Small business job growth slowed slightly in September but is still up from a year ago, according to a new report from Paychex.
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“It’s still continued positive improvement in job growth,” said Paychex president and CEO Martin Mucci. “It really peaked in June of this year and then has been down a little bit through September.”
The South Atlantic is once again the top-ranked region in the country for job growth. On a state basis, Washington State’s index reached 104.91, an all-time high for the state index. Seattle remained the leading metropolitan area, with its index increasing 0.44 percent from August.
“The South Atlantic, Middle Atlantic and East South Central are all having the highest job growth rates,” said Mucci. “That’s on the state side as well, except Washington State is still the first state by far. Other than that, many of the rest of the top states are in the South Atlantic: Florida, Georgia, North Carolina, and Virginia is up quite a bit too.”
Texas continued to decline, falling 0.89 percent in September and 2.44 percent for the year, as its economy weakens with losses beyond the energy sector. Michigan and Illinois have fallen significantly from last year on the index (1.76 percent and 1.32 percent, respectively), joining neighboring Indiana among the lowest-ranked state indexes.
Besides Seattle, other strong metro areas included Atlanta, at 103.43, and Phoenix, at 101.79. On the other hand, Dallas and Houston have both experienced significant losses on the index, declining 3.87 percent and 3.46 percent, respectively, in the past 12 months. Houston remains the lowest-ranked metro index for the second consecutive month. After recent gains, Chicago fell 0.98 percent from August to September, with its index below 100 at 99.26. Detroit also ended September among the lowest-performing metropolitan areas, down 2.34 percent from last year, at 99.06.
Six out of eight industry sectors declined in September, with only Education and Health Services and Financial Activities showing modest increases. Leisure and Hospitality had the biggest one-month decline among the industry sectors, falling 0.55 percent. Leading the industries is Other Services (except Public Administration) at 104.70. Down 0.84 percent in the past three months, Construction continues to hold its position as the second-highest ranked industry sector with an index level of 101.36.
“The construction segment is still OK,” said Mucci. “It decreased a little bit in September, but it has maintained the second spot for job growth rate. That looks to be both home residential construction and commercial construction, down in the south.”
Other Services continues to outpace the other industry sectors. It includes discretionary spending on services such as personal care, pet care, and handyman types of services. “With lower gas prices people are spending more money on personal services, and that’s what’s picking that group up the most,” said Mucci.
The minimum wage increases that have been passed in some states and cities have also had an impact on job growth and payrolls.
“We are still seeing states that increase minimum wage have an index that’s about half a percent lower than the national index,” said Mucci. “That is having some impact on job growth, we think. And we do see wages are up about 4 percent versus last year. That’s really the largest increase we’ve seen in a number of years, the wage change being in the leisure and hospitality sector, which you’d expect as minimum wage is pushing into restaurants and those types of positions. Hotels are pushing that up, but the 4 percent increase overall is a pretty nice increase.”
He believes accountants should keep their business clients informed about these changes, along with the Department of Labor’s overtime rule that will be taking effect in December. It will require overtime pay for millions more employees and managers.
“It is being challenged with various lawsuits here and there, but so far it looks like it’s going into effect,” said Mucci. “The House just approved a bill that would delay it six months, but that’s still got to get through the Senate, and the president is saying he’d veto it, so it looks like we’re still on track for new overtime rules December 1. Our most recent survey indicated that more than half of small businesses were not even aware of the overtime rules, so I’m sure accountants could certainly help them get ready for it.”
Accountants should also make sure their clients and their own firms are careful about classifying employees vs. independent contractors.
“The other thing we’re seeing is more enforcement around worker misclassifications, whether a worker is an employee or an independent contractor,” said Mucci. “The U.S. Department of Labor just partnered with three states—Nebraska, North Carolina and Pennsylvania—to fight inappropriate classification of employees as independent contractors. I think accountants can make sure their businesses are properly classifying their employees, making sure they’re not calling them contractors when they’re not.”
