June 25, 2021

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Small business job and wage growth slowed slightly in May

3 min read

The rate of growth in jobs and wages at small businesses essentially flattened last month, according to payroll giant Paychex.

The Paychex | IHS Markit Small Business Employment Watch indicated that job growth slowed 0.07% in May. While the rate of job growth in the leisure and hospitality sector increased 1.94% in May, it slowed in the construction industry by 1.78% with constraints in the supply chain for building materials dampening jobs. Hourly and weekly earnings growth fell below 3% in May due to part-time workers with lower wages returning to the workforce.

The slowdown echoes the unexpected slump in job growth in April reported last month by the U.S. Bureau of Labor Statistics, which is due to report on the May job numbers this Friday. While the economy has been strengthening thanks to the wide availability of vaccines, and that has been fueling job growth in the leisure and hospitality sector, inflation and labor shortages are putting the brakes on job growth. The leisure and hospitality sector is up 12.4% this past quarter, according to Paychex.

“From an overall standpoint, it was a pretty solid month, but kind of flattish,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “Under the hood, this month the leisure and hospitality sector was once again very strong.”

It’s a different story in the construction industry. “The construction sector was really weak,” said Fiorille. “That had been the outperformer for several months, but that dropped off. It validates all the issues around the supply chain and getting parts to build things.”

The South continued to lead among different regions of the country in small business job growth, while Texas again took the top ranking for job growth among states, and Tampa led among metropolitan areas in terms of small-business job growth.

Growth in weekly hours worked slowed to 0.09% in May, but remains positive year-over-year. The Midwest experienced continued wage declines, but the West has gained, perhaps reflecting different degrees of reopening. The West and Northeast both saw hourly earnings growth above 3% in May.

“If you specifically look at the one-month wage number, that was very strong,” said Fiorille. “I think that is due to all the buzz about how businesses are having a hard time getting people come back to work, with front-level service jobs. What they’re having to do is to pay them more money. We’re definitely seeing that in the data, and we’ll see what happens as we get through the summer. Some of the states are unwinding the $300 [unemployment] benefit this month and next month and I wonder if that’s going to change.”

Missouri led among the states on hourly earnings growth in May at 3.92%, followed by New Jersey at 3.65% and Massachusetts at 3.50%. Georgia and California had the strongest weekly earnings growth, both above 4%. Illinois ranked in last place on weekly earnings growth and was the only state below 2%.

Accountants can help their small-business clients with the Employee Retention Credit and any remaining programs from the Small Business Administration, now that the Paycheck Protection Program expired over the weekend. “The PPP is pretty much done, but there are still things out like there like tax credits that they probably can still get,” said Fiorille. “They should reach out to their CPAs, specifically on the retention credit and other things that are going to be ending at the end of the year. Look into that because they could actually be receiving some money on that.”