Hourly earnings growth slipped at small businesses last month to the slowest pace since September 2021, according to a report Tuesday from payroll provider Paychex, while small business job growth also slackened.
Hourly earnings growth slowed to 3.79% in September, the smallest gain since September 2021 when it was at 3.77%. Weekly earnings growth has also steadily fallen this year, hitting 3.44% in September.
Meanwhile, Paychex’s Small Business Jobs Index — which measures the rate of small business job growth in the U.S. — reached 98.89 in September, a -0.21% decline from August. The rate of small business job growth has slowed in 16 of the past 19 months, although the current rate is still above the level prior to the start of the pandemic.
“Whether you look at average hourly earnings, weekly earnings or hours worked, it just seems like it’s all slowing somewhere,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex.
He pointed to the findings released Tuesday by the U.S. Bureau of Labor Statistics in its Job Openings and Labor Turnover Survey, also known as the JOLTS report, which showed the number of job openings increasing to 9.6 million at the end of August, a jump of nearly 700,000 from July. The number of hires and total separations changed little at 5.9 million and 5.7 million, respectively. Within separations, quits (3.6 million) and layoffs and discharges (1.7 million) changed little.
“What I think it’s really interesting — and it was validated this morning with the JOLTS report that just came out — we think it’s still a supply and demand issue,” said Fiorille.
Similarly, Paychex’s jobs index is still growing, but the rate of growth has slowed. “A lot of small and medium-sized businesses still can’t find people,” said Fiorille. “If you look at some of the other indicators out there, like bankruptcies, credit card debt, delinquencies and lending, clearly it looks like things have slowed, but the labor market continues to be pretty strong.”
The West led the way in terms of regional hourly earnings growth for the fourth consecutive month on the Paychex report, and remained the only region above 4%, at 4.23%. The West Coast metro areas of San Diego (4.96%), Seattle (4.79%), and Riverside (4.45%) led the way as the top U.S. metros in areas in terms of hourly earnings growth in September. North Carolina ranked in first place on small business employment growth among states, seeing a slight uptick of 0.07% in September.
Houston ranked in first place among states for the 11th month in a row, while Miami and Chicago ranked in second and third place among the nation’s top 20 metro areas, respectively.
September marked the first month in over two years that job growth in the leisure and hospitality hospitality industry was slower than the national pace, but the sector continues to lead on hourly earnings growth at 4.35%.
“There’s still strong growth in South and North Carolina,” said Fiorille. “Houston is tops among the cities. We’re seeing some softness in the leisure and hospitality sector, which is the most volatile and a pretty big driver of the service sector and small and medium-sized businesses.”
In terms of what accountants should be watching for this month with their small business clients, Fiorille pointed to the recently averted government shutdown last weekend, when a stopgap spending bill at least pushed off the prospect of a shutdown until mid-November (see story).
“With the budget, things got extended and they kicked the can down the road until November,” said Fiorille. “What we’re really watching closely there is the tax extenders and some of the tax items that are going to expire for small businesses and accountants need to help them.”
In addition to the various tax breaks for small businesses and individuals from the Tax Cuts and Jobs Act of 2017 that will be expiring in 2025, more immediately he pointed to the end of various pandemic-related tax breaks, the resumption of student loan payments, and the crackdown by the IRS on the Employee Retention Credit. Last month, the IRS announced it would stop processing new claims for the tax credit until at least the end of the year amid a surge of dubious claims from shady promoters (see story).
“There’s a lot of stuff that accountants need to really watch and help support small businesses because, even though the labor market is strong, it feels like there are some other headwinds that they’re going to be facing as we head into the holidays,” said Fiorille.
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