Small businesses kept adding jobs and increasing wages amid the tight labor market last month, but the pace declined from May, according to payroll company Paychex.
The Paychex | IHS Markit Small Business Employment Watch, released Tuesday, indicated the Small Business Jobs Index for June was 100.81, up 2.32% from over a year ago but down slightly by -0.06% compared to the previous month.
“I like to look at it over the long trend, and job growth is hovering close to record levels,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “That growth has slowed a little bit, but this past month has been strong given what we thought it was going to be.”
Despite surging inflation, declining consumer sentiment and dramatic interest rate increases from the Federal Reserve, businesses are loath to cut back on workers when there is such a scarcity across various industries, including accounting. Professional and business services hiring improved to 99.42 in June, its highest index level since October 2018. Professional and business services gained 0.44% in June, the best among various sectors, and improved to fourth among sectors, its highest ranking since before the pandemic.
“Given the sentiment indicators with everything that’s going on at the Fed and with rates, I thought you would see that hit small business hiring with much more impact, but it really didn’t,” said Fiorille. “In many ways it was a pretty strong report given all that.”
Even the strong leisure and hospitality sector is experiencing some signs of a slowdown in hiring compared to earlier this year. That may be due to consumers cutting back on their spending on restaurants and entertainment as inflation takes a bigger bite out of their paychecks.
“The big question everyone is trying to answer is: Are you starting to see the slowdowns from people and businesses cutting back, or is it still more the earlier story where they just can’t find the people to fill the jobs?” said Fiorille. “We think it’s more the latter, but probably there’s something to both of those. We’re in the summer right now and it will be interesting to see what happens in the next couple of months, given what’s happening in the markets.”
Average hourly earnings growth for June reached 5.10%, but that too declined slightly from 5.16% from May. However, hourly earnings have increased $1.48 over the past year, now reaching $30.42.
“We continue to see strong wage growth, but for the first time in a very long time that growth slowed for the month, but very slightly, almost similar to last month’s number,” said Fiorille. “I feel like things are coming off the boil. It’s been rapidly going up every month, and you would expect some slowdown sooner or later on the wage front. We think businesses are learning how to operate now, and be creative and flexible on how to run the business while having to pay more.”
The South continued to be the top region for small business job growth, with Texas and Dallas leading among states and metropolitan areas, respectively. The South was also the top region in terms of hourly earnings growth. Ohio was the top state for hourly earnings growth, followed closely by Arizona and Florida. The leisure and hospitality industry saw the strongest hourly earnings growth among industry sectors for the sixteenth month in a row. Hourly earnings growth in the construction sector reached 5.00% and again posted a new record level since reporting began in 2011.
Accountants should continue to advise their small business clients to be aware of the different laws and regulations being imposed at the state level. “This month we’re seeing more and more this trend of states just doing their own thing,” said Fiorille. “We’re hearing that a lot of that is going to be coming down the pike.”