U.S. small businesses are starting to ramp up hiring 21 months after the end of the deepest recession since the 1930s, supporting Federal Reserve Chairman Ben S. Bernanke’s confidence in a gradual labor-market recovery.
Paychex Inc., which manages payroll accounting for companies that employ fewer than 100 workers, said checks per client rose 2.8 percent from a year ago in the quarter ended Feb. 28, the biggest gain in at least two years. The data, released with the company’s fiscal third-quarter earnings yesterday, adds to other evidence showing growing confidence by small businesses, including data from Insperity Inc. and surveys by Intuit Inc. and the National Federation of Independent Business.
“The upward momentum is very impressive,” said Jim O’Sullivan, chief economist at MF Global Inc. in New York. “Disproportionately, job growth comes from the small-business sector,” which is “key to a self-sustaining expansion.”
During the first year and a half after the recession ended in June 2009, small companies struggled more than larger ones to get loans, restraining hiring, O’Sullivan said. Recent surveys show banks are easing credit, which could help boost monthly nonfarm-payroll gains to more than 200,000 by midyear, he estimated. Growth averaged 127,500 in January and February.
Bernanke cited a survey by ADP Employer Services when he told the House Financial Services Committee on March 2 that greater credit availability and growing demand among consumers may encourage small-business hiring. The ADP survey estimated that companies with fewer than 50 employees increased payrolls by 100,000 last month.
“I think there is some recovery going on” in these businesses, said Bernanke, who estimated that they generate about 60 percent of jobs. He called small companies “very important” as he noted “increased evidence that a self- sustaining recovery in consumer and business spending may be taking hold.”
The Federal Open Market Committee, which Bernanke heads, agreed on March 15, saying the rebound “is on a firmer footing, and overall conditions in the labor market appear to be improving gradually.”
Paychex’s customer base “makes it a good proxy for hiring trends within existing small businesses,” which appear to be “on a solid pace of improvement,” said Tim McHugh, analyst at William Blair & Co in Chicago, who rates Paychex “outperform.” Most of the Rochester, New York, company’s clients have fewer than 20 employees, according to Paychex’s annual report.
Paychex’s rising checks-per-client figures were echoed by data from Kingwood, Texas-based Insperity, formerly Administaff Inc., which also provides human-resource services to small and mid-size businesses. Insperity forecasts that the number of work-site employees paid per month will climb 9.5 percent this quarter compared with a year ago, the most since the fourth quarter of 2007.
“Labor-market conditions continued to strengthen modestly, with all Districts reporting some degree of improvement,” the Fed said in its Beige Book survey of 12 regional Fed banks three weeks ago. Boston, Richmond and Chicago reported increases in the conversion of temporary to permanent hires and permanent job placements.
Fewer Americans are filing applications for unemployment benefits, in another positive sign. Jobless claims declined by 5,000 to 382,000 in the week ended March 19, Labor Department figures showed today in Washington, in line with the median forecast of economists surveyed by Bloomberg News. The total number of people receiving benefits dropped to the lowest level in almost three years.
Mountain View, California-based Intuit’s Small Business Employment Index was the highest in February since December 2008. Confidence among U.S. small companies also rose in February, the Nashville-based independent business federation reported March 8. The group’s optimism index climbed to 94.5, the highest since the recession began in December 2007.
Amber Schweitzer, owner of five-year-old PEP Sports Club in Parker, Colorado, hired her first two employees this year: one full-time and one part-time.
“I am looking to expand to some other nearby cities,” said Schweitzer, 34, who runs sports programs for children that teach soccer, baseball, golf and tennis. “Even when the economy was bad, people still pay for their children to do things.”
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