Small businesses showed some signs of recovery in May, says Paychex
Employment growth at small businesses improved slightly in May, up 0.25 percent, as stay-at-home orders eased in most states, but that was only after reaching historic lows in April, according to payroll giant Paychex.
The Paychex | IHS Markit Small Business Employment Watch, released Tuesday, showed some positive hopeful signs for recovery despite the ongoing coronavirus pandemic. Due to the economic impacts of COVID-19, the jobs index has fallen 3.95 percent year-over-year, most of which (3.52 percent) occurred in the past quarter. The transition back to work led to a 5.33 percent one-month annualized increase in weekly hours worked after plummeting in April.
“We saw a pretty big drop, a historical drop, in April,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex. “It actually went down to almost the financial crisis low, right around there. This month it bounced back a little bit, 2.5 percent, which does validate what you are hearing. We are seeing things slightly improve very slowly as things start to come back online. I visualize it as businesses turning their lights back on, so they are starting to open up a little bit. The big question is do consumers come back as businesses come back? It was good to see it didn’t drop further. It validates what you’re seeing regarding some of the national unemployment claims, and some of the other employment indicators that come out every month. It does seem like things have started to flatten out, but it’s very slightly and very early too.”
After a significant decline in weekly hours worked in April, the one-month annualized growth rate increased to 5.33 percent. Due to the impact of COVID-19, the employee mix at small businesses appears to have shifted toward jobs with higher rates of pay, translating to hourly earnings growth increasing to 3.12 percent.
“Wages are actually up, and if you think about it, it makes sense because the sample now, or the base, has a lot of what we call the first quintile, or lower-wage earnings, falling off, so you have a bigger base number to look at that average now,” said Fiorille. “So we did see earnings grow to 3.12 percent, which is a pretty nice jump up, and we also saw weekly hours worked go up, and weekly earnings improved as well. Most indicators did start to increase, but from a very, very low level because April was obviously a very rough month for the United States.”
All regions of the country experienced some improvement in May, but the increase in the Northeast was marginal at best, up just 0.01 percent. The South and the West did better. Gaining 0.40 percent from the previous month, the small business jobs index in the South rose to above 96. The West had the strongest gains in May, up 0.41 percent, but its year-over-year change was the weakest at -4.57 percent. With Florida’s stay-at-home order lifted on May 4, the state’s jobs index was more than one point higher than any other state. Of the 20 metropolitan areas analyzed, 14 showed improvement in May, while only six metro areas slowed further.
Among industry sectors, the construction industry reported significant recovery in May, up 1.22 percent, and became the new top-ranked industry index. The leisure and hospitality industry experienced more declines in May.
“The South continued to be stronger versus the Northeast,” said Fiorille. “They opened up a little bit earlier, and they have different demographics that probably contributed to that. Construction was pretty strong down there as well.”
Paychex recently surveyed a group of small businesses about their plans for returning to work, and found that 63 percent of the small business owners polled feel the worst is behind them when it comes to the impact of COVID-19 on their operations. Of the 300 randomly selected business owners polled between May 15 and 17, 46 percent reported they are fully open and operational, while 42 percent are open on a limited basis, and 12 percent are closed, but plan to reopen. In terms of the expected time to return to normal, 45 percent of the respondents believe it will take three or fewer months for their business to recover, and 57 percent of the respondents who think it will take seven or more months for the U.S. economy to recover.
Fiorille advises accountants to keep their small business clients informed about federal aid programs such as the Paycheck Protection Program.
“The thing is just to watch how they can access any of the federal COVID-19 support programs, the PPP loans and forgiveness, and give advice to their business clients about how they maneuver around furloughs versus bringing back employees and safety, ” he said. “It’s really complex right now.”
Paychex has been involved in the Paycheck Protection program, but so far, it hasn’t gotten involved in the Federal Reserve’s upcoming Main Street Lending Program. “I think the intent there is good,” said Fiorille. “It’s for that middle-market, medium-size businesses, whereas the PPP loan is more for the smaller businesses. Larger-size companies can access the capital markets in different ways. I do think it will probably fill a need, though. It’s still a little bit unclear about exactly what it’s going to do and the numbers since it’s just getting rolled out now. It remains to be seen, but I do think it’s a good idea and it definitely should help out a lot “