Small Businesses Are Going on a Hiring Binge

Job Seekers
Job seekers talk to potential employers during a Princeton Area Chamber of Commerce job fair in Princeton, Illinois, U.S. Hiring plans in January remained near seven-year highs reached in December, according to the National Federation of Independent Business’s survey. Photographer: Daniel Acker/Bloomberg

Sterling Risk Advisors, an Atlanta-based property and casualty insurance broker with 86 employees, has added 13 workers since June and will probably hire 10 to 15 more this year.

“We are committed to growing,” said Doug Rieder, 50, president and co-founder. “We feel a lot better about business. We are pretty bullish right now.”

Small business, responsible for most American job creation, is finally gaining momentum, giving an expansion approaching its sixth anniversary some legs and leading an acceleration in job creation. Confidence is near a post-2007 peak for small companies, construction is recovering and credit conditions are easing.

“Small businesses are now doing better than big business” with a “fairly positive” outlook for growth and employment, said Jim O’Sullivan, chief U.S. economist at High Frequency Economics in Valhalla, New York. “In general, small businesses were hurt more by the credit crunch than big firms and that headwind for the recovery has become a tailwind as the banking sector has strengthened and eased lending standards.”

Companies with 499 or fewer employees added 81 percent of the new private-sector jobs in January and averaged 83 percent over the past four months, figures from Roseland, New Jersey-based ADP Research Institute showed. While smaller firms typically provide two thirds of new jobs, hiring by such companies has been erratic and sluggish since the recession ended in June 2009, and accounted for as little as 38 percent of private-sector jobs added in September 2010.

Payroll Gains

Overall payroll gains averaged 336,000 over the last three months, the strongest since a comparable period ended in November 1997, U.S. Labor Department data showed Feb. 6. Private payrolls, which exclude government agencies, soared 414,000 in November, the biggest advance since September 1997.

Hiring plans in January remained near seven-year highs reached in December, according to the National Federation of Independent Business’s survey. The group’s small business optimism index in December reached the highest level since 2006.

By contrast, larger multinational companies such as Coca-Cola Co. and Procter & Gamble Co., which get a majority of sales outside the U.S., are facing pressure. They have been hurt by a stronger U.S. dollar, which reduces the value of overseas earnings, and slowing global growth. Most U.S. small businesses don’t get any sales abroad, according to the NFIB.

Loan Conditions

Loan conditions improved in the fourth quarter for a third consecutive quarter to a record, according to the Experian/Moody’s Analytics Small Business Credit Index, reported Feb. 18. The index reports the lending environment for companies with fewer than 100 workers, based on credit scores and economic data.

“The fundamentals are continuing to strengthen,” said Dan Meder, vice president of Experian’s Business Information Services unit, in Parsippany, New Jersey. “The recovery has really started to take hold for small business.”

An estimated 27 percent of small businesses increased full-time employment in the past 12 months, and a majority of those who applied for credit got it, according to a report this month by the Federal Reserve banks of New York, Atlanta, Cleveland and Philadelphia.

Such ventures are benefiting from consumers’ improved outlook with the drop in gasoline prices and from a slow recovery in housing that is gaining momentum, said Mark Zandi, Moody’s Analytics chief economist in West Chester, Pennsylvania. New-home sales in January held close to the fastest pace in more than six years.

‘More Gusto’

“Small businesses sell most of their wares to U.S. households who are spending more, and given the plunge in gasoline prices, likely to spend with even more gusto in coming months,” he said. “The improving housing market will also help, as many small businesses are tied into the construction cycle.”

Small and large firms tend to expand and contract at different rates at various points of the business cycle, research by Yale University economist Giuseppe Moscarini found in a 2012 paper. Large firms typically grow more rapidly when unemployment is low, which can make it difficult for smaller firms to hang onto workers, he said.

The expansion since 2009 has been so sluggish that it’s benefited small businesses by allowing them to retain and attract talent, Moscarini said.

“The usual job ladder mechanism, through which job upgrading especially after a recession hollows out the ranks of small firms, this time seems to be kicking in much later.”

Established Businesses

The hiring gains reflect mainly established businesses rather than a surge in startups, which over time can account for most of new employment, according to Zandi.

The number of new firms in 2012 was 27 percent below 2006, according to Census Bureau data cited by the Ewing Marion Kauffman Foundation, which promotes entrepreneurial activity.

“There is some evidence of a secular decline in dynamism” with Americans avoiding taking big risks of starting their own establishments, said E.J. Reedy, director of research and policy for the Kauffman Foundation in Kansas City, Missouri.

Some business groups have expressed concern that the Affordable Care Act’s mandate for employers with 50 or more full-time workers to provide insurance could deter hiring. A Congressional Research Service report Jan. 15 noted a 2013 survey of small employers found most misunderstood the rules on what size companies were required to provide coverage, the deadlines and penalties. The report said the law would result in “a negligible change in the labor force.”

An increased number of commercial projects for Wilson-Covington Construction Co. in Winston-Salem, North Carolina, is leading to new hiring, said Hayes Wauford, 32, co-owner and executive vice president of the 68-year-old family business. The company, which operates in the Carolinas and Virginia, cut its staff from 40 to a low of 28 in mid-2009.

It’s since rebounded to 52 employees after adding 12 people in the past year and “we might add five more this year,” he said.

‘Solid Ground’

“We are definitely on the upswing,” Wauford said. “Things are definitely getting better and I think they will continue to improve. We are on pretty solid ground now.”

In Atlanta, Sterling Risk’s sales have improved with rebounding fortunes for commercial construction, transportation and professional services such as physicians, Rieder said. Sterling didn’t cut staff during the recession.

“Most businesses are back to growing again” and need insurance, he said. “The recovery has finally broadened out to a point you feel it across small business and not just in pockets.”

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