Hourly earnings and hiring slackened at small businesses last month, although workers put in more hours, boosting their weekly pay, according to a report released Tuesday by payroll giant Paychex.
The monthly
"We're seeing wage growth decelerate a little bit," said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. "Even though year to year it's around 5%, if you look at it on an annualized rate the last couple of months it's been in the high 3s and low 4s."
He believes that could be a positive sign for the Federal Reserve, which has been looking to slow the white-hot growth in wages and bring down inflation, as it continues a series of dramatic rate hikes this year. "That's good news the Fed is looking for," said Fiorille. "We also are seeing hours worked going up. The hours worked for employees for the past several months has been starting to ratchet up as well, as businesses try to get more out of their folks, for obvious reasons."
However, Hurricane Ian — which hit Florida and several other states in late September — led to a significant drop in hours worked, especially in the Tampa area, as the storm devastated nearby Fort Myers and the barrier islands. The number of hours worked are expected to bounce back quickly as that area rebuilds, especially in the construction sector.
Weekly hours-worked growth fell sharply in Florida in October, Paychex reported, with one-month annualized weekly hours-worked falling to -5.46%, pushing its ranking last among states. Due to the drop in hours-worked, one-month annualized weekly earnings growth in Florida turned negative at -1.36% In Tampa, the metropolitan area closest to the impact zone, one-month annualized weekly hours-worked growth fell to -6.22%.
The jobs market appears to be softening among small businesses. "The employment number is down again, due to a combination of businesses tightening their belt, but they also still can't find people," said Fiorille.
Paychex has also been keeping track of job switchers and how they fare with their pay increases. "Historically when you switch jobs, you see a pretty big increase," said Fiorille. "Within the past year or so that number for the job switchers was dramatically going up and up. Now we've seen that starting to come down as well. The hot job market, while still tight, is starting to change a little bit."
Despite the impact from Hurricane Ian on Florida, the South is continuing to lead small business employment growth and was the only region to improve in October. North Carolina remained the top state in terms of small business job growth, while Florida was again the top state in terms of worker hourly earnings growth. Dallas continues to lead among U.S. metro areas on mall business job growth and hourly earnings growth for workers. "
"We saw the South still continues to outperform, even with the hurricane impacting a pretty big area in Florida," said Fiorille. "Texas is super strong, with Dallas and Houston. The Northeast was particularly weak this month, down 0.66. We are continuing to see weakness in the big California cities like San Francisco, Los Angeles and Riverside. From an index standpoint, those three are dead last in the index and have been for quite some time."
The "other services (except public administration)" sector — which includes religious, civic, and social organizations, as well as personal services, including automotive and household repair, salons, dry cleaners, and other businesses — remained the top sector for job growth in October at 102.15, although it slowed 0.51% in October. The education and health services index remained flat in October, while all other sectors slowed. The trade, transportation, and utilities index decreased 0.68% to 97.79, joining manufacturing (97.49) and financial activities (97.35) with an index below 98.
"The leisure and hospitality sector is still a million jobs lower pre-pandemic," said Fiorille. "That's the only one that still has not come back."
However, "other services" (at 7.58%) and leisure and hospitality (at 6.44%) led the other sectors on hourly earnings growth in October. Construction led sectors in weekly hours-worked growth, up 0.31 percent year-over-year, boosting weekly earnings growth to 5.54%. At 4.21%, education and health services' hourly earnings reached a new record level since reporting began in 2011. Nevertheless, growth has been the weakest since September 2021.
In terms of advice for accountants to give their small business clients, the annual inflation adjustments and cost of living increases announced by the Internal Revenue Service and the Social Security Administration will probably have the most impact.
"Pay attention to that," said Fiorille. "Those changes have gone up dramatically at record rates. There are also a lot of potential changes out there that the states are doing themselves."
