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Hurricanes may have hurt hiring, report says; expert doubts drop-off

Texans may like to think of their state as an incubator for dynamic small businesses.

But according to one new report, Texas doesn't even rank among the top 10 states likely to have the most small-business job creation in 2005.
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Payroll services firm SurePayroll Inc. does a monthly scorecard of the state of small businesses nationwide from the perspective of hiring and salary growth.

At the end of September, the company found that small companies nationwide had increased their workforces 0.4 percent since the beginning of the year.

In Texas, though, small business payrolls have shrunk 4.3 percent.

"Texas had been relatively flat all year," said Michael Alter, president of SurePayroll. "Then it appears it just tanked in August and September."

Lavan Alexander, district director of the Dallas-Fort Worth office of the U.S. Small Business Administration, doubts the drop-off in small-business employment has been as severe as the SurePayroll reports indicates, at least locally.

"This year, we did 2,600 loans, and it appears that out of these loans that we made, they are going to generate approximately 22,400 jobs," he said.

The bulk of those loans went to small firms in Dallas, Collin, Tarrant and Denton counties.

Although that job creation pace is about 1 percent lower than last year, Mr. Alexander said it's still fairly healthy.

"I talk to the guys in Houston, and they seem to feel pretty good about what's going on," he said. "They seem to be pretty much on the same level that we're on."

Some states have had dramatically better job creation trends among small businesses, according to SurePayroll.

In Florida, for example, small companies have increased their staffs 15.6 percent since January, while Michigan is up 11.2 percent.

Mr. Alter said the cumulative effect of hurricanes on the Gulf Coast and rising energy prices appear to have taken a toll on hiring plans in Texas.

But he said another possibility is that the state's labor supply is tightening up.

"Texas is one of the few states that has seen a significant increase in wages of employees this year," he said. "It's almost the exact opposite of the rest of the world."

The average paycheck for workers at small companies in the state has grown 4.9 percent since the beginning of the year.

Nationally, the average small business paycheck has shrunk 2.1 percent.

If that trend continues, it could hurt the national economy, Mr. Alter said.

"The cost to get to work is up dramatically, the cost to heat my home, the cost of my medical care, and if at the same time I'm making less than I used to, the only way I can make it up is if I take on more debt," he said.

But salaries at small firms may be at the beginning of a rebound.

"We've seen small-business pay increase in three of the last four months," Mr. Alter noted in the report.

"To put that in perspective, there have only been three up months in the past 18 months.

"Hopefully, this suggests that the threat of prolonged salary deflation is dwindling, but it's probably still too early to tell."

Even if salary shrinkage is slowing, a lot of damage has already been done.

According to the scorecard, small-business pay is expected to end the year 2.8 percent lower.

Last year, small-business pay fell 4.8 percent.

Although the average small company increased its headcount by 4.4 percent in 2004, headcount growth is expected to top out at 0.6 percent in 2005.

Still, despite the tough climate for small businesses, they seem to be holding their own, Mr. Alter said.

"I would think that the economy would be shrinking significantly more than what we're seeing among small-business owners," he said.

"And the only thing I can attribute that to is the American entrepreneurial spirit."

Copyright © 2005. Dallas Morning News.