The small biz economy is booming. Yet, the most recent payroll survey showed that only 32,000 new jobs were created last month, an ostensibly anemic number and way below the 250,000 job gain most experts were expecting.
Seemingly contradictory, the household survey, reported a gain of 629,000 jobs in July, on a seasonally adjusted basis. Before seasonal adjustment, the gain was an even larger 839,000 jobs. That may partly reflect that there are more agricultural jobs in the summer. The unemployment rate, which uses household survey data, dropped to 5.5% from 5.6%.
This divergent survey numbers beg the question, which survey is correct?
HOUSEHOLD VS. PAYROLL SURVEY
The two government surveys that provide these numbers each month look at two different groups when determining job growth or decline. The payroll survey questions 160,000 employers while the household survey questions 60,000 households. Both surveys seem to have been showing a consistent discrepancy for the last 13 months.
Republicans, who often use the household survey, say that the job picture is excellent, while the Democrats, who like to quote the payroll survey, say the job picture is bleak. When you look at the details, you can see why. Over all, the household survey now shows that employment has risen by 1.9 million jobs, or 1.4 percent, since President Bush took office, while the payroll (also known as the establishment survey) shows employment is down by 1.1 million jobs, or 0.8 percent.
SMALL BUSINESSES ARE THE KEY
The higher household numbers are a direct consequence of the growth in small businesses, enjoying one of its largest booms of the last decade. If you subtract one survey number from the other, it could be argued that small businesses have created up to 3 million new jobs since President Bush took office. Although most experts would argue the validity of this number, there is universal agreement that small businesses are having a dramatically positive effect on our economy.
Since over 75% of small businesses are not incorporated, most of their new hires don?t show up on the payroll survey. Often, small businesses will hire new employees as independent contractors to avoid paying taxes and benefits. However, these new hires would show up in the household survey.
When the May 2003 tax cut took effect, business and consumer investment started to surge. It was then that the household survey showed the first increase in job figures. Investment has increased every month since then and so have the household job figures. These measurements point to a booming small business economy. However, not all is rosy.
OIL & GAS PRICES
Oil prices are a definite suppressant to the entrepreneurial economy. In addition to the seemingly low payroll survey numbers, the financial markets are worried about how increasing oil prices will make everything cost more. This is why the equity markets dropped immediately after release of the July payroll numbers. Higher prices hurt sales and net profits for large and small businesses alike.
Oil prices are a function of supply and demand. Unfortunately supply is far shorter than the increased demand caused by our surging US economy and a surprisingly successful Chinese economy. Because increasing oil and therefore gas supplies are at best very difficult, the only action the Bush administration can take at this point is to lower the gas tax. Lowering the gas tax will immediately lower the cost of each gallon of gas. This tax reduction will have a similar boosting effect on the economy as the previous Bush tax reductions. Better yet, this one will insure a sustained growth of the entrepreneurial economy.
Short of a dampening caused by increasing oil prices, the small business market outlook is very positive indeed. Most experts anticipate our economy to continue to grow in spite of increased risk of terror, regulatory risk, & the war risk. Gross Domestic Product (GDP) should be in the 4% to 5% level.
Of course, continued growth will only lead more small businesses to hire more employees? Depending on which survey you believe.