Paychex reported Tuesday that its index of small business job growth rebounded in January.

The Paychex | IHS Small Business Jobs Index, which the payroll giant compiles with the research firm IHS rebounded to 100.65, up 0.28 percent from December. The January index indicates an increase in the rate of small business hiring, matching the highest level since May of 2015, and offsetting the growth rate declines of 2015.

“We actually saw a nice rebound in January from December,” said Paychex president and CEO Martin Mucci. “The decreases in the growth rate of hiring for small businesses that we saw happening in the middle of 2015 have recovered in January. We don’t know whether one month makes up for a year, but certainly in January it was a nice start.”

The Mountain region remains the top-performing regional index, with the best year-over-year growth rate. Washington surpassed Texas to take the lead among states. Despite a drop in January, Dallas maintained its top ranking among metropolitan areas for the sixteenth consecutive month. Other Services (except Public Administration), as defined by the Bureau of Labor Statistics, ranked as the top industry sector, followed by Construction.

Up 0.44 percent in January and firmly in second place among industries, Construction had its strongest one-month gain in nearly three years, likely aided by the unusually warm winter in the East. Leisure and Hospitality had the best one-month growth rate among industries, increasing 0.60 percent and is at its highest level, 101.09, since summer 2014. Trade, Transportation and Utilities, Professional and Business Services, and Manufacturing all fell below 100 during the past year and are trending similarly to begin 2016, between 99 and 100. Professional and Business Services was the only industry to slow in January, though only 0.01 percent. At 104.64, Other Services remains the top-ranked index, gaining 1.63 percent since last January.

“Warmer weather could have had a positive impact, with construction probably being a little stronger than we would have expected in January, but the improvement was broad based across the entire country,” said Mucci. “From a region perspective, the majority of the regions all showed a positive rebound. The Mountain region continues to hold the top spot with the best index.”

Down marginally to 101.70, the Mountain region was one of only two regions to decrease in January, yet it remains the top-ranked region and also leads in year-over-year growth. Jumping to 100.24, the Middle Atlantic spiked 0.53 percent from the previous month and 0.90 percent during the past three months as its index is back over 100 for the first time in over a year. In fact, all regions were above the national baseline of 100 in January. Similar to the national index, New England is adding jobs at the same pace this January compared to last, albeit slightly slower than the national pace.

From a state perspective, Texas dropped to second place behind Washington State, with Florida, Tennessee and Georgia wrapping up the top five, according to Mucci.

“New Jersey was strong when you look year over year, but that could be because pre-2015 it was still facing issues from home foreclosures and Atlantic City that reduced job growth, so it’s nice to see New Jersey bouncing back over the year,” he added. “From a city perspective, growth slowed in Dallas from December. It dropped about 1.3 percent, but Dallas still kept at the top of the cities, followed by Seattle, and we saw nice strong growth from Miami coming in third. Miami has the best 12-month growth rate and has done quite well in the last year.”

Texas lost 0.47 percent from December to January to cede first place among states to Washington as the impact of even lower oil prices is taking its toll. Ohio and Indiana led the one-month gains among states in January, perhaps aided by the mild winter. Texas, Massachusetts, and California were the only states to decline as 17 of 20 states had positive growth in January. Despite the 0.22 percent downturn to begin 2016, Massachusetts remains above 100 and is adding jobs 0.43 percent faster than in January 2015. New Jersey gained 0.42 percent in January and 2.25 percent year-over-year to continue the momentum created during 2015.

Falling 1.28 percent from the previous month to 105.67, Dallas was not able to maintain the exceptionally fast pace of job growth achieved at the end of 2015 when its index reached 107.04. At 103.06, Seattle is ranked second among metros and has returned to its January 2015 level. With the best 12-month growth rate of 1.60 percent, Miami moved to third place among metros. New York City is up 0.67 percent from December and 1.48 percent during the past three months and, at 100.42, is over 100 for the first time in more than a year.

The Other Services sector, which showed the strongest growth, includes discretionary services such as pet care and personal care. “That represents spending of discretionary income and was probably helped by lower gas and fuel prices,” said Mucci. “Many of those are part-time jobs. Part-time employment now makes up 9.1 percent of the total. That’s up almost 3 percentage points from two years ago.”

He anticipates accountants will be kept busy this year helping small business clients with issues such as setting up retirement plans.

“I think it’s going to be a very busy year for accountants, said Mucci. “When you look at some of the things coming out of the political environment right now, retirement plans are getting a lot of attention. I think accountants will be tasked with helping small businesses find ways to create a 401(k) plan or a similar plan because there are going to be more tax credits, I think. There seems to be a lot of political attention now on retirement plans and saving for retirement. I think accountants will be very much pulled into how businesses will be able to react to that.”

For example, the Obama administration has been pushing for more individuals to set up the new myRA retirement accounts, although Mucci hasn’t seen much take-up of those yet (see Obama’s MyRA Retirement Savings Plan Goes Nationwide). The administration is also proposing to make it easier for small businesses to set up pooled retirement plans (see Obama Seeks to Expand 401(k) Use by Employers Pooling Plans).

Other issues that Mucci sees for small businesses include family leave, along with new rules coming out of the Labor Department to expand overtime pay and the political push for equal pay for equal work.
“You’re seeing both federal and state talk about paid leave now or family leave, not just medical leave,” he said. “That could put some pressure on small and large businesses. I think accountants may be asked about the impact on a client’s business from family leave. In addition to the overtime changes and the Affordable Care Act things that are going on, the equal pay concept is getting a lot of attention in this political year.”

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