Hourly earnings growth for workers at small businesses dropped to 2.89% in August, Paychex reported Tuesday, the first time growth has been under 3% since January 2021.
One-month annualized hourly earnings growth also dropped to 1.91%. "The one thing I really watch closely is that one-month number, which, even though there's a lot of volatility in it, it's more of a leading indicator," said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. "And at less than 2% that's pretty low. From an overall standpoint, going under 3% hasn't happened quite some time, since January 2021. These are the mom and pop, Main Street small businesses with under 50 [employees]. Clearly wages are slowing. They're still growing, but that growth is slowing."
However, job growth remained steady, with the national small business jobs index averaging 100.37 through the first eight months of 2024, representing modest employment growth. The report comes just a few days ahead of an eagerly anticipated jobs report from the U.S. Bureau of Labor Statistics, whose previous report revealed a slowdown in employment in July followed by downward revisions in the numbers for recent months.
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"Employment has probably surpassed inflation now as the biggest macro indicator that everybody's really watching right now," said Fiorille. "From an overall standpoint, the good news is it didn't continue to drop. In the prior month, we had a little bit of a dip, but this past month, it's held pretty steady."
The number of national weekly hours worked growth (-0.08%) remained negative year-over-year for the 17th month in a row, although one-month annualized growth was positive for the first time since January.
The Midwest (100.50) remained the top region for small business employment growth for the third consecutive month. Leading the region and nation, Indiana (101.87) was the top state for small business employment growth again in August and is the only state with a positive 12-month change rate (0.26 percentage points).
Education and health services (101.87) continued to be the top industry sector for national job growth for the third month in a row. "Education and health services have been the highest for almost the last quarter, for three straight months," said Fiorille. "At almost 102, that's got pretty good growth."
Ranked first among regions for the 15th-straight month, the West (3.55%) was the only region to report hourly earnings growth above 3% in August. "California had a pretty decent month," said Fiorille. "It looked like there was some bounceback in California. It's such a big state and it can really drive results. We always watch that closely."
For the 10th month in a row, the construction sector led the way on growth among industries in hourly earnings (3.66%), weekly earnings (3.81%), and weekly hours worked (0.27%). "Construction, on the earnings side, has led for a very long time," said Fiorille.
He believes CPAs should watch out this fall for the impact of the November election, especially when it comes to tax policy. "We really watch very closely what's going on in the upcoming elections," said Fiorille. "With taxes, there's a lot of stuff going on with taxes that we're continuing to lobby for and watch for our small business clients."
He also pointed to the potential impact of the
