The Lucas Group Job Generation Outlook is an innovative approach to traditional hiring and employment surveys, gauging both recent and planned activity in the United States small to mid-sized business market. This, our Q3 2013 national survey of SMB presidents, CEOs and business owners, examines executive-level perspectives on critical issues facing the American SMB marketplace, including economic developments, employment trends, legislative initiatives, political environments, and the tangible impact these issues have on business and employment planning.
Conducted in coordination with Polaris Marketing Research and Dr. Goutam Challagalla, Associate
Professor at Georgia Institute of Technology College of Business, the SMB Job Generation Outlook is the only economic and employment survey that captures timely trends—directly from the visions and priorities of the highest executive offices.
Quantitative results and key findings from the SMB Job Generation Outlook survey were analyzed, and through a series of graphs and charts, the statistical relationship of trends in the small to mid-sized business market has been illustrated. A detailed narrative of the data analysis follows the illustration on page 9.
Lucas Group will continue the SMB Job Generation Outlook survey on a quarterly basis via online surveys with invited top executives from a variety of SMBs around the country and across industry segments. The Lucas Group survey is set to become the outlook standard for the American SMB market, heralded in American discourse as the jobs engine for economic revitalization.
We encourage you to retain this report as a reference point. Consider how this information may impact you— now and throughout the following year. As always, please feel free to contact us. We welcome your questions and feedback.
Thank you for your interest in this important analysis of the SMB economic and employment outlook across major industries and around the nation in Q3 2013.
TITLES & COMPANY REVENUE
With a continued focus exclusively on the principles at each company, the SMB JGO surveys only presidents, CEOs or business owners. In Q3 2013, we surveyed 100 top executives from around the nation and across industry segments.
Nearly half of our respondents reported annual revenue in 2012 at $50M-$150M, representing the U.S. small business market. Another 43 percent reported revenue at $151M-$600M, and the remaining 11% reported $601M-$1B revenues.
JOB GROWTH PROSPECTS
After a slight reduction in optimism regarding job growth prospects within the surveyed companies in Q1 (59 percent in Q1 to 51 percent in Q2), Q3 optimism bumped back up to 59 percent. In Q2, nearly 40 percent reported being neither optimistic nor pessimistic about their company’s job growth prospects. That number dropped almost 20 points to 20 percent in Q3. While moderate optimism rose, so did modest pessimism, with 18 percent reporting being somewhat pessimistic in Q3, up from 8 percent in Q2.
Similar to earlier in 2013, SMB leaders were less optimistic about job growth prospects on the national stage. Optimism dropped among SMB leaders in Q3, with only 36 percent feeling somewhat or very optimistic about job growth prospects of the U.S. market in Q3. Likewise, moderate pessimism on the national stage increased 8 points in Q3 to 24 percent.
ECONOMIC PROSPECTS FOR COMPANIES & COUNTRY
Optimism gains made during Q1 and Q2 were erased this quarter, with Q3 responses closely mirroring lower Q4 2012 levels. After witnessing two quarter increases, economic prospects cooled in Q3. Dropping 9 points this quarter, 68 percent of respondents are now somewhat or very optimistic about the economic prospects of their own companies. At the other spectrum, pessimism grew 7 points, to 15 percent being somewhat or very pessimistic.
Bullishness on the national economy also retracted in Q3. After growing 20 points from 37 percent in Q4 2012 to 57 percent in Q2 2013, respondents reporting being somewhat or very optimistic about the nation’s economic prospects dropped 13 points in Q3 to 44 percent. While Q3 pessimism numbers rose 13 points over Q2, the percentage of respondents who report being very pessimistic rose only 1 point, with the majority of increase falling in the moderate somewhat pessimistic camp.
