Hourly earnings grew at small businesses this month, but the pace of job growth slackened, payroll processor Paychex reported Tuesday.
Average hourly earnings growth increased to 5.18% in August, matching a record set in May, but the pace of job growth at small businesses slowed from July by 0.20%. At $30.71 per hour, average hourly earnings have increased by $1.51 in the past 12 months. On the other hand, Paychex’s national jobs index fell below 100 to 99.94 for the first time since last September as job growth slowed at small businesses.
The report comes as the labor shortage continues in many industries and makes it difficult for small businesses to compete for scarce talent with larger companies that can offer higher pay and benefits to help them deal with the effects of inflation.
“We’re seeing very robust wage growth,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “On the employment side, we’re seeing growth but acceleration has slowed down. Businesses just can’t find people, but I think there’s also some slowing due to the macro environment of rate increases and people talking about a recession and the supply chain. There’s low sentiment out there in the small business community.”
The South continued to lead on job growth, but it also led this month in terms of hourly earnings growth, at 5.53%, and weekly earnings growth of 5.00%.
“It always seems the South has high employment growth, but now they’re also on the leaderboard on wages as well,” said Fiorille. “Not only did they have employment growth, but they’ve got to pay up for those jobs in the South as well. We haven’t seen that in quite some time. It’s usually the other way around where they have the lowest wage growth, but high employment. Now they’ve got both.”
On the other hand, small business employment growth in the West slowed 0.30% in August and ranked last among regions for the first time since 2020, with West Coast cities like San Francisco, San Diego, Riverside and Seattle all dropping over 2% during the past quarter. North Carolina remained the top state for small business job growth, while Florida was again the top state for worker hourly earnings growth at 6.45%. Dallas continues to lead among metro areas in small business job growth and hourly earnings growth for workers. The top sector for job growth for the third month in a row was “other services (except public administration).”
“We’re continuing to see leisure and hospitality slow down a little bit,” said Fiorille. Even though it has grown at a pretty high clip, it has really slowed down from last summer. Manufacturing has for the past quarter and the last month has slowed down too.”
As the Federal Reserve continues to hike interest rates in an effort to control inflation, accountants may want to advise their small business clients about the impact of the recently enacted Inflation Reduction Act on their companies.
“There are a lot of direct and derivative effects that small businesses should look out for,” said Fiorille. “There are some increases in the research and development credit. With all the funding the IRS got, what does that mean for small businesses as they try to modernize their infrastructure?”