U.S. Small Business Job Growth Continues as Wage Inflation Moderates to Close 2023

Rhea-AI Summary

Paychex (PAYX) reports that U.S. small businesses experienced job growth for all of 2023, with the Small Business Jobs Index closing the year at 101.21 (1.2% growth). Hourly earnings growth for U.S. workers in December was down from 4.93% in December 2022 to 3.48% in December 2023.

Insights

Economist

The data from the Paychex Small Business Employment Watch indicating a full year of job growth in 2023 and a 33-month streak of employment increases is a robust sign of economic resilience within the small business sector. This trend suggests that despite potential macroeconomic headwinds, such as inflationary pressures and interest rate hikes, small businesses have managed to sustain and even expand their workforce. The slowing of hourly earnings growth from 4.93% to 3.48%, however, could be a reflection of the Federal Reserve's monetary policy measures to cool down inflation. A deceleration in wage growth might alleviate some inflationary concerns but could also impact consumer spending power, which is a critical driver for economic growth.

Furthermore, the ability of small businesses to continue job creation without significant wage inflation suggests a potential 'soft landing' scenario, where the economy slows down enough to curb inflation without triggering a recession. However, the long-term implications of a tight labor market on small business operations, including the need for increased labor force participation and the quality of the workforce, remain a concern. The balance between controlling inflation and maintaining economic momentum will likely be a delicate task for policymakers moving forward.

Market Research Analyst

From a market perspective, the steady job growth among U.S. small businesses can be seen as a positive indicator for consumer confidence and spending, which in turn can have favorable effects on the stock market. Small businesses are often seen as a barometer for the broader economy and their ability to add jobs consistently over a prolonged period could signal underlying economic strength. However, the reported slowdown in wage growth might suggest that employees' disposable income could be tightening, potentially affecting sectors reliant on discretionary spending.

Investors may interpret the slowing wage inflation as a sign that the Federal Reserve's policies are effectively managing the economic landscape, which could lead to a more stable interest rate environment. This may have positive implications for businesses sensitive to borrowing costs, such as those in the real estate and construction sectors. On the flip side, if wage growth continues to decelerate, it may lead to decreased consumer spending, which could negatively impact retail and consumer goods industries that are heavily dependent on robust consumer spending patterns.

Financial Analyst

Analyzing the financial implications of the reported job and wage growth trends, it is apparent that small businesses could be facing a squeeze on their profit margins. While job growth is generally a positive development, the combination of a tight labor market and slowing wage growth may indicate that businesses are hiring but are cautious about increasing pay. This could be a strategy to manage costs in anticipation of economic uncertainties. The stock market typically reacts to such trends with a sector-specific approach; companies that provide services or products to small businesses might see increased demand, while consumer-oriented companies might face challenges if wage growth continues to slow and affects consumer purchasing power.

Additionally, the trend of slowing wage growth, while beneficial for inflation control, could impact sectors like financial services, as consumers may have less money to invest or save. The long-term outlook for small businesses will hinge on their ability to navigate the challenges mentioned, such as regulatory changes and access to capital. Investors will need to monitor these developments closely as they can have material effects on stock valuations, particularly in sectors where small businesses are key customers or suppliers.

ROCHESTER, N.Y.--(BUSINESS WIRE)-- U.S. small businesses experienced job growth for all of 2023 and extended a cycle of consistent job growth for 33-straight months, according to December data from the Paychex Small Business Employment Watch. The Small Business Jobs Index closed the year at 101.21 (1.2% growth), while hourly earnings growth for U.S. workers in December (3.48%) was down from 4.93% in December of 2022.

U.S. small businesses experienced job growth for all of 2023, according to December data from the Paychex Small Business Employment Watch. (Graphic: Business Wire)

“As the Paychex Small Business Employment Watch has consistently shown all year, the resiliency of the small business community has allowed them to meet the many challenges of 2023 and continue to grow,” said John Gibson, Paychex president and CEO. “Wage inflation also continues to slow indicating that the actions taken by the Fed are having their desired effect on inflation.”

