Small-Business Job Growth Remains Modest

Small-business job growth showed signs of strain in December, while overall job growth was roughly inline with prior months, according to two reports released this week.

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Employment in nonfarm private small-business payrolls rose 25,000 in December on a seasonally adjusted basis, according to the ADP Small Business Report released yesterday. In November, private small-business payrolls rose by an adjusted 37,000.

Meanwhile, total nonfarm payroll employment increased by 155,000 in December, down from a revised 161,000 in November, the U.S. Bureau of Labor Statistics (BLS) reported today. In 2012, employment growth averaged 153,000 per month, the same as the average monthly gain for 2011. The unemployment rate held at 7.8 percent. BLS does not break out data by business size. 

Related: Small-Business Hiring, Sentiment Drops in November

The ADP report on small business suggests entrepreneurs continued to hold back on hiring amid economic and regulatory uncertainty. Within small businesses, companies with one to 19 employees lost 6,000 jobs while small companies with 20 to 49 employees added 31,000 jobs. By contrast, small business payrolls gained an average of 41,000 over the past six months and an average of 39,000 over the past three months.

"Small businesses have been struggling all along during the recovery. That's been the case since the recovery began," says Mark Zandi, chief economist of Moody's Analytics, which collaborated on the ADP report.

More troubling, Zandi says, is the continued slow pace of business formation in the U.S., which is one reason the small business jobs data has been weak for some time.
Even with many of the fiscal cliff issues out of the way, small businesses still face significant headwinds. Many are concerned, for example, about added regulatory burdens and the increased costs of implementing The Affordable Care Act.

Related: How to Afford Your First Hire

There are also lingering questions about federal spending cuts, the debt ceiling and the economy's ability to withstand these pressures. Accordingly, many small businesses are taking a wait-and-see approach to hiring, and confidence among these businesses is faltering.

It's not surprising then that small business owners' optimism fell five points to 55 in December, according to the SurePayroll Scorecard, which tracks the health of the U.S. small business economy.