Criteria’s Employee Testing Blog

Positive hiring trends at small businesses: Hiring Activity Index ticks up again in February

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As the focus of stock market watchers, economists, and politicians turns to Friday's release of the February non-farms payroll and unemployment numbers, we thought we'd weigh in again on hiring trends. In the past few days a number of payroll companies have released reports based on their own February numbers. They contain some hopeful signs. On Monday the Intuit Small Business Employment Index, which tracks hiring at companies of fewer than 20 employees, reported another uptick in hiring. The SurePayroll Small Business Scorecard, another measure of small business hiring, reported that in February hiring year-to-date increased 1.9%. And then today the granddaddy of all these private sector reports, the ADP payroll report, noted that non-farm payrolls declined by the least since February 2008. (It's a sign of how bleak the jobs picture is when small job losses are being celebrated as good news).

It should be noted that the ADP number, unlike the other two, is not focused exclusively on small businesses, as ADP's customers include large corporations as well as smaller ones. It stands to reason that for small and medium-sized businesses the employment trends may be better than in the economy as a whole, as small and medium-sized businesses often recover more quickly and begin hiring sooner coming out of downturns than do larger corporations.

For what it's worth, here are our two cents on the latest hiring trends. Our Hiring Activity Index is based mostly on small and medium-sized businesses, though unlike Intuit's is not confined only to very small businesses: 95% of our customers have between 10 and 1000 employees. And what do our numbers show? The HAI numbers for February look pretty good: the 66.8 reading on the index (meaning 66.8% of our customers were hiring) is up a point from 65.7 in January, and up significantly from the 58.8 level of February 2009. 

Here's hoping that Friday's goverment numbers look ok too.

More Signs of Life for Hiring?

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Back in March we noted in a post that garnered some attention from other bloggers that our metric for measuring the level of hiring activity among our customer base (called, unimaginatively, the Hiring Activity index) had edged upwards in the spring, after reaching its nadir in December and January.  Although the national employment picture remains ugly, in June we saw the HAI recover to its highest level since before the stock market crash of the fall. In June the HAI was 65.9, and July it was 66.3, levels not seen since the summer of 08. August saw it dip a little to 62.9.  The uptick in hiring activity among our customers, we hope, is another sign of stabilization in the employment picture, at least as far as small and medium-sized businesses are concerned.   

Among professional economists there is a virtual consensus that unemployment will continue to climb well into 2010, and peak at a rate well past 10% some time next year.  My opinion, for what its worth, is that the unemployment picture, while still bleak, will not get much worse before it begins to stabilize and, eventually recover. In fact, if the HAI is any indication, small and medium-sized businesses are already beginning to pick up the pace of hiring--let's hope we see more companies following this example soon.

Hiring Activity Index Ticks Higher Again in March

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There was significant interest in my post about the Hiring Activity Index last month, so I thought I'd follow up. The post was even picked up by the widely read blog of Columbia University statistician Andrew Gelman, who made a chart out of the horrible table I posted (mea culpa). There were some great comments on Dr Gelman's blog about the possible utility and limitations of the HAI as an economic indicator, some of which I'll address in a second. After Dr Gelman featured our post it was subsequently picked up in a widely read economics blog written by a University of Oregon economist and then again here too.

It's cool to see that smart people find our data interesting, and so we wanted to provide an update and some more information on the HAI. First, the update. With the final March numbers now in, the Hiring Activity Index nudged upwards very slightly again this month, to 62.3% from 61.4% in February. To me this is an encouraging sign that the February jump in hiring activity by small businesses was not just a blip. If the data we're seeing means anything, the hiring situation for small and medium-sized businesses has begun to rebound.

There were some interesting comments and questions about the HAI and its potential utility as a leading economic indicator. We do sell our software on a subscription basis, and someone pointed out that if non-active subscribers didn't renew because of the downturn, this could artifically inflate the HAI because it is based on the percentage of our customer base that is actively doing pre-employment testing in a given month. This is a legitimate point, but I will say that while low levels of use are a reason that customers sometimes do not renew, we haven't see non-renewal rates climb much since November, when the HAI dropped by 10 points. It was also suggested that higher numbers of job-seekers may result in applicants for positions that may not have been desirable previously--this is theoretically possible, but I don't see much evidence for it. What is most certainly true is that companies are getting far more applicants per open positon, as I previously blogged about here. However, since the HAI is based on the percentage of companies testing in a month, not the overall volume of tests, this shouldn't influence the HAI unduly, and wouldn't in any case explain the plunge in November and (partial) rebound in February.

