Small Business Job Growth Improved for the Second Consecutive Month While Wage Inflation Continues to Cool

Paychex index data also shows weekly earnings growth hit a new record as small business employees work more hours per week to increase their paychecks

ROCHESTER, N.Y., March 7, 2023 /PRNewswire/ -- The rate of hiring for U.S. small businesses increased in February led by hiring in the leisure and hospitality industry according to the latest Paychex | IHS Markit Small Business Employment Watch. The Small Business Jobs Index, which measures national employment growth for businesses with fewer than 50 workers, continued to increase to 99.66 while the rate of hourly wage growth declined to 4.49 percent year-over-year in February. The one-month annualized hourly wage growth rate remained below four percent for the third consecutive month.

"Small businesses have posted positive job gains to begin 2023," said James Diffley, chief regional economist at IHS Markit. "At the same time, hourly wage increases are moderating, which is in the right direction for a soft landing."

"This employment growth and cooling wage inflation in February show small businesses are demonstrating resiliency as they navigate the current economic environment," said John Gibson, Paychex president and CEO. "Given the slowing wage increases, employees of small businesses seem to be contending with inflation by increasing their hours worked."

In further detail, the February report showed:

• At 99.66, the pace of small business employment growth improved in January (0.18 percent) and again in February (0.10 percent) to begin 2023.
• The national index (99.66) is down 1.64 percent from the record level set last February (101.33).
• At 100.84, leisure and hospitality improved for the fourth straight month and reported its largest one-month gain since January 2022.
• At 99.86, the Midwest has had the strongest one-month change rate among regions for the past three months. The Midwest, led by Illinois, has gained 0.77 percent during the past quarter.
• North Carolina gained 0.37 percent in February to improve its index to 102.57. North Carolina has ranked first among states since June 2022 and has had an index above 102 since October 2021.
• Houston (103.16) leads metros in the rate of small business employment growth in February. The next strongest metros, Chicago (101.55), Atlanta (101.47), and Phoenix (101.41), all trail Houston by more than a point and a half.
• Construction trails only leisure and hospitality in growth for hourly earnings (5.11 percent), weekly earnings (5.98 percent), and weekly hours worked (0.69 percent).
• Hourly earnings growth slowed further to 4.49 percent in February as one-month annualized growth remained below four percent for the third consecutive month.
• Due to the positive momentum in weekly hours worked, weekly earnings growth reached a new record level in February (5.09 percent) since reporting began in 2011.

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.

The complete results for February including interactive charts detailing all data, are available at www.paychex.com/watch. Highlights are available below. 

National Jobs Index

• At 99.66, the pace of small business employment growth improved in January (0.18 percent) and again in February (0.10 percent) to begin 2023.
• The national index (99.66) is down 1.64 percent from the record level set last February (101.33).

National Wage Report

• Hourly earnings growth slowed further to 4.49 percent in February as one-month annualized growth remained below four percent for the third consecutive month.
• Due to the positive momentum in weekly hours worked, weekly earnings growth reached a new record level in February (5.09 percent) since reporting began in 2011.
• Reporting strong gains to start 2023, one-month annualized weekly hours worked growth is averaging 2.76 percent in January and February.

Regional Jobs Index 

• The South leads regions in small business job growth for the eleventh consecutive month, though its index was unchanged in February at 100.82.
• At 99.86, the Midwest has had the strongest one-month change rate among regions for the past three consecutive months. The Midwest has gained 0.77 percent during the past quarter.
• The West ranked first among regions last February at 101.77, but has fallen 2.88 percent during the past 12 months to 98.84 in February 2023. The West has been below 99 since October.

Regional Wage Report 

• Hourly earnings growth is similar across the country, from a low of 4.34 percent in the Midwest to a high of 4.75 percent in the South.
• At 5.18 percent, the South leads weekly earnings growth among regions for the 15th consecutive month.
• Weekly hours worked has accelerated during the past six months in the Northeast; one-month annualized growth has averaged 2.09 percent since August 2022.

State Jobs Index

• North Carolina gained 0.37 percent in February to improve its index to 102.57. North Carolina has ranked first among states since June 2022 and has had an index above 102 since October 2021.
• Illinois (101.67) and Tennessee (100.49) are the only states with positive 12-month change rates, 1.60 percent and 1.37 percent, respectively.
• At 98.33, California ranks last among states for the first time since the beginning of the pandemic (March 2020). The California small business jobs index has decreased eleven times during the past 12 months.

