As the recession bores deeper into the economy, small and medium-size businesses are showing the effects by shedding workers at a rapid pace.
That indicates, employment experts say, how the downturn is spreading well beyond the manufacturing and housing sectors.
On a more upbeat note, California officials have decided not to stiff the smallest businesses even though the budget mess has left the state unable to pay many of its bills.
The silence of the jobs: Small-business job losses could double to 2 million by January 2010 as firms with as many as 49 workers continue an employment decline that started a year ago, a national economic forecaster says.
“We’re not done yet; you could easily see another 1 million small-business jobs lost,” said Joel Prakken, chairman of Macroeconomic Advisers, the St. Louis firm that creates the monthly ADP National Employment Report with Automatic Data Processing Inc. of Roseland, N.J.
In January, small-business employment racked up its 12th straight monthly decline, dropping 175,000 jobs, or 0.4%, from December to 49.9 million, according to the report released last week.
Since February 2008, when the total small-business job count was 50.9 million, small firms have cut 1 million, or about 2%, of their jobs.
An additional 12 months of decline is probably in the cards before a turnaround, even with the passage of a stimulus package, said Prakken, who noted that employment typically lags behind the performance of the nation’s gross domestic product.
GDP plunged in the fourth quarter of last year, is expected to post a decline the first three months of this year and will probably contract in the second quarter as well, he said.
“I think when we finally turn around it will be small business whose employment ramps up first,” he said. But he is expecting “many more months of sharp declines.”
The longest recent decline in small-business jobs lasted 10 months, from August 2001 to May 2002, when 381,000 jobs, or 0.8% of August’s 46.7 million jobs, were lost.
The jobs report is based on a sample of the approximately 400,000 payrolls representing nearly 24 million U.S. employees that ADP processes for its clients.
Employment at medium-size businesses, those with 50 to 499 employees, dropped by 255,000, or 0.6%, to 44 million in January, according to the report. Businesses with 500 or more workers cut 92,000 jobs, or 0.5% of total workers that month. They now employ 18.8 million, according to the report, which is online at www.adpemploymentreport.com.
But at least the check will be in the mail: Small businesses have been moved into line with those who will get paid on time by the state, despite the budget standoff that has contributed to California’s severe cash crunch.
State Controller John Chiang said last week that he would exclude small firms from his plan to delay by 30 days an estimated $3.3 billion in payments from the state’s general fund this month, including personal income tax refunds and corporation tax refunds.
Small-business vendors -- those with 100 or fewer employees and annual revenue of $12 million or less under state rules -- had been on the list of not-to-be-paids, along with other state vendors, nonprofits and local governments. Chiang’s office estimated the small-business tab to be about $172 million, or one-third the estimated $515 million owed to business vendors this month.
On Tuesday, the controller’s office said small firms would be able to get their money through “special funds” the Finance Department has proposed borrowing.
Officials hope to avoid triggering the state law that awards small businesses penalty interest of 91.25% a year if their “properly submitted, undisputed invoices or claims” aren’t paid on time.
Other businesses paid late will be owed an annual penalty interest of 5.325%.
Finance Department spokesman H.D. Palmer said legislators were expected to soon approve the department’s proposal to allow the state to borrow as much as $2 billion from 19 state funds that weren’t currently accessible for internal borrowing.
Typically, a state department has 30 days after it receives an invoice to process it and send it to the controller’s office for payment before it owes a penalty. The controller’s office has 15 additional days to cut a check before it incurs the penalty. The new 30-day delay will come on top of that 45-day period.
To track the state’s payment plans, check the home page of the Finance Department, at www.dof.ca.gov, and the controller’s website at www.sco.ca.gov.