This article first appeared on Floating Path.
The U.S. federal government shutdown, and the corresponding lack of economic data releases by federal agencies, gave me some time to further explore new economic indicators. The newest addition is the Intuit U.S. Small Business Index.
The Intuit Small Business Index is a measure of employment for firms with fewer than 20 employees. It is derived using aggregate and anonymous online employment data for approximately 170k small business employers. Intuit is a payroll provider with over 1 million customers, which grants it quick and direct access to employment figures.
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These small employers with fewer than 20 workers are important to the economy as they comprise 89.7% of the total U.S. private employer base and employ around 26 million people.
The U.S. Bureau of Labor Statistics reports employment statistics from its two monthly surveys, the “establishment” survey, which is a survey of employers, and the “household” survey, a survey of households, also known as the Current Population Survey. We cover many of these statistics each month in the Employment Situation post, but they offer no detail on employment by firm size.
The BLS does report levels of employment by firm size each year in its Business Economic Dynamics division. Figures come from a census of state unemployment insurance records, and are a count of the universe of payroll employees. The levels of employment at the end of the first quarter are not reported until the following November though. Thus, the reported figures by firm size are 7 months old when reported, and are 19 months old by the time the next report is released.
The Intuit Small Business Employment Index provides a more current level of employment for firms with fewer than 20 employees. The forecast is constructed by using a combination of data from Intuit’s small business payroll service customers and data from the BLS on payroll employment (from the establishment survey) and self-employment (from the household survey). It measures the relationship between past BLS levels of employment for small firms to total payroll employment, private payroll employment, construction payroll employment, self-employment, plus an index of employment built from data from Intuit Online Payroll customers.
The index forecasts employment levels for all firms in the United States with fewer than 20 employees, rather than simply employment for Intuit’s customers.
This indicator is composed of three metrics. All are seasonally adjusted:
- The Small Business Employment Index is indexed such that January 2007 = 100.
- The Hours Worked Index is the average number of hours worked in that month by small business employees.
- The Compensation Index is the average monthly compensation per employee, including the business owners themselves.
Let’s get into the just released figures for October.
The Intuit Small Business Employment Index was a reading of 94.95 in October, meaning that small business employment is at 94.95% of the level it was in January 2007. This is a decrease from September’s reading of 95.00.
The October decline is the fourth month in a row that there has been no increase in the index.
The Hours Worked Index was a reading of 106.30, a decrease from the 106.74 level in September.
The hours worked index has declined for 27 consecutive months. This was also the largest single month decrease in the index since inception.
The Compensation Index was a reading of $2,657.22 in October, meaning that was the average pay during the month to U.S. small business employees (owners included). This is down from September’s reading of $2,667.97.
This is the 9th consecutive monthly decrease in the compensation index. Like the hours worked metric, the compensation index also saw its largest single month decline since inception in October.
Intuit also provides an employment index for 34 states, those which it has more than a thousand customers. Each state is individually indexed to 100 in January of 2007.
The below chart shows the deviation from 100 in each state. For instance, by these metrics, Texas is the only U.S. state whose employment level is higher than it was in January 2007. On the other end, Nevada’s employment level is the worst at only 91.2% of its January 2007 level.
I’ll have more in the future on correlations between the Intuit Small Business Index and the employment situation release from the BLS.