Small Business Job Growth Slows In February, Intuit Reports

This week brings updates on three employment reports, and the first one arrived yesterday. The Intuit Small Business Index rose in February, the payrolls firm Intuit advises. “Job creation among small businesses continued in February, albeit slowly,” the firm says in a press release. “This slow growth was accompanied by a small uptick in compensation and a slight decrease in hours worked.”

Does the Intuit index offer clues about tomorrow’s ADP Employment Report or Friday’s U.S. payrolls update from the Labor Department? If so, this clue isn’t particularly encouraging for expecting a substantial acceleration in job growth. Then again, there’s nothing in Intuit’s report that suggests that the modest growth in payrolls is set to fade either.
What we do know is that the Intuit benchmark posted another month of employment growth, although the pace continues to slow. February’s rise was the fourth straight month of decelerating growth and the slowest percentage increase over the previous month since March 2011. Meanwhile, the annual increase for the Intuit index was unchanged in February, advancing by 3.66% over the year-earlier month.

“We saw another month of tepid improvement for small businesses in February, echoing pretty much all of the other indicators of economic activity,” says Susan Woodward, the economist who worked with Intuit to create the Index, in the accompanying press release. “As an overall trend, employment is up modestly, but the number of hours worked by hourly employees is about the same as last month, seasonally adjusted.”
Keep in mind that the Intuit index draws on data from businesses with less than 20 employees that use the firm’s payroll services. As a result, the benchmark may not be all that useful for developing intuition about the national employment trend.
Speaking of small businesses, there’s a perception that this is the source for most of the nation’s job growth. As it turns out, the truth is a bit more complicated. A recent NBER research study notes: “once we control for firm age there is no systematic relationship between firm size and growth.”
Meantime, tomorrow’s update of ADP’s employment report for February is expected to show a faster rate of job growth, according to the consensus forecast via 220,000 vs. 170,000 in January. Friday’s private nonfarm payrolls news from the government, however, is predicted to bring the opposite effect: a rise of 220,000 in February, down from the previous month’s 257,000 gain.
Nonetheless, the latest Associated Press survey of economists tells us that dismal scientists remain upbeat about the big picture: “The economy has begun a self-sustaining period in which job growth is fueling more consumer spending, which should lead to further hiring,” AP reports. If so, it’s reasonable to expect that we’ll see some evidence for this optimism in Friday’s employment report.