The "Paychex | IHS Markit Small Business Employment Watch" was created by a team of highly qualified data scientists at Paychex, with input and consultation from IHS Markit. Its monthly reports serve as a barometer of labor market trends with a specific focus on insights from small businesses across the US.
Each month, Frank Fiorille, VP of Risk, Compliance, and Data Analytics at Paychex, gives Insightful Accountant readers a deep dive into the latest employment data, sharing key trends, highlights from the results, job market implications and predictions for the month ahead.
What were the main takeaways from the March Small Business Employment Watch?
For March, the Small Business Employment Watch showed that hourly earnings growth continued to advance for the 10th consecutive month for workers in US small businesses, reaching 4.76% YOY growth. The national small business jobs index remained near its recent record high, moderating 0.03% in March to 101.29.
Q: What trends does the report show in terms of employment rate and wages?
This most recent report shows that wage growth is accelerating as we continue to see the pattern of growth month after month. Annual weekly earnings growth (4.08%) climbed back above four percent due to very strong gains in March as one-month annualized growth spiked to 6.83%.
Following this long streak of wage growth, wage gains may cool off in the coming months as employers aren’t facing as much pressure to pay employees increasingly higher wages to attract and retain workers.
Q: Were there any standouts or surprises in the results?
This past month, the West continued to hold the leading spot, as the top region for small business hiring and employment growth. At the state level, and for the second month in a row, North Carolina held its number one spot for small business job growth.
Additionally, North Carolina ranks second among states for hourly earnings growth, topping six percent (6.13%) in March. This is a trend we’ve been seeing, as more people migrate to warmer, southern states that are tax friendly.
Q: Which industries showed growth/declines in terms of employment and wages?
In recent months, the leisure and hospitality industry has shown the strongest results in both employment and wage growth. But, for the second consecutive month, leisure and hospitality had the largest slowdown, 0.48% in employment growth, though its small business employment growth rate remains well ahead of other sectors.
Interestingly, the construction industry has been one of the lowest performing industries for employment growth this year. When looking at the construction industry for wage insights, construction has been near the middle of the pack wage growth, and the top-ranked industry for hours worked.
Based on the data, we can reasonably conclude the workers currently in construction are working more hours to make up for some of the hiring challenges the industry is experiencing. With the rising costs and scarcity of materials for construction projects, and the volatility of the housing market, this industry may continue to fall to the bottom of industries for employment growth as many housing projects are put on hold.
Q: Were last month’s predictions accurate?
Predicting results and performances in the Small Business Employment Watch is never an exact science. In fact, it is normal and common for analysts to go back and adjust or validate results that may have differed from predictions and uncover the factors that may have impacted results. However, last month we anticipated more positive growth, and while the index slightly dipped, it still remains at a near record-high level.
Q: Any predictions or thoughts for next month’s report?
Inflation remains one of the biggest concerns for both consumers and businesses. While small and midsize businesses generally continue to meet their margins, the question remains, “How long will they be able to combat the impacts of inflation?” We’ll closely monitor this in the coming reports to see just how inflation impacts employment and wage growth,
In addition to inflation, another indicator to call attention to is consumer sentiment and consumer confidence, both of which are at the lowest levels that have been recorded since the mid-1940s. Many experts consider consumer sentiment and confidence as the fuel driving consumer spending and economic activity. Inflation, paired with supply chain constraints, is causing consumer confidence levels to drop, which in turn is showing up in decreasing consumer spending behaviors.
Q: Is there anything accountants should be aware of as they advise their clients with this month's results in mind?
As accountants are in the thick of tax season and preparing filings, it is important to keep in mind all the government aid and stimulus programs that were available to businesses under the American Rescue Plan Act (ARPA), including the Employee Retention Credit (ERTC) and Paycheck Protection Program (PPP). These tax credits and aid must be accurately reflected in a business’s tax filing.
For a full breakdown of the small business hiring and wage insights available from the Paychex | IHS Markit Small Business Employment Watch, visit www.paychex.com/watch.
Frank Fiorille is VP of risk management, compliance and data analytics at Paychex. He serves as one of the chief stewards of risk for the company, and he leads the implementation of all aspects of the risk function, including processes, tools, and systems to identify, assess, measure, manage, monitor, and report risks. In addition to his overall risk management responsibilities, Fiorille heads compliance, government relations, and data science at Paychex.
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