Paychex sees small business job and wage growth slacken in February

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Paychex reported Tuesday a moderation in the pace of both job and wage growth at small businesses last month, despite recent tax cuts and minimum wage increases.

The Paychex | IHS Markit Small Business Employment Watch, which the payroll company produces in concert with the research firm IHS Markit, showed a level of 99.77 on their Small Business Jobs Index, a slight decline of 0.11 percent from January and 1 percent below last year. Hourly earnings increased $0.69 in the past year to $26.41, but the 12-month growth rate fell last month to 2.67 percent, as opposed to 2.74 percent in January. Weekly earnings growth has also slipped below 3 percent during this past quarter.

“Last month we saw an uptick, and now this month we saw it come back down again,” said Frank Fiorille, vice president of risk, compliance, and data analytics at Paychex. “There’s still growth, but the growth is decelerating. It’s not as strong as it was early last year. We saw that in wages a little bit too. We’ve seen wages sticking with nice growth, and now wages are beginning to take a little bit of a downturn as well. It’s slight, small, but that is interesting to us as well.”

The South led the way among regions in terms of employment growth, but the West ranked highest in terms of wage growth. Among the states, Washington ranked first in job growth, while Arizona stayed in first place for hourly earnings growth. In terms of metropolitan areas, Seattle overtook Denver as the top metro area for small business job growth, while Phoenix led other cities in small business wage growth.

The U.S. Bureau of Labor Statistics has been reporting wage growth picking up in recent months, and a number of states and cities passed minimum wage increases that took effect at the beginning of the year.

“We’ve been tracking those cities and states that have done minimum wage increases versus those that didn’t,” said Fiorille. “It’s almost like having two different pools to watch. This has now been going for a couple of years, and clearly for the ones that had minimum wage increases, we saw the employment grow much slower than the ones that didn’t. Seattle put in some aggressive minimum wage increases a while ago, and we saw their employment numbers start coming down. They used to be at the top and then they dropped to the middle of the pack. Now what’s happened recently is they’re back up, and the state of Washington is back up on top again.”

In terms of industry sectors, the construction industry exhibited sustained small business employment growth, while the leisure and hospitality showed the strongest hourly earnings growth last month. However, the financial activities had its worst month in over a decade, falling 0.60 percent and becoming the slowest-growing industry sector in February.

Accountants should continue to advise their small business clients about the implications of the new tax law, especially as the Internal Revenue Service continues to roll out new tax tables, W-4 and W-2 forms, inflation adjustments and other guidance.

“Top of the list, especially for those that have complicated financial circumstances, is to leverage and use those new tools that just came out last week,” said Fiorille. “That’s something we would encourage.”

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