Small Business Wage Growth Moderated as 2022 Closed

Paychex data also reveals that small business job growth remains steady

On Jan 3, 2023

The rate of hourly wage growth for U.S. small businesses continued to decline to 4.95% year-over-year in December, according to the latest Paychex | IHS Markit Small Business Employment Watch. Additionally, the Small Business Jobs Index, which measures national employment growth for businesses with fewer than 50 workers, remained unchanged from the previous month at 99.38.

“The Paychex | IHS Markit Small Business Jobs Index flattened in December, following nine-months of moderation. Additionally, small business hourly wage growth is starting to slow as the Fed takes measures to fight inflation,” said James Diffley, chief regional economist at IHS Markit.

“Despite various headwinds including inflation, difficulties in staffing, and changing regulations, U.S. small businesses have continually proven to be innovative and resilient through the challenges presented to them since the start of the pandemic,” said John Gibson, Paychex president and CEO. “As we enter 2023, small business owners and their employees are working more hours and finding ways to deal with inflation and higher credit costs.”

In further detail, the December report showed:

• At 99.38, the December 2022 national jobs index was unchanged from the previous month and remains a full point higher than the monthly average during the year leading up to the pandemic (March 2019 – February 2020).
• Hourly earnings growth year-over-year slowed to 4.95% in December, its weakest level since March 2022.
• One-month annualized hourly earnings growth was below 4% for the third time during the past four months.
• At 0.48%, one-month annualized weekly hours worked growth was positive for the fourth consecutive month.
• Leisure and hospitality continue to rank first among sectors in hourly earnings growth (6.75%) and last in weekly hours worked growth (-0.52%).
• The jobs index in the South improved for the third consecutive month, increasing to 100.72. The South has led the pace of small business growth among regions for the past nine months.
• Tennessee improved 3.20% in 2022, representing the highest growth rate among states. Although Tennessee ranked last among states one year ago in December 2021, the state now ranks seventh at 100.34.
• Houston (102.75) and Dallas (102.08) have the two strongest jobs indexes among metros for the seventh consecutive month.

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.

National Jobs Index

• At 99.38, the December 2022 national jobs index was unchanged from the previous month.
• The national jobs index slowed 1.54% during the past 12 months, but has leveled off in recent months to end 2022.

National Wage Report

• Hourly earnings growth over the previous 12 months slowed to 4.95% in December, its weakest level since March 2022.
• One-month annualized weekly earnings growth was below 4% for the third time during the past four months.
• At 0.48%, one-month annualized weekly hours worked growth was positive for the fourth consecutive month. 12-month weekly hours worked growth (-0.27%) remains negative, however, for the 20th consecutive month.

Regional Jobs Index

• The jobs index in the South improved for the third consecutive month, increasing to 100.72. The South has led the pace of small business growth among regions for the past nine months.
• Ranked first among regions last December at 101.22, the West region slowed 2.52% during 2022 and now ranks lowest among regions at 98.67.

Regional Wage Report

• At 5.50%, the South is the only region with hourly earnings growth above 5% and has had the strongest rate for the past three quarters.
• The South has ranked first among regions in earnings growth and last in hours worked growth for the past quarter. Conversely, the Northeast has ranked last in earnings growth and first in hours worked growth for the past seven months.
• Weekly earnings growth in the West quickly slowed during the past two months to 4.48% in December. One-month annualized weekly earnings growth in the West was below 2% in both November and December.

State Jobs Index

• North Carolina (102.26) and Texas (101.96) continue to lead states in the rate of small business job growth by a wide margin in December.
• Tennessee’s index (100.34) improved 3.20% in 2022, representing the highest growth rate among states.
• Tennessee ranked last among states in December 2021 and now ranks seventh at 100.34.
• West Coast states Washington (-3.03%) and California (-2.92%) have the weakest 12-month change rates among states.
• Of the 20 states analyzed, 10 states increased and ten states decreased in December.

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

State Wage Report

• Florida (6.44%) leads states in hourly earnings growth, followed by Missouri and Texas, which also have growth above 6%.
• Virginia (3.35%) ranks last among states in hourly earnings growth for the seventh consecutive month.
• Likely an impact of from Hurricane Ian, one-month annualized weekly hours worked growth spiked to 4.32% in Florida, the highest rate in more than two years. For context, Florida’s result is two and half times higher than the next state, New Jersey at 1.73%

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

Metropolitan Jobs Index

• Houston (102.75) and Dallas (102.08) have the two strongest jobs indexes among metros for the seventh consecutive month.
• Riverside slowed 0.79% from last month and 4.48% from last year as its index fell to last place among metros (96.90).
• With the exception of a 0.02% uptick in September, Minneapolis slowed every month in 2022 for a total decline of 4.13%. Minneapolis closed 2021 with an index of 103.63 and 2022 with an index of 99.35.

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

Metropolitan Wage Report

• Miami tops metros in both hourly earnings growth (6.61%), as well as weekly earnings growth (6.27%).
• San Francisco ($39.45/hour) and Washington ($38.73/hour) have the highest hourly rates among metros by a wide margin, but rank in the bottom three for growth in December.
• Weekly earnings growth in Detroit slowed to 3.09%, weakest among metros. One-month weekly earnings annualized growth in Detroit fell to its lowest level since 2020, -1.76%.
• San Francisco is the only metro with positive weekly hours worked growth (0.04%).

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

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