Small Business Hiring in July Puts Cloud Over Unemployment Data

There is a saying that small businesses collectively make up the heart of America. This has been challenged during the new COVID-19 pandemic, as many small businesses have no means to operate normally or after having been forced to close down. Economists look closely ahead of each monthly unemployment and payrolls report at hiring trends in the private sector and in small businesses.

A fresh report from Paychex and IHS Markit tracks the Small Business Employment Watch. The trends show that employment at small business is seeing its rebound moderate covering July, and the South and West regions posted the largest declines, while local COVID-19 cases surged. The report also showed that the Northeast continues to lag, while the Midwest demonstrated the greatest stability.

July’s national jobs index fell by 0.24% in July to 94.59. The index also indicated that hourly earnings growth slowed slightly to 3.29% in July. Total earnings rose by 4.14% in July due to increasing hours worked. July’s average hourly earnings were listed as $28.08.

As this is a report on small businesses, it will not be possible to use the full report as a barometer for the unemployment and total nonfarm payrolls report that is coming from the U.S. Department of Labor on Friday. Another issue in this Paychex/IHS Markit report is that the jobs data for July had a cut-off date of July 23, which is later than the government data cut-off date.

The South was −0.31% and the West was −0.33%. Florida did slow as its COVID-19 cases spiked, but it remained the top state for small business employment growth in July. Seattle was the city where small business jobs growth fell by 1.89% in July, with its index reading of 91.05 listed as the lowest among all U.S. metros.

Paychex also noted that the financial industry sector was the only sector that showed gains in small business employment growth in July.

A report from ADP will be released on Wednesday morning and will act as a better and more direct guide for what trends may be expected for Friday’s Labor Department report. Econoday is calling for private sector payrolls to have risen by 1.888 million jobs in July, after having added 2.37 million payrolls in June.

The current consensus data from Econoday for Friday’s Labor Department report calls for 2 million nonfarm payroll additions (versus 4.8 million in June) and for unemployment to be down 0.6 points to 10.5%. Those figures could change handily between now and Friday morning, if the ADP data on Wednesday and if the weekly jobless claims data on continuing claims from two weeks ago come in drastically different than expectations.