State Wage Report

• Falling below six percent for the first time since April 2022, at 5.74 percent, Florida still leads states in hourly earnings growth for the eighth straight month.
• Florida (6.34 percent), Missouri (6.15 percent), and Indiana (6.06 percent) lead states with weekly earnings growth above six percent. Ten states have growth above five percent and only one state has growth below four percent.
• Virginia (2.98 percent) and Michigan (3.53 percent) are the only two states below four percent hourly earnings growth.

Metropolitan Jobs Index 

• Houston (103.16) leads metros in the rate of small business employment growth in February. The next strongest metros, Chicago (101.55), Atlanta (101.47), and Phoenix (101.41), all trail Houston by more than a point and a half.
• Falling to 100.18 and ninth among metros, Dallas had the weakest one-month change rates in both January (-1.23 percent) and February (-0.64 percent).
• The five weakest metro indexes are all located on the West Coast, four metros in California (San Diego, Riverside, San Francisco, and Los Angeles), and Seattle.

Metropolitan Wage Report

• At 6.08 percent, Miami continues to lead metros in hourly earnings growth while slowing consistently during the past several months.
• Weekly hours worked growth in Dallas (-1.16 percent) is last among metros and has slowed precipitously in recent months. Dallas is the only metro with negative one-month and three-month annualized growth rates, -2.33 percent and -1.95 percent, respectively.
• The Washington metro ranks last in both hourly earnings growth (3.46 percent) and weekly earnings growth (3.91 percent).

Industry Jobs Index

• At 100.84, job growth in leisure and hospitality improved for the fourth straight month and reported its largest one-month gain (0.51 percent) since January 2022.
• Manufacturing (97.79) is down 2.60 percent from last year and has been below 98 for the past six months.
• Other services (101.98) remains the top sector for small business job growth in February, though the pace is 1.57 percent slower compared to last year.

Industry Wage Report 

• Leisure and hospitality ranks first among sectors in growth for hourly earnings (6.83 percent), weekly earnings (9.20 percent), and weekly hours worked (1.55 percent).
• Construction trails only leisure and hospitality in growth for hourly earnings (5.11 percent), weekly earnings (5.98 percent), and weekly hours worked (0.69 percent).
• Education and health services is the only sector with hourly earnings growth below four percent (3.81 percent).
• With a spike in weekly hours worked, one-month annualized weekly earnings growth reached double-digits in four of the eight sectors analyzed (leisure and hospitality, other services, construction, and trade, transportation, and utilities).

For more information about the Paychex | IHS Markit Small Business Employment Watch, visit www.paychex.com/watch and sign up to receive monthly Employment Watch alerts.

*Information regarding the professions included in the industry data can be found at the Bureau of Labor Statistics website.

About the Paychex | IHS Markit Small Business Employment Watch

The Paychex | IHS Markit Small Business Employment Watch is released each month by Paychex, Inc., a leading provider of integrated human capital management software solutions for human resources, payroll, benefits, and insurance services, and IHS Markit, a world leader in critical information, analytics, and expertise. Focused exclusively on small business 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. Drawing from the payroll data of approximately 350,000 Paychex clients, this powerful tool delivers real-time insights into the small business trends driving the U.S. economy.

About Paychex

Paychex, Inc. (NASDAQ:PAYX) is a leading provider of integrated human capital management solutions for human resources, payroll, benefits, and insurance services. By combining innovative software-as-a-service technology and mobility platform with dedicated, personal service, Paychex empowers business owners to focus on the growth and management of their business. Backed by 50 years of industry expertise, Paychex serves more than 730,000 payroll clients as of May 31, 2022 in the U.S. and Europe, and pays one out of every 12 American private sector employees. Learn more about Paychex by visiting www.paychex.com and stay connected on Twitter and LinkedIn. 

About IHS Markit (www.ihsmarkit.com) IHS Markit (NYSE:INFO) is a world leader in critical information, analytics and solutions for the major industries and markets that drive economies worldwide. The company delivers next-generation information, analytics and solutions to customers in business, finance and government, improving their operational efficiency and providing deep insights that lead to well-informed, confident decisions. IHS Markit has more than 50,000 business and government customers, including 80 percent of the Fortune Global 500 and the world's leading financial institutions. Headquartered in London, IHS Markit is committed to sustainable, profitable growth.

IHS Markit is a registered trademark of IHS Markit Ltd. and/or its affiliates. All other company and product names may be trademarks of their respective owners © 2021 IHS Markit Ltd. All rights reserved.

Media Contacts

Chris Muller

Paychex, Inc.

+1 585-338-4346

cmuller@paychex.com 

@Paychex 

Kate Smith

IHS Markit

+1 781-301-9311

katherine.smith@ihsmarkit.com 

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