Are Small Businesses Starting to Hire Again?

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A recent Department of Labor Report noted that mass layoffs at large companies surged in January. Not surprising, really, since we already knew the unemployment rate for January rose to 7.6% and job losses seem to be increasing by the day. But how is the job picture with respect to small and medium-sized businesses (SMBs)?

In my last blog post I mentioned a statistic that we track internally here, the Hiring Activity Index. The HAI is essentially a measure of how actively our customers (made up mostly of SMBs of between 10 and 500 employees) are administering pre-employment tests through our system (and presumably, therefore, hiring).  It is useful to us because it provides an overview of the breadth of usage of our pre-employment testing software.  It is calculated in a very simple way: the HAI is the percentage of our customers who are actively hiring (administering tests) in a given month.  From January 2008 (when we began tracking the HAI) to October 2008 the HAI remained very steady, within a few points of 65%. (If this seems low, consider that even in the best of times many 30 or 40 person companies will not be hiring every month.)

But as the financial markets plummeted and the unemployment rate surged in November, the HAI sunk about ten points, and by January reached its lowest level since we started tracking it, 53.28%. (The monthly readings for the HAI since January 2008 are listed below.)  Small companies, like their larger counterparts, had severely curtailed their hiring.  The financial news has not gotten much better since then; mass layoffs are continuing, we learned that the US GDP shrank 6.2% in Q4,and the stock market's descent shows no signs of abating.

So I was very pleasantly surprised to see a fairly strong uptick in the HAI in February, to 61.41%. It is only one data point, to be sure, but it suggests that for SMBs the hiring picture improved somewhat in February. Could it be an upwards blip in a downward trend? Of course, but the eight point jump in the HAI is the biggest we've seen since we started tracking the index. For those, like me, inclined to think that the current recession, although brutal and severe, will not be as long-lasting as some suppose, the February HAI reading is cause for hope. I don't expect that January's 7.6% figure for the overall unemployment rate is the end of it--we'll almost certainly see it get north of 8% soon. But as big public companies in the worst hit industries (financial services, construction, etc) continue to shed jobs the February HAI reading offers a glimmer of hope for the job market. Small and medium-sized businesses did not lead us into this recession, but they may just lead us out of it--and don't look now, but it may have already started. 

Hiring Activity Index

The Hiring Opportunity of a Lifetime?

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At Criteria we develop and deliver pre-employment testing software that our customers use to help enhance their hiring process. Because our service is web-based we can track our customers' usage patterns pretty closely, and this provides us with great insights into hiring trends across the U.S. (we currently have hundreds of customers in 46 different states.)

One of the metrics we track is a monthly "Hiring Activity Index" that essentially measures the percentage of our customers who are actively administering pre-employment tests, and therefore, presumably, hiring. From January to October of 2008, the Hiring Activity Index was remarkably consistent, always hovering around 65%.  When the turmoil in the financial markets caused the unemployment rate to surge in November, however, the Hiring Index dropped a full ten points, and by January it was down to 53%. In the past few weeks, however, we've seen pre-employment testing activity surge to the highest level we've ever seen: it looks like the total number of tests delivered through HireSelect in the month of February will be 25-30% higher than in any previous month.

What gives? If significantly fewer companies are hiring now than were three months ago, why is the total level of applicant testing on our site surging? There's no question that some companies in certain industries (construction, financial services) have stopped hiring for the moment, but the data shows that companies that are hiring are screening far more applicants for each position than they were previously. Companies that had 6 applicants for a position now often have 20; where 25 applicants for a position was normal, some companies are now getting 60 resumes.

The silver lining for employers in this giant economic mess, therefore, is that there is a glut of job seekers on the market right now. Those companies that are hiring have their pick from candidate pools that are stocked with talent. The upside of the downturn, it seems, is a real opportunity for HR managers to land great employees.