Small biz job and wage growth slowed in September

Hourly earnings growth at small businesses declined in September to its lowest level since over a year ago, while hiring also slowed, according to a report released Tuesday by payroll processor Paychex.

The latest Paychex | IHS Markit Small Business Employment Watch showed one-month annualized hourly earnings growth fell to 3.35%, the weakest growth rate since April 2021. Hourly earnings growth reached 4.98% in September, falling below 5% for the first time since April of this year. 

The Small Business Job Index, which measures the rate of small-business job growth, also slowed slightly from the previous month, down -0.19% to 99.75. Small-business employment gains slowed during the spring and summer as monthly decreases averaged -0.26% from April through September.

The Federal Reserve's rapid series of interest rate increases over the past year finally seem to be having an impact on wage and job growth, but there are other reasons as well. "You're seeing more of the older workers come back into the labor force," said Frank Fiorille, vice president of risk management, compliance, and data analytics at Paychex. "Some of that stimulus money is starting to wear off. You're seeing that in savings rates as well. Consumers' balance sheets are lower, and they're entering the job market. But businesses are still having a hard time finding people to work."

The U.S. Bureau of Labor Statistics reported Tuesday in its Job Openings and Labor Turnover Summary, also known as the JOLTS report, that the number of job openings decreased to 10.1 million by the end of August. "Job openings dropped dramatically, down a million from the prior month, the biggest drop in job openings since the pandemic," said Fiorille. "You're starting to see some of that slowdown in activity. It's starting to work its way through, and it should when they've raised rates like they had. We're seeing it in the numbers now. It's slight, nothing dramatic, but it is definitely impacting small and medium-size businesses."

North Carolina remained the top state for small-business job growth, but there was a slowdown there as well. At 102.12, the state had the highest index among states for the third month in a row, but the pace of growth slowed 0.77% in September. The decrease makes North Carolina's growth the third-weakest among states. Florida was again the top state in terms of worker hourly earnings growth at 6.47%. Dallas continued to lead among U.S. metropolitan areas in small-business job growth and hourly earnings growth for workers. 

"On the West Coast. LA, San Francisco, San Diego and Seattle are all at the bottom of the index," said Fiorille. "In the South are the best performers, with Texas and North Carolina doing the best. The South is also leading in earnings growth. If you go back a couple of years ago, they were always the laggards. Even though they were the best in employment growth, they were the slowest in wage growth. Now they are actually the highest from a wage growth standpoint." 

On an industry basis, "Other services (except public administration)" remained the top sector for job growth in September at 102.68. Leisure and hospitality, at 100.20, had the weakest one-month change rate among industries for seven of the past eight months, slowing 0.39% in September. Still below 98, financial activities, at 97.89, was the only sector to improve in September, rising 0.13%.

The "Other services" sector also led among the various sectors on hourly earnings growth in September at 7.54%. The construction industry reached a new record of 5.14% hourly earnings growth in September and led the way among sectors in weekly hours-worked growth (0.38%) for the seventh month in a row. Education and health services ranked last among sectors in hourly earnings growth at 4.07%, and was well behind the next weakest sector, financial activities, which was at 4.80%.

But the numbers for the leisure and hospitality industry are trending down. "From an overall perspective, the leisure and hospitality sector has come down the most because it went up the most, so you're seeing that come off the boil somewhat," said Fiorille. 

In terms of advice from accountants with small-business clients, Fiorille highlighted the tax and emergency relief available to businesses and individuals in Florida in the wake of Hurricane Ian from the IRS and the Chamber of Commerce. He noted that the Paychex website also offers information on business continuity and disaster recovery.