“With a prolonged tight labor market challenging employers to find and retain qualified workers, policymakers should focus their efforts on increasing the participation rate and quality of the U.S. workforce. The Fed’s actions appear to be driving a soft landing as we’ve seen wage inflation normalize without negative impacts on job growth across the U.S. As we look ahead to 2024, small businesses will need to continue to show their resilience as they face many of the same challenges of 2023, such as retaining and attracting quality employees, accessing affordable growth capital, and navigating even more government regulations,” Gibson added.

2023 Year in Review

• Nationally, small businesses have experienced job growth for all of 2023, extending a streak of consistent job growth to 33-straight months.
• In 2023, wage growth continued to slow through the year, decreasing about one and a half percent from 4.93% in December 2022 to 3.48% in December 2023. In addition, weekly hours worked growth in 2023 was the most stable it has been since 2018.
• All 20 of the largest U.S. states reported positive job growth to end 2023 and eight of those increased their rate of job growth during 2023.
• At 101.75, the South led regions in December and had the strongest rate of job growth for 11 of 12 months in 2023, while the West region slowed the most during 2023 (1.11 percentage points).

December 2023 Highlights

• In December, small business job growth increased by 1.21%, standing at 101.21.
• Hourly earnings growth for U.S. workers in December (3.48%) was relatively unchanged since November (3.47%).
• The average pace of job growth in 2023 remained above the growth rate leading up to the pandemic (March 2019 – February 2020) when it was 101.10.
• At 100.66 in December, Leisure and Hospitality slowed its pace of job growth the most among sectors (2.46 percentage points) and, while the sector started 2023 first, it ended ranked sixth in job growth.

The complete Small Business Employment Watch results for December 2023, including interactive charts detailing the data at a national, regional, state, metro, and industry sector level are available at www.paychex.com/watch. Learn more and sign up to receive monthly Employment Watch alerts.

About the Paychex Small Business Employment Watch*

The Paychex Small Business Employment Watch is released each month by Paychex, Inc. Focused exclusively on businesses with less than 50 workers, the monthly report offers analysis of national employment and wage trends, as well as examines regional, state, metro, and industry sector activity. Drawing from the payroll data of approximately 350,000 Paychex clients, this powerful industry benchmark delivers real-time insights into the small business trends driving the U.S. economy.

* Editor’s Note: For detail on the new methodology of the Small Business Jobs Index, refer to “Understanding the Index” on the Paychex Small Business Employment Watch site. Wage data is unchanged by the update.

About Paychex

Paychex, Inc. (Nasdaq: PAYX) is an industry-leading HCM company delivering a full suite of technology and advisory services in human resources, employee benefit solutions, insurance, and payroll. The company serves approximately 740,000 customers in the U.S. and Europe and pays one out of every 12 American private sector employees. The more than 16,000 people at Paychex are committed to helping businesses succeed and building thriving communities where they work and live. Visit paychex.com to learn more.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240103122513/en/

Media

Chris Muller

Paychex, Inc.

585-338-4346

cmuller@paychex.com

@Paychex

Colleen Bennis

Matter Communications

Account Director

+1 (585) 666-9510

cbennis@matternow.com

Source: Paychex, Inc.

FAQ

What is the Small Business Jobs Index for 2023?

The Small Business Jobs Index closed the year at 101.21, indicating a 1.2% growth.

How has hourly earnings growth for U.S. workers changed from 2022 to 2023?

Hourly earnings growth for U.S. workers decreased from 4.93% in December 2022 to 3.48% in December 2023.

What is the opinion of John Gibson, Paychex president and CEO, on the small business job growth in 2023?

John Gibson stated that the resiliency of the small business community has allowed them to continue to grow despite the challenges of 2023.

What are the challenges that small businesses will face in 2024 according to John Gibson?

John Gibson mentioned that small businesses will need to continue to show their resilience as they face challenges such as retaining and attracting quality employees, accessing affordable growth capital, and navigating government regulations in 2024.