Growth in hourly earnings for small-business workers fell to 2.89% in August, Paychex reported Tuesday, the first time growth was below 3% since January 2021.

The year-over-month growth in hourly earnings also fell to 1.91%. “One thing I’m really watching closely is that monthly number, which, while there’s a lot of variability to it, is more of a leading indicator,” said Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex. “And at less than 2%, that’s pretty low. From a general perspective, we haven’t seen a drop below 3% in quite some time, since January 2021. These are small, family-owned Main Street businesses with less than 50 (employees). Wages are clearly down. They’re still growing, but the growth is slowing.”

However, job growth remained steady, with the national small business jobs index averaging 100.37 in the first eight months of 2024, indicating moderate employment growth. The report comes just days before a highly anticipated employment report from the U.S. Bureau of Labor Statistics, whose previous report revealed a slowdown in hiring in July, followed by downward revisions to the numbers for recent months.

This Paychex Small Business Employment Watch had a national employment rate of 99.89 in August, up 0.02 percentage points from July. But it was still just below 100, indicating nominal year-on-year declines in employment.

“Employment has probably surpassed inflation as the biggest macroeconomic indicator that everyone is looking at right now,” Fiorille said. “From a general perspective, the good news is that it hasn’t fallen any further. We had a small decline last month, but it’s been pretty steady this month.”

The number of weekly hours worked nationally (-0.08%) remained negative year-on-year for the 17th consecutive month, although the monthly year-on-year increase was positive for the first time since January.

The Midwest (100.50) remained the region with the highest small business employment growth for the third consecutive month. Indiana (101.87), which led the region and the nation, was again the state with the highest small business employment growth in August and is the only state with a positive 12-month change rate (0.26 percentage points).

Education and health services (101.87) continued to be the industry sector with the nation’s highest job growth for the third month in a row. “Education and health services has been the highest for almost the last quarter, for three months in a row,” Fiorille said. “At almost 102, that’s a pretty good increase.”

Ranking first among regions for the 15th consecutive year, the West (3.55%) was the only region to post hourly earnings growth above 3% in August. “California had a pretty good month,” Fiorille said. “It looked like California was rebounding. It’s such a big state and it can really deliver. We’re always watching that closely.”

For the tenth month in a row, construction led the growth of industries in hourly earnings (3.66%), weekly earnings (3.81%) and weekly hours worked (0.27%). “Construction has been leading the way in earnings for a very long time,” Fiorille said.

He thinks accountants should be watching out for the impact of the November election this fall, especially when it comes to tax policy. “We’re really watching what happens in the upcoming election,” Fiorille said. “There are a lot of things happening on the tax side that we’re still lobbying for and watching for our small business clients.”

He also drew attention to the potential impact The Supreme Court’s June ruling in the Loper Bright Enterprises case reversing decades of Chevron rulings that gave deference to federal regulators. “Watch this carefully and see what happens to the agency’s authority and whether it starts to have any impact on the financial community, accountants and small businesses,” Fiorille said.