Growth in small business jobs and wages declined last month as a result of the novel coronavirus pandemic, according to payroll giant Paychex.
The latest Paychex | IHS Markit Small Business Employment Watch report, released Friday, indicates the impact of the increasing number of COVID-19 cases on small businesses in the U.S. The Jobs Index exhibited a slowing of 0.24 percent in December to 94.06, a decline of 4.18 percent from the previous year. A decrease in weekly hours worked, and the deceleration of hourly earnings growth to 2.63 percent, brought national weekly earnings growth to 2.42 percent.
Gregory A. Bocchino, partner – tax at KPMG LLP, is the national leader of KPMG's Accounting Methods and Credits practice and has more than 20 years of federal income tax accounting methods and credits experience.
Ajay Wanchoo, managing director – tax at KPMG LLP, leads transformation initiatives with a global team of specialist engineers and business experts and contractors, who provide deep technical analysis of client IT investments and develop client-facing solutions in the cloud leveraging artificial intelligence and other emerging technologies.
Joshua Ronen is a professor of accounting at New York University Stern School of Business and co-editor of the "Journal of Law, Finance, and Accounting." Professor Ronen teaches courses in managerial accounting, financial accounting, advanced topics in financial accounting, and financial statements analysis. Ronen has been with NYU Stern for nearly 45 years. His primary research areas include capital markets, disclosure, earning management, economic impact of accounting rules and regulations, financial reporting, legal liability of firms, transfer pricing, agency theory, corporate governance, and fair valuation. Ronen has written numerous books including "Accounting and Financial Globalization," "Off-Balance Sheet Activities," "Entrepreneurship," "Smoothing Income Numbers: Objectives, Means and Implications," and "Earnings Management." He has been published in many academic journals including and publications including The New York Times, The Accounting Review, Journal of Accounting Research, Journal of Accounting, Auditing and Finance, Abacus, Management Science, Journal of Public Economics, Journal of Organizational Behavior and Human Performance, Stanford Journal of Law, Business, and Finance, and Journal of Financial Markets. In addition to his work at NYU Stern, Ronen has lectured at University of Canterbury, Tel-Aviv University, Federal University of Rio de Janeiro, National University of Mexico, University of Toronto, University of Chicago, Hebrew University, and London School of Economics among many others. He has also been a consultant for numerous organizations, including especially law firms as expert witness in the area of securities litigation. His suggestions for reform in the accounting profession have received critical acclaim by legislators and in the media. Ronen received his Bachelor of Arts in Economics and Accounting at Hebrew University in Israel, and his Doctor of Philosophy from Stanford University. Professor Ronen is also a licensed CPA in Israel.
“This month we saw a decline in the overall index again, which is consistent with what we’ve been seeing for quite some time,” Frank Fiorille, vice president of risk management, compliance and data analytics at Paychex.
Like the U.S. Bureau of Labor Statistics jobs report that was also released Friday, Paychex found similar declines in the leisure and hospitality sector due to shutdowns from the COVID-19 pandemic (see story). “If you eliminate that sector, the [Paychex] report was actually fairly positive,” said Fiorille. “I think that’s pretty consistent with the nonfarm payroll report. The Friday jobs report just came out and for the first time since April, it was negative.”
The South was the only region of the country to improve job growth in December, increasing 0.04 percent). Fiorille attributed that to having looser restrictions on businesses being open than in other parts of the country. Florida regained its position as the top-ranked state for small business job growth, up 0.28 percent with an index of 97.00. Tennessee improved 0.76 percent in December and is up 1.01 percent in the fourth quarter, ranking it best among states. Houston and Dallas had the best three-month employment growth rates among metropolitan areas. Construction led the way on the industry jobs index for the eighth consecutive month compared to other industries. Financial activities had the best weekly hours worked growth among the various sectors.
Hourly earnings growth slowed for the fifth month in a row, from a peak of 3.29 percent in June to 2.63 percent in December. Weekly earnings growth slowed to 2.42 percent, the lowest level since February 2019. Weekly hours worked growth slowed for the fifth straight month to negative 0.27 percent in December.
“On the wage front we’re seeing a little bit of an uptick there,” said Fiorille. “We think the reason there is that on Jan. 1, a lot of states and areas went to a minimum wage increase. We saw a lot of clients get ahead of that last month, so you’re seeing an uptick in that first quintile, that lower-wage sector.”
The stimulus package that was signed into law at the end of December could help some struggling small businesses, especially with the fresh round of $284 billion in funding for the Paycheck Protection Program. The legislation also includes a provision allowing businesses to deduct the expenses associated with seeking loan forgiveness, which could make it easier for them to engage accountants to help with the loan application and forgiveness process.
On Friday, the Small Business Administration and the Treasury Department announced that the PPP would re-open Monday, Jan. 11 for new borrowers and some existing PPP borrowers. Initially only community financial institutions will be able to make “First Draw PPP Loans” on Monday and “Second Draw PPP Loans” on Wednesday. The PPP will open to all participating lenders shortly after that.
“That’s really good news given that this thing just got passed, and a lot of people thought it was going to take weeks given how the first thing came out,” said Fiorille. “It’s nice that they got the guidance out pretty quick.”
In combination with the extension of Employee Retention Tax Credits, the latest round of PPP funding could help many small businesses survive this year. “There’s a lot of stuff that’s going to help prop up the small businesses,” said Fiorille. “It’s very targeted to the mom-and-pop Main Street businesses.”
