Small-biz hiring, wage growth slowed in July: Paychex
Small businesses cut back on their hiring as the novel coronavirus spread, especially in the South and West, according to a new report from payroll giant Paychex.
The monthly Paychex | IHS Markit Small Business Employment Watch, released Tuesday, indicated that employment growth moderated in July as new COVID-19 hot spots emerged in the U.S. The national jobs index slid 0.24 percent in July to 94.59. Hourly earnings growth also slowed slightly to 3.29 percent last month, but an increasing number of hours worked, driven by changes in the workforce composition, drove weekly earnings growth up to 4.14 percent, with one-month and three-month annualized growth rates rising above 5 percent.
Paychex’s national employment index slipped 0.24 percent in July, dropping slightly below April's level to 94.59. After declining 3.65 percent in April, the jobs index has moved only -0.04 percent during the past quarter. At 94.59, the national index has slowed 3.65 percent since last year.
The slowdowns seem relatively modest, however, given the millions of unemployment claims filed last month.
“Even though it’s down 0.24, we actually thought it would have been a bigger drop,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex. “The last couple of months, it has steadied since the big drop. It has kind of flattened out, and this month it ticked down a little bit. If you look at what happened, we saw the South and West take bigger hits. Some of that was in the Texas corridor and California. Florida is still the No. 1 ranked state, but we saw some slippage there.”
The South and West saw the largest declines in employment growth in July, of -0.31 percent and -0.33 percent, respectively. Despite slowing 0.44 percent in July, Florida continues to be the top state for small-business employment growth. Small-business jobs growth in Seattle declined 1.89 percent in July as its index fell to 91.05, lowest among all U.S. metropolitan areas. The financial activities industry sector, which includes financial services, insurance and real estate, was the only sector to see improved rates of small-business employment growth in July and is ranked second behind the construction industry.
“The one bright spot is hours worked, which is up nicely,” said Fiorille. “If you look at the one month, it was almost 10 percent, and that’s a real positive indicator. It looks like they are asking for some more hours. From an overall standpoint, it’s kind of what we expected. Over the next few months, it will be interesting to see what happens. I think what will drive this number over the next few months will be another new relief package for small businesses and if that can get done quickly, which we think it will, that will really help things get back somewhat to normal. Until then they’re struggling. Some are doing much better than others, depending on the industry. Construction is very strong. That makes sense, when you’re seeing some of the strong housing numbers.”
He advised accountants to keep an eye on what Congress ultimately does with the next coronavirus relief package, which is currently being negotiated as Democrats and Republicans try to narrow their disagreements. The package is likely to include a renewal of the Paycheck Protection Program, and Republicans have proposed tax credits to help businesses reopen in the draft version of what they’re calling the HEALS Act.
“For those businesses that have loans, the whole forgiveness process is kicking in soon and watch for additional guidance coming out on that, as well as this new relief act if that changes anything with forgiveness applications for smaller loans and some other things that are included in the act,” said Fiorille. “One other interesting thing in the draft they floated is that one of the forgivable expenses is for payroll costs for the payroll provider or if you use payroll software. That’s written in there. That wasn’t in the last one [the CARES Act]. But we’re not sure if that’s going to make it into the final bill. That’s just one example of how things could be a lot different in this relief package, so you have to really keep on top of it.”