2013 COMPANY POSITION
SMB leaders continue to report company positions of growth or stability maintenance heading into Q4. After a Q1 drop to 75 percent, respondents in Q2 and Q3 consistently reported numbers at Q4 2012 levels near 90 percent. Within that group, the percentage of companies who report being in a position of growth, however, has gone from a majority at the end of last year (56 percent growth versus 32 percent maintaining stability) to an even split in Q3. Similar to Q2 responses, 12 percent continue to report company positions of controlled retrenchment or survival mode.
SMB leaders continue to agree with the oft-repeated adage that small and mid-sized businesses are the job generators of the U.S. economy. A substantial 81 percent agree with that statement, while only 6 percent disagree. In terms of their own companies, threefourths of respondents report seeing their own businesses as job generators (up from 63 percent in Q2) despite only half reporting hiring plans in the next twelve months.
IMPACT OF PATIENT PROTECTION AND AFFORDABLE CARE ACT
In Q3 the SMB Job Generation Outlook gauged the expected impact of the Patient Protection and Affordable Care Act (ACA) on SMBs. A full 70 percent expected a moderate to large impact on their businesses. One-fifth of respondents expected to see little impact, and only 10 percent foresaw no impact at all.
Approximately 30 percent of SMBs report having prepared for the rollout of the ACA. This “ready for implementation” percentage was up 11 points over Q2. Just over half report that their company continues to work on ACA readiness. Ten percent of respondents plan to begin preparation and another 9 percent plan to do nothing to prepare for the law’s implementation.
While down from its Q4 2012 high of 81 percent, the percentage of respondents who report being somewhat or very pessimistic about bipartisanship in the federal government continued inching up, from 62 in Q1 to 64 in Q2 and now 69 in Q3. Only sixteen percent expressed any optimism on the federal state of affairs. It is significant to note that the majority of the Q3 SMB Job Generation Survey was conducted prior to the recent government shut-down and debt ceiling time stamp.
As with each quarter, SMB leaders were less pessimistic in Q3 regarding state-level bipartisanship (60 percent) than national cooperation (68 percent), although that difference narrowed by 3 points. Less pessimism does not however translate into an increased optimism. State-level pessimism was up 7 points in Q3 to 60 percent, and less than 20 percent of respondents report being optimistic about either level of government working together.
Reported SMB leader opinions on immigration have remained relatively steady over the course of the past several quarters. Respondents continued to share greater support for high-demand skilled workers than for the larger population of immigrants. While half of the SMB leaders surveyed agree that the U.S. should ease requirements for skilled workers in IT, science and other high-demand fields, less than one-third agree to the same for all immigrants. Thirty-eight percent of respondents support easing requirements for immigrants already living in the United States.
WORKFORCE RETIREMENT IN 2013
The percentage of SMBs expecting Baby Boomer retirements in 2013 continued to shift slightly, though without a clear pattern. Respondents expecting a less than 5 percent retirement rate dropped 7 points to 67 percent in Q3 after hitting a 4-quarter high in Q4 2012 at 79 percent. While more companies reported expected retirements between 5 and 10 percent of their total workforce than last quarter, fewer expected retirement levels between 11 and 15 percent. The percentage of respondents who expect retirement rates over 16 percent of their workforce continue to land at 5 percent or lower each quarter.
IMPACT OF RETIRING BABY BOOMERS
Although only 8 percent report an expected “very big” impact, the majority of SMBs (58 percent) anticipate that Baby Boomer retirements will have at least some level of impact on their businesses. Just over 40 percent expect no impact at all, up 12 points from a Q2 low of 28 percent.
HOW RETIREMENT IMPACTS COMPANIES
Closely related to the level of impact is the manner in which Baby Boomer retirement will impact SMBs. The response option receiving the highest percentage was that Baby Boomer retirement creates a knowledge gap that’s difficult to bridge, with 60 percent agreeing with this statement (up from a low of 37 percent in Q1). After showing a steady increase in Q1 and Q2, the percentage of SMB leaders who believe Baby Boomer retirement impairs their ability to compete in the marketplace fell 9 points in Q3 to 14 percent.
