Paychex sees slowdown in small business employment growth in April

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Job growth slackened at small businesses last month, although wages were up compared to a year ago, according to a new report from payroll giant Paychex.

The Paychex | IHS Markit Small Business Employment Watch, which Paychex produces in conjunction with the research firm IHS Markit, dipped 0.22 percent in April to 100.50, losing the gains it made in the first quarter. It is currently 0.27 percent below last year’s employment growth level. The report now includes data on wage growth for the first time. National hourly earnings in April were $25.67, a 2.73 percent increase ($0.68) year over year.

“We gave up some of the year-to-date gains that we saw in 2017 through March, so we’re back where we were on the index at the end of the year,” said Paychex president and CEO Martin Mucci. “We’re down about 0.3 percent. While there’s still a lot of optimism, I think it has decreased a bit, and the job growth is reflecting that. You get past these first 100 days with the new administration, and I think there’s a little bit more caution. What’s going to happen with health care? What’s going to happen with tax reform? What other policies are going to happen or not happen?”

Florida was the only state that showed strong job gains in April, bypassing Georgia, and lagging only behind Tennessee. On the other hand, North Carolina, Ohio and Missouri experienced sharp drops in job growth. Regional wage growth appeared to be strongest in the states out West as hourly earnings increased 3.50 percent year over year. On the other hand, the South showed the slowest wage growth, with hourly earnings increasing 2.29 percent. Hours worked climbed everywhere except in the Northeast, where there was no change from last year. The Midwest had the largest increase in weekly hours worked, up 0.60 percent during the past 12 months. Arizona, up 4.37 percent, led the way among states in terms of hourly earnings growth, while California, Indiana, Michigan, New York, Tennessee and Wisconsin also experienced strong growth, all above 3.0 percent.

“Most regions and states are down from a job growth standpoint, although Tennessee is still strong, and Dallas from a city standpoint,” said Mucci. “But the hourly earnings are up about 2.7 percent over last year. We also take it down to the last three months and annualize the wage increase, so it’s closer to 3 percent. Wage growth is accelerating a bit, probably because we’re tending to reach full employment or near full employment in some areas, and that’s driving the scarcity of the resource. Between that and minimum wage increases—particularly out west—I think that’s pushing wages up a bit.”

In terms of industry sectors, professional and business services and financial activities led the way in weekly earnings, both over $1,000, while leisure and hospitality had the lowest weekly earnings. Manufacturing was the only industry to indicate a decline in the number of hours worked year over year. Meanwhile, the leisure and hospitality industry showed one of the fastest growth rates for hourly earnings among industries, at 4.42 percent, probably due to minimum wage increases.

“We’re probably seeing a little bit larger percent of job growth in part time, in leisure and hospitality and ‘other services,’ discretionary services,” said Mucci. “That’s a bit of a caution. I think as small businesses—restaurants and so forth—are more cautious, they’re picking up more full time than they are part time.”

Uncertainty about health care reform, tax reform and interest rate hikes could also be fueling the caution among small businesses, Mucci acknowledged.

“It’s a good time for accountants because there’s so much uncertainty with the health care changes and tax reform, and how that will impact businesses,” said Mucci. “A big part of that will be what happens with LLCs and so forth, from a tax perspective. If I were running a small business I would hold onto my accountant. Even as federal regulations will decrease, the states seem to be continuing to increase their regulations or trying to, with overtime and minimum wage changes. That’s going to make it even more complex for small businesses to keep track of, and I think they will be looking to their accountants for help.”

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