Are Small Businesses Starting to Hire Again?

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

February 2009 61.41%
January 2009 53.28%
December 2008 58.90%
November 2008 55.56%
October 2008 64.97%
September 2008 62.98%
August 2008 64.81%
July 2008 69.54%
June 2008 65.67%
May 2008 63.87%
April 2008 66.97%
March 2008 64.71%
February 2008 61.11%
January 2008 67.21%