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

Paychex data also shows the January one-month annualized hourly earnings growth for employees of small businesses falls to its lowest level since 2020

ROCHESTER, N.Y., Jan. 31, 2023 /PRNewswire/ -- 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.

"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.

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

National Jobs Index

• The national jobs index (99.56) gained 0.18 percent in January, its first increase since January 2022.
• At 99.56, the jobs index improved to start 2023 (0.18 percent), but remains down 1.75 percent from last year.

National Wage Report

• Hourly earnings growth slowed to 4.66 percent in January, marking its lowest level since January 2022.
• At 2.88 percent, one-month annualized hourly earnings growth fell below three percent for the first time since 2020.
• 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.

Regional Jobs Index   

• All four regions reported gains in January, with the Midwest leading the way with a 0.35 percent increase.
• 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.

Regional Wage Report   

• At 5.02 percent, the South has led regions in hourly earnings growth since August 2022 and has reported growth above five percent since March 2022.
• Weekly hours worked growth in the Northeast is strongest among regions, reporting 0.22 percent 12-month growth and 2.56 percent one-month annualized growth.
• The Midwest ranks last among regions in hourly earnings ($29.32 per hour) and growth (4.53 percent).

State Jobs Index

• Hiring gains were broad-based as 15 of the 20 states analyzed reported increases in January.
• 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.
• Three states in the East North Central division have improved the most among states during the past quarter, Wisconsin (2.02 percent), Illinois (1.47 percent), and Indiana (1.27 percent).

Note: Analysis is provided for the 20 largest states based on U.S. population.

State Wage Report

• Florida hourly earnings growth (6.19 percent) remains the strongest among states for the past five months despite slowing for three consecutive months.
• Besides Florida, the only other states with hourly earnings growth above five percent in January are Missouri, Texas, Indiana, and Wisconsin.
• At 3.21 percent, Virginia ranks last among states in hourly earnings growth and has the lowest one-month annualized growth rate in January (1.66 percent).
• Ranked last among states two months ago, weekly hours worked growth in Florida now ranks third at 0.29 percent. One-month annualized growth was above five percent in both December and January.  

Note: Analysis is provided for the 20 largest states based on U.S. population.

Metropolitan Jobs Index 

• At 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.
• The only metros with an index below 98 all reside in California (Riverside, San Diego, and San Francisco).

Note: Analysis is provided for the 20 largest metro areas based on U.S. population.

Metropolitan Wage Report

• Miami ranks first among metros for both hourly (6.37 percent) and weekly (6.60 percent) earnings growth, and is the only metro with growth above six percent in both categories.
• At 0.49 percent, New York is the top-ranked metro for weekly hours worked growth in January.
• Hourly earnings growth in Riverside (4.84 percent) slowed quickly to begin 2023 as one-month annualized growth hit its lowest level (-2.82 percent) since 2014.

Note: Analysis is provided for the 20 largest metro areas based on U.S. population.

Industry Jobs Index

• At 100.33, leisure and hospitality gained 0.27 percent in January, increasing its pace of small business job growth for the third consecutive month.
• Improving to 98.94, construction gained 0.54 percent in January marking the strongest one-month change rate in nearly two years.
• Moderating 0.07 percent to 97.27, financial activities was the only sector to slow and remains in last place to begin 2023.

Note: Analysis is provided for seven major industry sectors. Definitions of each industry sector can be found here. The other services (except public administration) industry category includes religious, civic, and social organizations, as well as personal services, including automotive and household repair, salons, dry cleaners, and other businesses. 

Industry Wage Report 

• While hourly earnings growth slowed in all other sectors, leisure and hospitality accelerated to 6.82 percent in January.
• Education and health services growth ranks last among sectors for hourly earnings (3.88 percent), weekly earnings (3.70 percent), and weekly hours worked (-0.28 percent).
• Hourly earnings growth in construction moderated to 5.05 percent, but improved to third among sectors, trailing only leisure and hospitality (6.82 percent) and other services (5.10 percent).

Note: Analysis is provided for seven major industry sectors. Definitions of each industry sector can be found here. The other services (except public administration) industry category includes religious, civic, and social organizations, as well as personal services, including automotive and household repair, salons, dry cleaners, and other businesses.

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. 
[phone] 
[e-mail] 
@Paychex 

Kate Smith 
IHS Markit
[phone] 
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