While not all SMBs believe Baby Boomer retirement creates solely a negative impact, the percentage of respondents who foresee retirement as enhancing their prospects for future innovation and growth dropped sharply in Q3 to a four-quarter low of 17 percent. The percentage of SMB leaders who think Baby Boomer retirement will improve their ability to consider new approaches and processes also dropped in Q3 to 28 percent, down from a steady 41 percent in Q1 and Q2.
In an effort to bridge that 60 percent perceived knowledge gap, 27 percent plan to hire Boomers back on a contract basis. This number is up 10 points from Q2 and represents an overall 2013 high. Also reaching a 2013 high in Q3 was the percentage of companies considering the option (29 percent), while conversely the percentage of companies who said they are not hiring back retirees dipped to its lowest levels of the past year at 42 percent.
Recent economic concerns have clearly impacted retirement plans for many workers across the United States, including in SMB companies. More than two-thirds (78 percent) of the respondents believe that up to 10 percent of their workforce delayed retirement over the past three years because of economic constraints, and another 10 percent feel that more than 10 percent did so. A slightly lesser percentage anticipate the trend to continue, with 73 percent foreseeing up to 10 percent of their workforce delaying retirement in the next three years.
This topic does not appear to be of grave concern to a fair subset of SMBs, however. Of all the questions asked in the survey, this series of inquiry has consistently received the highest levels of “don’t know” responses, averaging more than 13 percent over the past year.
CONTRACT OR PERMANENT EMPLOYEES?
Q3 witnessed the highest percentage of companies considering the addition of a combination of contract and permanent employees (nearly 50 percent). Down again from 42 percent in Q1 and 35 percent in Q2, 31 percent of Q3 respondents are considering only permanent employees, whereas 13 percent are looking to hire only contract staff. Seven percent report no plans to hire either permanent or contract workers this year, the lowest of the past four quarters.
CONTRACT WORKERS: MORE OR LESS ATTRACTIVE
The appeal of hiring contract employees has steadily increased over the past several quarters. Up from 25 percent in Q4 2012, 42 percent of Q3 respondents now report that hiring contract workers is more attractive than it was this time last year. Relationally, SMB leaders reporting that hiring contract workers has decreased in attractiveness from last year has steadily dropped from its Q4 2012 high of 17 percent to a low of 8 percent in Q3.
The challenge of finding top talent in the marketplace continues to be an issue for SMB leaders. More than half of all respondents report difficulty or extreme difficulty in finding qualified professional and management talent for open positions. Forty percent find it neither easy nor difficult, and only 9 percent report finding qualified talent as easy.
When asked which functional roles are most difficult to fill with qualified candidates, Q3 respondents gave a three-way tie with 60 percent saying they had difficulty finding Sales, Marketing and Manufacturing Management talent. Finance and Human Resources ranked second with 40 percent each, and all of these five functions saw sharp increases over Q1 and Q2 responses. Interestingly, in Q3 the only professional sector where SMB leaders report having an easier time of finding candidates – versus earlier in 2013 – was in Information Technology.
PROFESSIONS IN WHICH COMPANIES WILL HIRE IN 2013
As part of the SMB Job Generation Outlook, leaders are asked each quarter to segment their hiring plans based on eight key corporate functions. In each of the last four quarters, Sales took the top spot with approximately half of respondents planning to hire Sales professionals. Information Technology and Marketing consistently held the second and third spots, averaging 33 and 34 percent respectively, with Manufacturing Management close behind with a year-long average of 25 percent.
From late 2012 through to Q3 2013, overall hiring plans of surveyed SMBs dipped and then recovered. Seven of the eight functional areas surveyed reached their lowest planned hiring percentage mid-year (5 of them during Q2), and each of them experienced gains in Q3. Only Marketing varied from the others, with planned hiring numbers that remained statistically consistent throughout the past four quarters.
Over the course of the past year, corporate functions Finance, Accounting and Human Resources experienced the greatest Q4 2012 to Q3 2013 increases, suggesting the market will see positive hiring gains in those professions to end the year and into early 2014.
