Small business hiring and wage growth slowed in July

Hiring slowed for the fifth month in a row in July, according to payroll processor Paychex, while the pace of wage increases also declined from June.

Paychex reported Tuesday that its jobs index in all regions declined in July, with the West slipping the most by 0.81%. The South continues to be the strongest region for small business employment growth, while North Carolina was the new top state in terms of job growth. Meanwhile, Florida was the new top state when it came to hourly growth earnings. As for metropolitan areas, Dallas continued to lead the way in July on both small business job growth and hourly earnings growth for workers.

“The growth has slowed and it has been slowing for several months,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “We think, when we talk to small and medium-size businesses, the mom and pop shop, it’s really more of a supply than a demand issue. We’re hearing and from some of the data we’ve been able to compile, that businesses are still having a hard time finding, attracting and retaining employees. That’s why you’re not seeing the growth.”

In terms of industries, the umbrella category of “other services (except public administration)” remained the top sector for job growth in July, but the leisure and hospitality sector continued to lose ground. Leisure and hospitality declined 1.99% in July, the largest decrease among sectors for the sixth consecutive month. Hourly earnings growth of 6.28% in leisure and hospitality slowed for the sixth straight month, while one-month annualized hourly earnings fell to 1.78%. Construction was the only sector with positive weekly hours-worked growth of 0.38%, while leisure and hospitality ranked lowest, declining 1.64%.

“When you really look at it, the drop is really in the leisure and hospitality sector,” said Fiorille. “That sector for the month is down almost 2%. That’s where businesses are having a hard time finding people.”

Accountants should advise their small business clients to keep an eye out for possible changes coming out of Washington in corporate taxes, after Sen. Joe Manchin, D-West Virginia, agreed to a deal with Senate Majority Leader Chuck Schumer, D-New York, on a minimum tax rate of 15%, along with changes in the carried interest tax break used by hedge fund managers and private equity firm partners to qualify for the lower capital gains rate. The deal also includes extra funding for the Internal Revenue Service. The deal also includes tax credits for renewable energy and electric vehicles as part of a larger climate change package. Most of the tax provisions will affect larger corporations, and a provision on taxes for some pass-through businesses appears to be out for now. However, the package could go through further changes as Democrats try to persuade Sen. Kyrsten Sinema, D-Arizona, to support it, when she has historically opposed tax increases. It is not expected to attract any votes from Republicans, so it will need unanimous support from Democrats in order to pass the Senate and near unanimous support from Democrats in the House.

“That’s the key thing to watch if that gets passed or not,” said Fiorille. “What does that mean? It sounds like the pass-through tax that was being proposed is not in there now, which I think is good news. Let’s see if there’s some last-minute deal to get it approved, and if they change that or change other things.”

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