Hourly wage growth at small businesses dampened this month, even though the pace of hiring remained strong, according to data released Tuesday by payroll processor Paychex.
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"It does look like wage inflation has decelerated," said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. "Some of the actions that the Fed has been doing like raising rates are having an effect. It's almost a Goldilocks report. Last year, employment was growing, but that growth was decelerating month after month. This past month, we saw it jump 0.18%, which is the first rise we've seen in a very long time."
One reason could be due to small businesses hiring some of the workers who have been laid off in recent months by large technology companies. "People may be coming off the sideline a little bit because the stimulus money has dried up and the smaller businesses have a bigger pool of supply of jobs," said Fiorille. "That may explain some of the uptick in January."
The number of weekly hours worked grew in January. The rate of one-month annualized weekly hours worked growth (1.56%) reached its highest level since mid-2020 and was in positive territory for the fifth month in a row. Weekly hours worked growth turned positive (0.02%) for the first time since April 2021.
"Hours worked continued to creep up as well as the workweek," said Fiorille. "The overall picture is small businesses are hanging in there and are very resilient. We're not seeing any dramatic falloff on their part."
All four regions of the country reported job gains in January, and 15 of the 20 states analyzed experienced increases. Small-business job growth in the South grew 0.10% in January, marking its fourth consecutive increase and 10th consecutive month as the top-ranked region for small business employment growth. North Carolina moderated 0.07% in January, but it's still the top state for small business employment growth for the seventh straight month. Among metropolitan areas, Houston led by a wide margin in January as the previously second-ranked metro Dallas area fell 1.23% to fifth place.
In terms of industries, the construction industry gained 0.54% on the jobs index in January, marking the strongest one-month change rate in nearly two years. While hourly earnings growth slowed in all other sectors, the leisure and hospitality industry accelerated to 6.82% this month.
"Almost every sector has recaptured its pre-pandemic numbers, except leisure and hospitality," said Fiorille. "That's still showing 900,000 less than pre-pandemic. There's a lot of volatility in that indicator from an overall standpoint, but construction had a strong month, which was a little bit surprising."
Accountants will be busy for the next few months, at least, helping their small business clients with tax season and any new regulations and tax changes that went into effect this year. Congress isn't likely to pass new tax legislation anytime soon, at least.
"There's a divided Congress and they're somewhat gridlocked," said Fiorille. "We think there are actually going to be more changes at the agency level and the executive level that people, companies and CPAs are going to need to watch out for."
