Wages and hiring growing fastest among small businesses in Northeast amid coronavirus
Weekly earnings and the number of hours worked grew more strongly last month in the Northeast part of the country as COVID-19 lockdown restrictions eased, especially in states such as New York, New Jersey and Pennsylvania, according to payroll giant Paychex.
The Paychex | IHS Markit Small Business Employment Watch for August indicated that despite an overall flat level of new hiring since a drop-off in April, employees of small businesses are seeing some benefits from wage growth. Hourly earnings growth held steady at 3.28 percent in August, while weekly earnings continued to improve as the number of hours worked increases. Paychex’s national jobs index stayed relatively stable at 94.39, moderating only 0.21 percent from the previous month.
Following spikes in COVID-19 cases, the West and South showed the biggest declines in earnings in August, down 0.38 percent and 0.31 percent, respectively. The Northeast was the only region to improve from the previous month, but it was up a modest 0.02 percent.
The South ranked in last place among regions for growth in earnings and hours worked, and was the only region with hourly earnings growth below 3 percent and negative weekly hours worked growth. At 4.60 percent hourly earnings growth, the Northeast ranked in first place among regions. Growth in weekly earnings and hours worked was also strongest in the Northeast.
Despite a significant downturn in August, Florida continued to lead among the states on jobs. But Washington was the lowest ranked state, dropping further than Florida. It was more than a point below the next weakest state, New York. Missouri ranked in last place among states as recently as February, and now ranks second among states for the second consecutive month.
In terms of wages, New Jersey, Pennsylvania and Massachusetts had the strongest hourly earnings growth among the states. On the other side, Texas reported negative weekly earnings growth in August, with the weakest hourly earnings growth among the states and negative weekly hours worked. New York, meanwhile, had the strongest weekly hours worked growth among the states as the rate of COVID-19 cases has slowed in recent months.
“There are definitely strengths and correlations with some of the improvements in COVID cases in the Northeast,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “On the other side of that, because this reporting goes back to July 19 up until last week, even though Florida from an overall standpoint is still one of the strongest states, it had probably the biggest decrease on a month-to-month basis. We saw weakness on the employment side in Miami and Tampa. Some of the big cities in California and Texas also weren’t as strong. As hotspots pop up and businesses shut down and turn the lights shut off, you see that in our index as well. But from an overall standpoint, even though it was down this month, it’s pretty much back to where it sort of bottomed when it all hit in the summer. It’s almost better than what I had expected. You’ve probably seen bigger drops, and to me it says small businesses are hanging in there.”
In terms of job growth in metropolitan areas, Denver led the way by a wide margin, recovering 1.48 percent during the past quarter. On the other hand, Tampa and Miami both slowed nearly 1 percent in August. Hiring in Seattle was down 7.79 percent from last year, and Seattle remained the weakest metro area in terms of small business job growth.
On the wage side, Riverside, California had the strongest hourly earnings growth among metro areas, at 6.17 percent, while higher-wage California metro areas like San Diego, San Francisco and Los Angeles were all below 4 percent.
San Francisco, New York and Detroit led the way among metro areas in terms of growth in weekly hours worked, all above 1.5 percent year over year. Houston, conversely, ranked in last place among metro areas for growth in earnings and hours worked, and is the only metro with negative weekly earnings growth.
In terms of job growth among industries, construction led the way, followed by financial activities, which includes financial services, insurance and real estate. Financial activities was the only industry to improve in August in terms of hiring. The leisure and hospitality sector fell again, to 88.91, nearly four points lower than the next weakest sector, manufacturing, at 92.86 on the index.
In terms of wage growth among industries, the education and health services sector again reported the weakest hourly earnings growth among the various industry sectors. However, the one-month and three-monthly annualized rates are showing signs of strong upward movement, with both of them near or above 6 percent. Three other industries are reporting weekly earnings growth above 4 percent: other services (except public administration); trade, transportation and utilities; and construction. At 4.23 percent, hourly earnings growth in the construction industry has improved every month this year.
Fiorille believes it’s critical for Congress to provide more funding to small businesses, perhaps with another infusion in the Paycheck Protection Program. “One of the things we think is really driving all of that is obviously the monetary and fiscal policy help,” he said. “Specifically, PPP loans are really helping small businesses get through the summer and get to the other side. It’s just very critical that we get another package in September done, because I think small businesses do need that. It does work and it does help, and we’ve definitely seen that in the numbers.”
He said the Senate may be introducing a “skinny” bill next week with targeted aid to small businesses, as Democrats and Republicans remain unable to come to an agreement on a larger stimulus package. However, Congress also faces a deadline this month on funding to keep the government running, so that may force the hand of legislators and the Trump administration on a deal for aid to not only small businesses, but also for the unemployed.
Another pressing concern is the payroll tax deferral that President Trump ordered by executive action last month, which takes effect today. Last Friday, the Treasury and the Internal Revenue Service finally issued some of the guidance that payroll companies like Paychex have been awaiting, putting the onus on employers to ensure the deferred taxes are paid next year by employees (see story). But it still leaves many questions unanswered.
“The guidance that came out Friday was very, very limited, and I think many companies are still trying to figure out what they’re going to do and what it means,” said Fiorille.
“Watch that closely because it’s something that’s going to be very important,” he advises accountants.
Paychex employees have been meeting to deal with the guidance and how to implement it, while hoping more will be issued soon. “We’re meeting internally and really looking at it and hoping we get more guidance and asking for more clarification,” said Fiorille. “With that said, we are moving forward with our programming with what we know, and we’ll try to roll something out as soon as we can. Virtually nobody is doing it today, since we’ve basically got one day to do it. Even the federal government, I think, is not doing theirs until mid-September, from what I’ve read. We’re trying to educate businesses about what it means, and trying to give them some more options. There are a lot of complexities and nuances in this.”