half part-time, with plans to hire three more full-time staffers by year-end, he said.
The company, which sells shirts made from recycled cotton and polyester, is among the small businesses behind much of the job creation in the U.S. In addition to its staff, SustainU contracts out most of its garment-making, from spinning thread to cutting fabric and sewing shirts, to about seven factories in the Carolinas, Tennessee and Pennsylvania, supporting another 300 to 400 workers, Yura said.
“For the first three years, I knew it would be really tough,” because of the general economic climate, said Yura, 32, a former model and Notre Dame football player who started the business in his hometown of Morgantown, West Virginia. “People didn’t think it was going to work. But for me, all it is is more motivation.”
Employment at companies with fewer than 50 workers, such as SustainU, is stronger now than before the last recession, while larger businesses are still lagging behind, according to data from Automatic Data Processing Inc., a manager of employer payrolls. Establishments with less than 10 employees are hiring at a faster clip than before the downturn began in December 2007, Labor Department figures show.
“Small businesses were slow out of the gate but now they’re increasingly running in stride,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania. Moody’s produces the employment figures with ADP.
Businesses with fewer than 50 employees added 82,000 jobs in July and 85,000 the month before, ADP data show. Companies that size accounted for about 42 percent of U.S. employment in July, according to ADP.
“The foundation of growth is really those high-flying gazelles,” Zandi said, referring to companies that offer an innovative product or service and grow exponentially in five to 10 years.
Age as well as size of small businesses makes a difference in hiring, according to research by the Ewing Marion Kauffman Foundation, which focuses on entrepreneurship. Job creation at new companies, those less than a year old with one to four employees, rose 5.4 percent in 2011, rebounding from four straight years of decline, according to Business Dynamics Statistics from the U.S. Census Bureau analyzed by the Kansas City-based foundation.
“There was a holdup in hiring,” said Dane Stangler, director of research and policy at the Kauffman Foundation. “It’s getting better among the newest, smallest companies but for whatever reason, companies that normally come into existence with 10, 15, 20, 30 employees -- so think restaurants, retail stores, things like that -- they continue to have a slower pace of job creation.”
Small businesses are also “getting a nice boost from the housing recovery,” Zandi said. Sales of new homes rose in June to the highest level in five years.
Moving franchise Two Men and A Truck, which averages about 50 employees at locations from Washington state to Florida, is among the housing-related companies adding employees.
‘We’re having tremendous success this year with growth,” said Jeff Wesley, chief financial officer of the Lansing, Michigan-based company. “We’re looking to hire a lot of people.”
Wesley said the company pushed to collect 10,000 applications in April. After receiving about 9,000 responses, it is still looking for qualified movers, drivers, managers and others, he said.
Other reports indicate the small-business hiring rebound will continue. Insperity Inc., which said it processes payrolls for about 5,500 clients with an average headcount of 23 employees, forecasts that its customers’ average number of work-site employees paid per month will increase by as much as 2.7 percent to 130,500 in the third quarter from 127,096 a year ago. The Kingwood, Texas, business said the estimate reflects increased hiring by its clients as well as new sales.
The number of small businesses planning to hire rose in July to 9 percent from 7 percent a month earlier, according to data from the National Federation of Independent Business. That matches the second-highest level since February 2008. The number of firms with a job opening that is hard to fill rose to 20 percent.
Rising residential property values also serve as a source of capital for those who want to start companies. The S&P/Case-Shiller index of property values in 20 cities increased 12.2 percent in May from the same month in 2012, the biggest year-over-year gain since March 2006, a July 30 report showed.
“We’ve seen household wealth rebound pretty well, as well as owners’ real estate and equity so that’s going to help fund a lot of new businesses,” said Sarah Watt, an economist at Wells Fargo Securities LLC in Charlotte, North Carolina.
Not all the signs are positive. The NFIB’s optimism index fell to 93.5 in June from 94.4 the month prior and is below a decade high of 107.7 in November 2004. While access to credit appears to be improving, financing remains an obstacle for newer companies. A quarterly report from the Small Business Administration shows business loans of less than $100,000 grew by 1.6 percent in March 2013 from December 2012, following a 0.2 percent gain the previous period.
Companies younger than six years old have a “relatively difficult” time obtaining financing, with 54 percent of those surveyed unable to get a loan compared with 27 percent of older businesses, according to a first-quarter report from the Federal Reserve Bank of Atlanta. The survey was completed by 478 small businesses in the southeastern U.S.
New businesses are also starting with fewer employees. The average number of employees at a new establishment, which includes franchises, fell to 4.7 in 2012 from 7.5 in 1994, according to Labor Department data analyzed by Wells Fargo Securities.
A Wells Fargo report published June 13 attributes some of that change to online stores reducing the need for staffing at brick and mortar locations.
A leaner staff might also be a sign of caution among small companies seeing if demand justifies hiring. One such watchful business owner is Lisa Goodbee, a civil engineer who heads a Centennial, Colorado, firm specializing in transportation projects. She hired one full-time and one part-time worker last fall, waiting until business had recovered sufficiently to sustain the additional overhead. The 19-year-old firm has a total of five full-time and eight part-time employees.
“State funding for transportation projects was really, really lean” in 2010, said Goodbee, 51, who estimated her gross revenue fell to about half of its $2 million target that year. “I didn’t have to lay anybody off, but we definitely had a slowdown in our business, and then 2011, 2012, we’ve picked right up.”
Yura, the sustainable-clothing company founder, said he never doubted his ability to succeed. After graduating from college in 2003, Yura worked as a model in New York. As he helped market so-called “green” or environmentally-friendly clothing, Yura says he realized he could make better products with U.S. labor. His father took out a third mortgage to provide the initial $30,000 to finance the idea.
“Right now is a great time to be in business in America if your business is focused on the right things,” said Yura, who said he’s aiming for $1.5 million in sales by year-end. “My only worry is making sure I get every order out every day.”
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