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The average small-business paycheck in Ohio grew 0.8 percent in August while national numbers fell 2.3 percent, according to a national payroll service.
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Small businesses are adding jobs in Arizona as the state's economy continues to benefit from population gains and real estate growth.

However, the small-business employment outlook is clouded by high gasoline and energy prices and other inflationary pressures such as health care costs, rising interest rates and raw material prices.

Employment numbers from the National Federation of Independent Business, American Express and U.S. Bureau of Labor Statistics show growth in both overall and small-business jobs in the state. Some of those same economic indexes and indicators also show that high energy and health care costs could take a bite out of business confidence and hiring plans.

SurePayroll's Small Business Scorecard, another key small business gauge, finds that small-business employment and salaries are trending downward in Western, Southern and Midwestern states. SurePayroll's hiring and pay indexes for the West are down slightly from the beginning of the year.

Still, small-business analysts at the human resources firm list Arizona as one of the top states for entrepreneurs and smaller employers, thanks to the state's comparatively low tax burden and real estate and labor costs that are cheaper than California and the East Coast.

Arizona ranks as the third best state for small business, trailing only Virginia and California, according to SurePayroll. Arizona ranks fifth best for small business according to September numbers from NFIB.

Marshall Vest, a University of Arizona economist who also oversees an economic index in conjunction with Compass Bank, said the state has added 100,000 jobs over the past year. And since the majority of businesses in Arizona are smaller, that means that sector is growing, he said.

Vest credits population growth and real estate for Arizona's continued gains.

In the Valley, small businesses are growing but are keeping a cautious eye on inflation -- the cost of gas prices, interest, health care and raw materials.

"I see small businesses are starting to pick up again," said Charles Thompson, who runs his own human resources consulting firm, Workforce Experts in Ahwatukee.

Thompson said high health care costs and fuel prices are the biggest challenges to employers large and small. He said smaller firms are looking for ways to reduce energy costs and are still struggling with rising health care insurance expenses. "A lot of small businesses don't offer health care benefits because it's so expensive," said Thompson, who also serves on the board of the Ahwatukee Foothills Chamber of Commerce.

Those cost issues and the lack of benefits make it difficult for some small companies to retain existing staff and hire new workers.

"They have some turnover created by employees who decide they have to go out and find a job that offers health insurance," Thompson said.

Gas and energy prices are the top concern, said Sherry Azzarella, communications and sales director for the Arizona Small Business Administration.

"It may be some time before we see if small business numbers stagnate and in what categories, but the gas prices have a definite impact on businesses large and small," said Azzarella.

"ASBA sees a decrease in attendance to certain events if there is no immediate value and perceived increase in the bottom line," she said.

Gasoline and crude oil prices rose dramatically in the wake of Hurricane Katrina and its damage to energy infrastructure in Mississippi and Louisiana.

Prices have retreated somewhat as refineries and pipelines have been brought back online and because Hurricane Rita's damage to Texas refineries was minimal.

Nevertheless, gasoline, natural gas and crude oil prices are up dramatically even compared to last year, and the hurricanes and reconstruction programs are expected to drive up demand and the prices of raw materials such as cement and lumber.

Michael Hull, regional advocate for the U.S. Small Business Administration, said Arizona small businesses continue to hire but some are having difficulty finding skilled workers.

Hull said it remains to be seen if there is any negative fallout on the overall economy.

Hull, a Bush administration appointee who is an advocate for small-business interests at the state and federal levels, points to post-Katrina economic estimates that the storm could take a .2 percent to .5 percent bite out of overall GDP.

Still, Thompson and others feel the Valley's population gains and strong housing and commercial real estate markets can help overcome inflation and gas prices.

"I see there is a positive view," Thompson said.

Copyright © 2005. Phoenix Business Journal.