Paychex sees small business employment growth slowed in June, while wages rose

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Employment growth at small businesses declined for the fourth month in a row in June, according to payroll giant Paychex, but wages continued to rise.

The Paychex | IHS Markit Small Business Employment Watch for June, which Paychex compiles with the research firm IHS Markit, dipped 0.24 percent to 100.10 in June, the lowest level since late 2011. National hourly earnings last month were $25.82, a 2.88 percent increase of $0.72 year-over-year.

“Despite a pretty strong start to 2017, we’ve experienced four consecutive months of slower growth,” said Paychex president and CEO Martin Mucci.

One reason may be that the job market is approaching what economists consider “full employment,” as few job openings are available and the unemployment rate is around 4.3 percent. The other reason could be uncertainty about what will happen in Washington.

“I think there is still a level of uncertainty over the things that small businesses were looking for and expecting out of the administration—tax reform, health care reform, and other stimulation to job growth just really hasn’t happened yet,” said Mucci. “While there’s optimism, I think it’s not as strong as it was.”

Minimum wage increases in some states and cities could also be having an impact.

“If you think about Seattle and Phoenix, both have pretty big minimum wage increases that have either been in effect or are continuing to go into effect, and they’re seeing less job growth and more hours worked,” said Mucci. “If you looked at Washington State, the job growth dropped last month and it’s down quite a bit from last year, yet the hours worked and the wages are up pretty strongly. I think the minimum wage changes are having an impact.”

The fastest growing jobs have been in “Other Services,” which includes discretionary services such as nail salons, along with the leisure and hospitality sector. “That’s where you’re seeing the minimum wage have its biggest impact because they’re the lowest hourly earnings rates,” said Mucci.

The manufacturing industry has experienced flat job growth compared to last year, while the growth rate in construction jobs is down almost 2 percent from last year. “That’s probably the worst one-year change of any of the sectors, and we’re seeing that across the country,” said Mucci. “Sales of new homes are slowing down a bit.”

The South remained the leading part of the country in terms of regional job growth, with the West ranking highest for wage growth, according to Paychex. Among the various states, Tennessee continued to lead in job growth, while Washington and Arizona had the highest weekly earnings growth of more than 4 percent. Dallas remained the best metropolitan area for small business jobs, while Riverside, Calif., led the way in terms of wage growth.

Accountants can help clients by keeping an eye on issues such as the minimum wage and paid parental leave policies in different parts of the country.

“Accountants can make sure their clients are staying up to date on minimum wage changes and that they’re properly reflecting those, because there are a lot of changes in various states, cities, etc., and some of those are going into effect in the second half of the year,” said Mucci. “Also, it’s important to help small businesses understand the impact of paid parental leave. This is becoming more and more discussed at the federal level. Ivanka Trump is doing some work now with Congress, and at the state level, paid parental leave is going to take effect January 1 in New York. If you’re a small business, does it apply to you? If it does, how much of an impact will that have on you? That could have a pretty big impact at some small businesses that they might not be aware of. Those are all good things that accountants can help keep them thinking about and preparing for.”

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