Paychex finds small-business job growth slowed in December, but wages increased

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The decline in small-business job growth continued in December, but hourly wages grew at a moderate pace, according to payroll giant Paychex.

The Paychex | IHS Markit Small Business Employment Watch, which Paychex compiles with the research firm IHS Markit, indicated a slight decrease in small-business job growth last month. The Small Business Jobs Index reached 98.88 in December, a 0.13 percent decline for the month and 0.82 percent dip for the year. At $26.95, hourly earnings in December gained 2.42 percent ($0.64) year-over-year and averaged a growth rate of 2.49 percent for 2018.

“It’s been almost a couple of years where we continue to see the employment index ratchet lower every month a little bit,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “There’s growth, but the growth is definitely decelerating. It validates what a tough hiring environment it is out there. Mom-and-pop small businesses and Main Street are having a hard time finding, attracting and retaining employees. We have seen wages pick up a little bit the last couple of months, which is good news, but not to the level you would anticipate given the tight and fierce job market that’s out there.”

The top region for employment growth at small businesses in December was the South, while for wage growth it was the West. Wisconsin and Arizona were the strongest states for small-business job growth, while Arizona was the top state for wage growth.

Dallas stayed in first place among metropolitan areas in terms of job growth, while Riverside, California, was again the top metropolitan area for wage growth.

In terms of industry sectors, hourly earnings growth in leisure and hospitality increased 4.02 percent in 2018 to $17.01 per hour, putting it at the top among industry sectors. While job growth stalled in the manufacturing industry last year, weekly earnings growth continued to accelerate, climbing 3.51 percent in December, making it the fastest growing industry sector.

The construction industry slipped below the 100 mark in terms of job growth for the first time since 2011, but it remained one of the strongest and steadiest sectors for small-business employment growth. Also in terms of job growth, the leisure and hospitality industry again had the best gain in December among industry sectors, climbing 0.20 percent to 98.63.

Paychex has been seeing a pullback by some small businesses in the number of hours they are giving to workers, which might be an indicator of some hesitancy about the future.

“One interesting thing that we are starting to see, but we haven’t drawn any conclusions on it yet because it’s just starting to materialize over the past couple of months, is hours worked seem to be going down now,” said Fiorille. “I’m not sure what’s going on there. We’re trying to dig into it deeper, but my thought is that could be a leading indicator. Maybe they’re slowing a little bit more than they have in the past because that’s an easier lever to pull for small businesses. Instead of firing somebody, or adding somebody if things are going the other way, they’re just reducing hours. We’re watching that closely as a potential leading indicator.”

Minimum wage increases in different parts of the country are also likely to have an effect on hiring trends. “The other thing we’re watching here is minimum wage increases go into effect as of today,” said Fiorille. “There are 20 states and cities that have enacted minimum wage increases. We’ll probably see that flow through our wage numbers over the next quarter or few months.”

He believes accountants should keep a close eye on those trends for their small-business clients, along with the partial government shutdown. “If that continues to linger, stay tuned because that could really have a lot of secondary derivative effects,” said Fiorille. “Having that shutdown for quite a long time could really affect business.”

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Payroll Small business Employment data Paychex