Small-business employment improved in February, but wage growth slowed

Small-business employment growth continued in February, but the rate of growth in both jobs and wages slowed from January, according to a new report.

The report, released Tuesday by payroll provider Paychex, found the pace of small-business employment growth improved in February by 0.10%, after improving 0.18% in January. However, Paychex's national jobs index (99.66) is down 1.64% from the record level set last February (101.33). Hourly earnings growth slowed further to 4.49% in February as one-month annualized growth remained below four percent for the third consecutive month. However, thanks to the positive momentum in the amount of weekly hours worked, weekly earnings growth reached a new record level in February (5.09%) since reporting began in 2011.

"It's been a really positive start for the year," said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. "Things are loosening up in the market. Part of the headwinds against the index has been supply, with small businesses having a hard time finding, attracting and keeping employees. We think that has loosened up somewhat, and that has contributed to the rise over the past couple of months."

Wage growth has decelerated since last year as well, and businesses are asking their employees to work more hours. The leisure and hospitality sector saw the most growth. The construction industry trailed only leisure and hospitality in growth for hourly earnings (5.11%), weekly earnings (5.98%), and weekly hours worked (0.69%).

The Midwest had the strongest one-month change rate among the regions for the past three months. Led by Illinois, the Midwest has gained 0.77% during the past quarter. North Carolina also gained 0.37% in February. Houston led the metropolitan areas in the rate of small business employment growth in February. The next strongest metro areas were Chicago, Atlanta and Phoenix, which all trail Houston by more than a point and a half.

"Houston was really strong this month," said Fiorille. "It was really by far the top performer."

Small businesses and their accountants are keeping an eye on tax season and interest rate increase decisions by the Federal Reserve. "That's obviously one of the biggest risks that probably every small business owner or corporate CEO is watching and monitoring very closely," said Fiorille.