Small businesses continued to hire more workers last month, but the pace of job growth is slackening, according to a new report.

The Paychex | IHS Small Business Jobs Index, from the payroll giant Paychex and the research firm IHS, declined a bit in October, moving from 100.44 to 100.34. Although small business employment remains in positive territory, with an index level above 100, the national index has fallen 0.31 percent in the last quarter and 0.49 percent over the past year.

“We see a little bit of a decrease for October,” said Paychex president CEO Martin Mucci. “There is still employment growth, but the growth is down a bit from last year.”

The Mountain region was again the top-performing region in the country on the index, reaching 101.64 in October. New England was the only region to show a positive one-month and 12-month growth rate, propelled by the Boston metro area and Massachusetts. With the lowest 12-month growth rate (-2.12 percent), the rate of employment growth has declined seven consecutive months in the West North Central. The West North Central, along with the Middle Atlantic, are the only regions with an index below 100. Down 0.56 percent, the East South Central region had the lowest one-month growth rate among regions, as its index fell to a three-year low.  

Washington rose to the top spot among states, followed by Texas and Georgia, all with index levels at 102 or higher. Rebounding 0.27 percent to 102.73, Washington overtook Texas as the top-ranked state index. Rounding out the top three, Texas and Georgia both fell in October, but their index levels remain at or above 102. Job conditions strengthened in Massachusetts for the fifth straight month as the state’s index is back over 100 and flat year-over-year. Small business job growth slowed the most in Tennessee, North Carolina, and Michigan during the past month. At 100.95, Wisconsin improved in October and had the best 12-month growth rate among states at 0.60 percent.   

“Most states, when you look year over year, are flat to negative,” said Mucci. “The employment growth has slowed across the country. It’s still positive, but it’s leveling out.”

Dallas continues to be the top-ranked metropolitan area by a wide margin. At 105.76, Dallas is relatively unchanged during the past quarter, and still well above other metro areas. Seattle ranked second and is the only other metro index above 102, but has retreated 1.78 percent during the past year. Boston had another strong gain in October as its index surpassed 100 and is up 0.99 percent during the past quarter. The pace of employment growth weakened further in Houston, falling 0.61 percent in October and 3.39 percent over the past 12 months. At 100.06, Houston is now at its lowest level since 2010. New York City dropped 0.20 percent to 98.96 in October and now leads only Minneapolis among metropolitan areas.

“Texas is a tale of two cities, with Dallas and Houston,” said Mucci. “Dallas has gone up for years now, while Houston is down 3.5 percent. We’ve seen a big retrenchment in oil and the jobs around that. Miami is up 2 percent. Miami is starting to see condo building and construction, and some foreign investment there."

In terms of industries, rhe construction industry ranked in second place, with an index above 101 for more than four years. Other Services (except Public Administration), as defined by the Bureau of Labor Statistics, ranks as the top industry sector for small business employment growth at 104.21. Leisure and hospitality had its worst one-month result in more than two years (-0.67 percent) as its index fell to 100.00, giving up all of the momentum gained in 2015. Manufacturing remains the lowest-ranked industry and its 1.43 percent decline over the past year coincides with the general manufacturing cutbacks tied to the increase in the value of the dollar and retrenchment in oil and gas.

“The good news is people are spending discretionary income,” said Mucci. “The bad side of that is it’s more part-time jobs. That shows small businesses are still being cautious about hiring.”

He believes accountants will be in more demand than ever to help businesses cope with issues such as the Affordable Care Act and the expected expansion of workers entitled to overtime pay if a proposed rule from the Department of Labor takes effect next year. Businesses are responding to the uncertainty and increased costs and regulations by relying more on independent contractors and part-time employees. Mucci believes the increased costs of benefits such as health insurance and 401(k) matches are holding back wage growth at many companies.

“The market is up, so the 401(k) match is higher,” he said. “Total compensation may be up when you think about the benefits that are included. If you’re a small business, you’re going to see that more. There’s more pressure to do an automatic enrollment upfront and to get more people involved in retirement saving. More companies are being pushed that way. There is some legislation out there to drive more retirement plans for small and large businesses, and some states are getting involved.”

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