The pace of hourly earnings growth and hiring slowed down at small businesses last month, payroll processor Paychex reported Tuesday.
The Paychex Small Business Employment Watch found the rate of hourly earnings growth for workers at U.S. small businesses has slowed for 17 of the past 18 months to 3.48% in November, declining below 3.50% for the first time since July 2021. Also in November, hiring at small businesses across the U.S. remained stable but continued to slow from the rate of growth seen at the beginning of this year. The rate of small business job growth declined 0.18% in November, according to Paychex.
The U.S. Bureau of Labor Statistics also released its latest Job Openings and Labor Turnover Survey on Tuesday, showing the number of job openings dropping by 617,000 to 8.7 million at the end of October, the lowest level since March 2021. The Paychex report showed a similar trend.
“It kind of got validated by today’s JOLTS report, where job openings really dropped a lot,” said Frank Fiorille, vice president of risk, compliance and data analytics at Paychex. “It looks like things are definitely slowing somewhat in the labor market. It’s not as tight as it was.”
The steady rise in interest rates in recent years seems to be depressing wage and hiring growth, he noted.
“It’s lower, but it’s still growth, so it’s not falling off the cliff or anything dramatic,” said Fiorille. “It’s been a nice, gradual slowdown, coming off the boil, specifically in some of the sectors like leisure and hospitality.”
Hourly earnings growth in the leisure and hospitality sector has steadily slowed during the past two years, declining from 10.95% to 3.79% between January 2022 and November 2023.
The South led the way on small business job growth among regions for the 20th month in a row, and was the only region to improve in November (by 0.10%). The Northeast continued to rank in last place among regions and decreased 0.38% last month.
Year-over-year weekly hours worked growth (-0.16%) remained in negative territory, although three-month annualized growth climbed to 1.42% in November.
The West led the way in terms of regional hourly earnings growth for the sixth consecutive month. Washington led among states for the fifth month in a row in hourly earnings growth, with a rate of 5.06%.
Miami led the top U.S. metropolitan areas in weekly hours worked growth (0.36%) for the seventh consecutive month.
North Carolina remained the top state for small business job growth in November with an index level of 100.68, while Texas ranked second at 100.17 on the index. Houston (101.77) has now led top U.S. metros for small business job growth for a full year. Dallas (98.65) gained 0.84% in November alone, jumping from 18th to eighth among top metros.
“California is starting to come back a little stronger,” said Fiorille. “We’re seeing some increases.”
In terms of sectors, education and health services (0.31%) and construction (0.28%) have improved their small business employment growth rate, while leisure and hospitality dropped 0.56% in November. The sector has slowed 3.65% since February to an index level 101.41.
“Education and health services and construction had the best growth rates, and then the leisure and hospitality sector continues what I’d call a sharp deceleration,” said Fiorille.
He advises accountants to watch for end-of-year reporting changes occurring with the start of next year.
“What businesses and CPAs should keep a close eye on is the stuff that comes with year-end and quarter-end stuff,” said Fiorille. “Things are enacted January 1, whether it’s minimum wage increases or some new stuff kicking in. AI is obviously the buzzword topic du jour of the year. Small businesses, CPAs and financial professionals need to educate themselves and understand what that means as it’s emerging.”