Growth in hourly and weekly pay at small businesses decelerated in October as job growth moderated, payroll provider Paychex reported Tuesday.
One-month annualized hourly earnings growth fell to 2.27% in October, on the Paychex | IHS Markit Small Business Employment Watch, the lowest level since November 2020. Hourly earnings growth has slowed in 16 of the past 17 months, Paychex noted, falling from 5.17% in May 2022 to 3.56% in October 2023, reaching an average of $31.97. The rate of small business job growth has also slowed 0.66% from a year ago but is still above pre-pandemic levels in 2019.
“We’re seeing continuing deceleration,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex. “We’re starting to see the supply and demand for workers come into balance, which is something the Fed is trying to do.”
Hourly earnings growth in the leisure and hospitality sector slowed below 4% (3.93%) for the first time since February 2021.
“It wasn’t long ago when it was really hard to find people in the leisure and hospitality sector, and we saw a 11% wage number on the month,” said Fiorille. “Now it’s declining very rapidly, and we’re seeing that at a much lower level, lower than 4%.”
While small business job growth is still above pre-pandemic levels, that’s starting to slow as well, but not as much as it did last month.
The South led the way in terms of regional small business job growth for the 19th consecutive month. The West led the other parts of the country in terms of regional hourly earnings growth, at 4.10%.
In terms of states, North Carolina led the way on small business job growth among the states, while Michigan and Ohio were the two weakest states for job growth in October.
Indiana ranked in second place for small business job growth and was the only state with positive one-month, three-month and 12-month change rates. However, Indiana had the lowest hourly earnings growth rate, at 2.16%.
Houston ranked as the strongest among the top U.S. metro areas for small business job growth for a year, above Chicago, which was in second place. San Francisco has been seeing some growth from the technology industry as the artificial intelligence boom has led to more demand for tech jobs and the businesses to support them.
“North Carolina has been on top for the last 16 months,” said Fiorille. “Houston has been very strong for a long time. On the other end of the scale, Michigan and Ohio were the states with the weakest job growth. You’re hearing more and more about how San Francisco is starting to come back, and we’re seeing that starting to jump up in the index as well. Some of the AI growth has started the second derivative businesses, the mom and pop shops, to support that AI.”
He sees a need for accountants to help small businesses with their year-end finances.
“We’re getting close to the holidays and the end of the year, and that’s always a prime time for year-end and quarter-end taxes or bonuses,” said Fiorille. “It’s time to start preparing to be ready as the holidays approach.”
He believes businesses should also prepare for the impact of the Corporate Transparency Act, which will require reporting on beneficial ownership of companies (see story). New small businesses will need to begin reporting on their true ownership to the Treasury Department’s Financial Crimes Enforcement Network within 90 days starting Jan. 1, 2024 as a way to deter money laundering, while existing businesses will have to file a report with FinCEN by Jan. 1, 2025.
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