In terms of planned workforce decreases, each of the eight surveyed functional areas reported a lower rate of reduction in Q3 than they did a year ago in Q4 2012. In alignment with its leading growth rate, planned decreases in Sales professionals consistently took the lowest spot, with an average of 8 percent of SMBs planning
reductions in Sales.
HIRING OR DOWNSIZING IN 2013
Similar to Q2, Q3 SMB leaders reported hiring plans for the next quarter that were both stable and fairly growth-oriented. The vast majority of respondents reported plans to either hire (38 percent) employees to their workforce or make no changes (49 percent) to their workforces in the coming quarter. Only 12 percent plan to
reduce workforce numbers.
Looking ahead through 2014, respondents reported more positive hiring plans with 49 percent looking to hire in the next twelve months (versus 38 percent in the next quarter). Over the course of the next year, plans seemingly flip, with the percentage of SMBs who plan to make no changes to their overall workforce numbers during 2014 at 37 percent (as opposed to nearly half when looking quarter by quarter). Twelve percent continue to report plans to downsize.
CHANGE IN WORKFORCE AND RELATED EXPENSES
In each surveyed expense area (workforce, wages & salaries and benefits expenditure) more than 50 percent of Q3 respondents saw increases during 2012. Workforce related expenses came in 6 points higher than in Q4 2012, with 51 percent. In Q3 only 3 percent reported decreases in wages & salaries expenses, as compared to 12 percent in Q2. Similarly, only 4 percent of Q3 respondents reported a decrease in benefits expenditure in 2012, down from its Q4 2012 high of 10 percent.
WORKFORCE, WAGES & SALARY, AND BENEFITS DECREASES IN 2012
Of those expenses reported to have decreased in 2012 over 2011, most companies reported those decreases to be in the lower level bands, with the vast majority reporting decreases of less than 10 percent. One hundred percent of Q3 respondents who reported decreases in 2012 wages & salaries saw those decreases at less than 10 percent. Of the respondents who saw decreases in workforce and benefits expenditures in 2012, 18 percent and 25 percent saw decreases greater than 10 percent, respectively. No Q3 reporting company saw decreases in benefits expenditures greater than 15 percent and only 9 percent reported that level in decreased workforce related expenses.
WORKFORCE, WAGES & SALARY, AND BENEFITS INCREASES IN 2012
Of the companies reporting an increase in workforce related expenses in 2012, approximately 32 percent reported increases that exceeded 11 percent. More companies saw levels of increased expenses that exceeded 11 percent in wages & salaries (37 percent) and benefits expenditure (41 percent). While the largest single grouping of workforce expense increases were found at the less than 5 percent level (42 percent), benefits expenditure saw the bulk of its increase in the 5 to 10 percent grouping with 36 percent.
The flow of veterans back into the workforce continues to accelerate and the topic has become a mainstream media and political discussion. In Q3, 16 percent report having specific veteran hiring plans, on par with the average of the past several quarters. However, a full three-fourths of SMB respondents report that while their companies hire military veterans, they have no specific plans regarding that recruitment or hiring. Making a slight dip from 80 percent in Q2, this number remains up from its Q1 low of 59 percent and represents continued growth in the noncommittal middle area. The percentage of SMBs that specifically said they will not target military veterans for hiring in 2013 rose slightly in Q3 to 9 percent, though remains much below its Q4 2012 high of 24 percent.
LENGTH OF TIME IN BUSINESS
The survey group continues to be composed of long-standing businesses with almost half of the Q3 respondents in business for more than 20 years. Another 43 percent have been in business from 6-20 years.
Small businesses are the majority of the survey sample with 53 percent employing fewer than 500 employees and only 8 percent employing more than 5,000.
TYPE OF COMPANY
Lucas Group SMB Job Generation Outlook Survey
The SMB Job Generation Outlook survey evaluates key economic, employment, and political drivers for the small to mid-sized U.S. business market. Through detailed analysis, the Outlook provides timely insight into both recent and near-term planned employment activity.
