Paychex sees another pullback in small business job growth in July

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Job growth at small businesses continued to slow down last month, although wages are rising, according to a new report from payroll giant Paychex.

The Paychex | IHS Markit Small Business Employment Watch showed a drop in the Small Business Jobs Index to 99.98 in July, 0.70 percent lower than in July of last year. However, national hourly earnings in July were $25.90, a 2.94 percent increase ($0.74) year-over-year.

“It’s a continuation of the trend we’ve seen now for the last several months,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex. “We’re seeing it still growing, but the growth has really slowed. It feels like there is still some hesitation with businesses adding employees based on a number of reasons, but most importantly they’re hesitating to see what comes out from high-level legislation, whether it’s health care or tax [reform].”

On the other hand, the growth in wages is an encouraging sign. “As the employment number growth has slowed, we’re seeing wages accelerate and going higher,” said Fiorille. “The theory there is that probably at some point in time, as a lot of pundits have said, we’re getting close to full employment. Instead of adding help, they’re increasing wages and hours worked. Even though employment growth has slowed, you’re seeing a pickup in wages and hours worked.”

Paychex is continuing to see strong employment growth at small businesses in the South, particularly in Tennessee, Florida and Georgia. Washington took first place among the states in annual gains for weekly hours and earnings. Dallas was again the top metropolitan area for small business jobs, followed by Miami, Philadelphia and Atlanta, while Phoenix had the lead in terms of wage growth. The construction industry rose to second place among sectors seeing the most job growth, just behind the category of “Other Services (except Public Administration),” which are mostly discretionary spending related. Manufacturing employment continued to lag. Weekly earnings in the Other Servicse category grew 4.63 percent, and in the leisure and hospitality industry 4.4 percent last month, or 4.95 percent year over year. Wages in the education and health services category continued to lag, however.

Fiorille recommended accountants keep an eye out for changes in regulation on the state and local side that could affect their small business clients, particularly as the Trump administration continues its deregulatory push. He pointed to some of the minimum wage increases in some parts of the country. “You might not see changes at the federal level, but you’re seeing a lot of states put forth many different things,” he said.

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