The State of Small Businesses: Hiring and Wages Are Up, but Growth Slowing

The latest Small Business Employment Watch report from Paychex and IHS Markit has come out, reporting that, on average, job growth and employee wages both continue to grow amongst small businesses.

What is the Small Business Employment Watch?

The Small Business Employment Watch is a monthly report from economic forecasting firm IHS Markit, in collaboration with SMB payroll solutions company Paychex. It draws from payroll data of 350,000 Paychex clients to determine wage and employment trends amongst small businesses. The report has two main sections: the Jobs Index, which reports on hiring trends, and Wage Data.

What does the report show?

The June report is a mixed bag of positives and negatives when it comes to small business hiring and wages. Overall it shows that the small business economy is in recovery from the damage of coronavirus, but that growth might be slowing.

1. Businesses are hiring more than last year

SMBs are hiring more people than they have in years, indicating that the small business job market is recovering well from coronavirus. The Jobs Index, which measures year-over-year worker count changes, is at 100.81. That’s up 2.32% since last year and represents the highest hiring rate since June 2016.

2. Hiring growth is slowing

Hiring may be the strongest it’s been in years, but the trend might be changing. The Jobs Index dropped 0.06% this month compared to last month. That’s the fourth month in a row where hiring growth has fallen.

3. Wages are up

On average, workers across all industries are getting paid more. Wage Data reveals that hourly wages are higher than any previous June at 5.10%, and weekly earnings are up for the fourth month in a row.

4. Hours are down

While workers are getting paid more per hour and per week, they’re getting fewer shifts. Year-on-year weekly hours worked have declined for 14 months.

5. Wage growth is slowing

Wages have been steadily increasing for over a year, but this month that changed. Hourly earnings increased 5.16% in May, meaning the figures for this month show a decline in wage growth. This is the first month hourly wage growth has slowed since May 2021.

6. Workers in Southern states worked the most hours

On average, businesses in the South of the US, from Texas to Florida, worked an average of 33.18 hours per week, more than the Northeast, Midwest, and West. At the state level, Texas leads the country in hours worked, the only state where employees worked more hours than last month (up 0.07%).

7. Ohio and Dallas lead the country in pay raises

Ohio is the single state with the overall highest wage increases over the past year: up 6.32% in hourly wages and 5.94% in weekly wages. Virginia brings up the rear with the lowest hourly wage increase, 3.34%. However, when you look just at major metropolitan areas, the highest wage increases go to Dallas, TX, at 7.10%. The metro area with the lowest wage increase is Washington, the only metro area where pay growth was below 4%.

8. Leisure and hospitality work the least and get paid the most

The highest growth in hourly earnings was in leisure and hospitality businesses: up 7.49% this month. At the same time, when it comes to time worked, leisure and hospitality saw the biggest drop, with weekly hours decreasing by 1.97%.

What does this mean for small businesses?

There are lots of ways to interpret the data in this June report. Wages increasing is a good thing for employees, while hours decreasing could suggest businesses can’t afford to sustain those wages. Could the slow in both hiring growth and wage growth represent an incoming dip for both? At this stage, it’s hard to know for sure. Stay tuned for the next Small Business Employment Watch report to see if these trends continue.