Hourly earnings growth for small business employees declined 0.07% to 3.95% and fell below 4% for the first time in more than two years, while hiring also moderated, according to a report released Tuesday by payroll processor Paychex.
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"We are continuing to see that wage number come down," said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex. "It's still increasing, but nowhere near what it was. Regarding employment, it's still pretty solid, though it's down a tick."
Small business job growth in July slipped 0.07% from June as its modest gains held relatively steady in July. On a regional basis, the South continued to lead the way in July when it came to small business employment growth for the 16th consecutive month, but the West was the only region of the country to experience an increase in July in small business jobs growth.
Job growth in the leisure and hospitality industry slowed 0.39% to 99.24, but hourly earnings growth of 5.15% for the industry ranked in first place among the different sectors. Texas led the way among the states in terms of both small-business job growth and hourly earnings growth with hourly earnings growth reaching 4.80%.
"In the leisure and hospitality sector, they're still having a hard time finding people to work," said Fiorille. "It's more of a supply-and-demand issue in that sector, which is the most volatile sector. A lot of the sectors that we watch were actually up this month, but that one really brought it down, because there's a lot of volatility."
Education and health services increased 0.70% from last year, the best 12-month change rate among sectors. Manufacturing hiring slowed in July, continuing a year-long trend as the sector that ranked in last place for small businesses.
Texas overtook North Carolina for the highest job growth in July among the states. New York had the weakest job growth and slowed the most during the past year by 2.48% among the top 20 most populous states. Job growth in California has increased each of the past three months for a quarterly gain of 0.61%.
At 4.80%, Texas led the way among the states in terms of hourly earnings growth for the fifth consecutive month, although growth has steadily slowed this year. Hourly earnings growth averaged 6.34% during the second half of 2022. Indiana was the only state with hourly earnings growth below 3% in July, at 2.87%.
Washington ranked in second place among the states in hourly earnings growth (4.71%), but 17th in terms of weekly earnings growth at 3.39%, due to a large decrease in weekly hours worked.
"From a regional standpoint, the South with North Carolina, Texas and Houston were strong again," said Fiorille. "In the Northeast, New York again this month, and then on the [West] Coast, California still is at the bottom, pulling up the rear."
Houston remained the top-ranked metropolitan for job growth for the ninth month in a row. Riverside, California, gained nearly 2% so far this year, lifting it from the bottom rank among metro areas for the first time since last year. Conversely, Denver dropped 0.67% in July, ranking last among top-ranked metros in terms of small business job growth.
In terms of wages, San Diego led the way among the nation's top metros in hourly earnings growth at 4.98%, with Riverside just behind it at 4.90%.
San Francisco was the only metro area with hourly earnings growth below 3% in July, at 2.69%. Miami experienced the biggest weekly hours worked growth at 0.32% among the top metro areas.
In the months ahead, Fiorille recommends accountants keep an eye on any tax provisions emerging in the appropriations bills working their way through Congress, as well as the resumption of student loan payments, which could bring more people back into the workforce.