This Q3 survey captures visions and priorities of noteworthy SMB leaders, including Presidents (35 percent), CEOs (36 percent) and Business Owners (29 percent). From Manufacturing and Health Care to Information Technology and Construction, the SMB Job Generation Outlook represents a strong mix of industries, regions, and business types. Each quarter the survey seeks to identify current and future trends as they occur within and act upon the marketplace. The majority of responding SMBs have been in operation for more than 10 years, report corporate revenue of less than $600M, and employ less than 1,000 people.
The inaugural survey conducted in December 2012 revealed a dichotomy between how SMB leaders viewed their own businesses and how they viewed the national economy. In Q4 2012, respondents were confident in the 2013 prospects for their own companies, with 57 percent believing that they would grow and 55 percent planning to hire new employees. That optimism increased in Q1 and Q2 to a high of 77 percent being somewhat or very optimistic before shrinking slightly in Q3 to 68 percent.
SMBs are consistently less optimistic, however, about the national economy as a whole. In Q4 2012 only 37 percent of SMB leaders reported being somewhat or very optimistic about 2013 economic prospects for the United States. A similar pattern of change was noted on the national stage as was reported at the company-level. The percentage of SMBs who were optimistic about national economics rose in Q1 and Q2 to 54 and 57 percent, respectively, only to dip to 44 percent in Q3 2013.
SMB optimism regarding job growth prospects remained relatively steady over the course of the past 4 quarters, with the percentage of SMB leaders reporting being somewhat or very optimistic about their own companies’ job growth consistently wavering between 51 and 59 percent. National job growth witnessed greater swings in optimism, moving from a low of 28 percent in Q4 2012 to a high of 50 percent in Q2 2013.
SMB Hiring Plans
In Q3 nearly half of SMBs reported plans to hire within the next 12 months, with the majority (70 percent) planning to add less than 10 percent change in workforce. One interesting trend in hiring considerations is seen in the attractiveness to SMBs of hiring contract employees. In Q4 2012, only 25 percent reported seeing the addition of contract workers as more attractive to their hiring mix than in the previous year. Increasing each quarter, 42 percent of Q3 respondents now report contract hiring as more attractive than it was a year ago. While only 27 percent say that are actively hiring back retirees on a contract basis in Q3, nearly another 30 percent report considering the practice.
Sales, Marketing, Information Technology, and Manufacturing Management continue to be the most in-demand professional segments, with Sales leading the hiring charge at slightly over half of the respondents looking to increase their sales force. Across 2013, Legal saw the lowest percentage of planned hiring, with just over 10 percent growth each reporting quarter and Information Technology, Accounting and Human Resources witnessed the largest jumps in planned hiring. Seven of the eight surveyed corporate functions saw growth in planned hiring during the Q3 survey. Only Marketing dipped in Q3, but by a single point, keeping Marketing as one of the strongest growth functions quarter after quarter.
SMBs and Washington
The U.S. small to mid-sized business market continues to report a general pessimism about Washington politics and Congressional actions, though optimism inched slowly upward during the early part of 2013. It is significant to note that the Q3 survey was primarily conducted prior to the governmental shutdown or fiscal cliff deadline in October 2013, and we look forward to considering how recent actions in Washington affect SMB optimism regarding bipartisanship in the next survey.
Despite lingering concerns over the Affordable Care Act, minimum wage considerations, and immigration reform, the vast majority of SMBs report their companies in a position of growth or stability, with only 5 percent positioning themselves in survival mode in Q3. Similarly, over 80 percent of SMB leaders agree that small to mid-sized businesses are the job generators of the U.S. economy.
Lucas Group will continue to survey SMB leaders across the country about these significant economic and employment issues each quarter and will monitor how SMB opinions and business plans may alter as Washington politics persist, Congressional actions occur, and Wall Street responds.