Small businesses continued to increase hiring and hourly pay in August, payroll giant Paychex reported Tuesday, as the economic recovery continued despite the spread of the Delta variant.
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The figures indicate that the U.S. economy is still experiencing a growth spurt, despite worries about inflation, supply chain shortages, the increasing number of COVID-19 hospitalizations, and a shortage of workers.
Leisure and hospitality continued its recovery in August, up 14.61% year-over-year, more than double the growth of any other sector. Manufacturing had a 0.72% increase in job growth in August. Construction was the only sector where the pace of small business employment growth slowed during the past quarter, down -0.41%.
“The key driver is the recovery we’ve seen in the leisure and hospitality sector, which got hit so hard,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “We also saw hourly earnings go up 3.42% over last year, the second month above 3% since last August. Weekly earnings grew almost 2.5%. Weekly hours decreased, almost dropping 0.75%, for the fifth month in a row. We think some of that is more part-time, lower-wage earners coming back into the workforce, versus last year, which really contributed to bringing the mix down. All in all, it’s a continued trend of strength and comeback.”
More employees are expected to return to the workforce as enhanced federal unemployment insurance benefits end on Sept. 6 across the country and not just in the states that decided to opt out of the program. “The key thing is what’s going to happen in September as the UI top-off ends,” said Fiorille. “As people go back to work and schools are back, are we going to see that number maybe accelerated? So many businesses are still having trouble finding employees. Do we see that come back? That’s going to be interesting to watch as well.”
All the regions of the country saw sizable employment gains last month, but the South remained the leader in terms of small business job growth. Among the states, Arizona continued to lead on small business job growth. Washington State improved to 12th among states in August, with the strongest one-month, three-month, and growth rate. Tennessee and Illinois were the only states where the pace of small business employment growth slowed in August. Tampa led among metropolitan areas in small business employment growth, with Dallas, Atlanta, Phoenix, and Houston rounding out the top five.
“The South continues to lead,” said Fiorille. “It’s the 31st month in a row that they’ve had the highest index. The West has been close. The West had a really strong month and quarter as well, so the West is starting to come back pretty strongly as well. The West is always the highest where we’re seeing wage growth, whereas the South is usually the lowest. New business starts are up nicely, 50% over last year. They were running almost 70 or 80% over last year, but the bar now has been raised over the past few months. You’re still seeing new business formation is very strong, so that’s another nice indicator that we’re looking at.”
With the enhanced unemployment benefits set to end in early September, other aid programs from the pandemic, such as eviction moratoriums, are also expiring in many states and cities. An effort by the Biden administration and the Centers for Disease Control and Prevention to extend the moratorium was blocked by the Supreme Court last week. That may have an impact on some clients and their small businesses. The end of those government aid programs is likely to have an impact on consumer demand and the economy at large.
“What’s going to be really interesting is what happens this fall as things start to wind down a lot,” said Fiorille. “A lot of these programs are going to end, not just from a business standardit, but also from a consumer standpoint too. It’s pretty similar to what’s happening with rent. Although the Child Tax Credit will still be out there, there’s a lot of stuff all coming to an end, and it’s going to be interesting to see how the economy, small businesses and consumers handle that. Accountants should watch if there’s any change to that. Do they extend it, do they not extend it, or do they do some different things?”
