Paychex finds small business employment growth declined in May, but wages increased

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Job growth at small businesses dipped in May for the third month in a row, but hourly earnings rose 2.87 percent ($0.72) to an average of $25.76 compared to a year ago, according to payroll giant Paychex.

The Paychex | IHS Markit Small Business Employment Watch, which Paychex produces with the research firm IHS Markit, indicated an increase in wages for the fourth month in a row. The Small Business Jobs Index slid 0.16 percent to 100.34 this month, a 0.25 percent decrease in growth year-over-year and the weakest three-month change since July 2009 (when it was -0.44 percent).

The slowdown may be a combination of the jobs market heading to a state of what economists consider “full employment” and a reassessment of the spurt in business optimism after the election.

“After a strong start in ’17 I think we’ve experienced three months of decline, and the growth rate is about a quarter of a percent lower than last year,” said Paychex president and CEO Martin Mucci. “One reason for that may be that we’re moving toward full employment, and therefore the rate of job growth is slowing down. Small business optimism from the election is moving more cautiously now. While the optimism is still strong, I do think there is more uncertainty. Small businesses are a little bit more cautious and sometimes they feel the impact in the economy a little bit sooner.”

The South remained the leader in terms of regional job growth compared to the rest of the country, according to Paychex, while the West ranked highest in terms of wage growth. Tennessee continued to lead among the states in job growth, while Arizona ranked highest in wage growth. Dallas remained the best metropolitan area for small business job growth, while Riverside, California led the way in in wage growth.

“Across the board, pretty much all the regions and states generally are seeing that same job growth slowdown,” said Mucci. “On the other hand the hourly earnings are up about 2.9 percent over last year. If you look at the one- and three-month rates annualized, they’re over 3 percent, so we’re definitely seeing wages increase, which is certainly a good thing, and it bodes well for full employment. It’s a little bit harder to find people and therefore you have to pay a little bit more. We’re seeing the West Coast paying a little bit higher wages vs. the South and East, where job growth is better, but the wages aren’t going up quite so fast.”

The construction industry experienced the weakest 12-month growth rate for jobs nationally, while the “other services” sector—which includes various discretionary services—and the leisure and hospitality industry saw the strongest wage growth.

“Across the board the job growth rate has come down across all sectors, and the biggest wage increases are coming from the ‘other services’ and leisure and hospitality,” said Mucci. “Those two are seeing wage increases in the 4 to 5 percent level annualized over last year, probably driven by minimum wage increases. They are the lowest hourly rates of all the different sectors, but they’re seeing the biggest wage increase.”

Accountants are likely to see their services in demand from their small business clients to advise them about how to cope with all the possible changes coming out of Washington.

“They probably need the accountant more than ever because there’s so much uncertainty,” said Mucci. “What’s going to happen with taxes? What’s going to happen with health care? In the budget, the president’s administration has proposed a paid parental leave program, like some of the state programs. The minimum wage changes are getting more dramatic in various states and cities. All of these things are actually driving more uncertainty and maybe some volatility in the level of change that applies to businesses. I think accountants will stay pretty busy trying to keep track of it.”

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