Wage Inflation for U.S. Small Business Continues to Decline; Rate of Small Business Hiring Remains Strong

The rate of hourly wage growth for U.S. small businesses continued to decline to 4.66 percent year-over-year in January according to the latest Paychex | IHS Markit Small Business Employment Watch. Additionally, the one-month annualized earnings growth fell to 2.88 percent in January, the lowest level since December of 2020. The Small Business Jobs Index, which measures national employment growth for businesses with fewer than 50 workers, rose by 0.18 percent to 99.56.

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“Our small business wage data indicates that wage gains are moderating, as has been the aim of monetary policy by the Fed,” said James Diffley, chief regional economist at IHS Markit.

“Although small businesses have struggled in attracting and retaining employees over the past two years, the job index shows they continue to make gains in hiring with the easing of wage increases,” said John Gibson, Paychex president and CEO. “The wage index also shows that employees of small businesses are increasing their hours worked to increase their earnings.”

In further detail, the January report showed:

  • The national jobs index (99.56) gained 0.18 percent in January, its first increase since January 2022.
  • At 2.88 percent, one-month annualized hourly earnings growth fell below three percent for the first time since 2020.
  • Hourly earnings growth slowed to 4.66 percent in January, marking its lowest level since January 2022.
  • One-month annualized weekly hours worked growth (1.56 percent) is at its highest level since mid-2020 and was positive for the fifth consecutive month.
  • Weekly hours worked growth turned positive (0.02 percent) for the first time since April 2021.
  • All four regions reported job gains in January and 15 of 20 states analyzed saw increases.
  • The South gained 0.10 percent in January to 100.82, marking its fourth consecutive increase and tenth consecutive month as the top-ranked region for small business employment growth.
  • North Carolina (102.19) moderated 0.07 percent in January, but remains the top state for small business employment growth for the seventh straight month.
  • At a jobs index of 103.00, Houston leads metros by a wide margin in January as previously second-ranked metro Dallas fell 1.23 percent to 100.82 and fifth among metros.
  • Improving to 98.94, construction gained 0.54 percent on the jobs index in January marking the strongest one-month change rate in nearly two years.
  • While hourly earnings growth slowed in all other sectors, leisure and hospitality accelerated to 6.82 percent in January.

Paychex solutions reach 1 in 12 American private-sector employees, making the Small Business Employment Watch an industry benchmark. Drawing from the payroll data of approximately 350,000 Paychex clients with fewer than 50 employees, the monthly report offers analysis of national employment and wage trends, as well as examines regional, state, metro, and industry sector activity.

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Hourly earnings growthJohn GibsonPaychexSmall Business Employment Watchwage inflation
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