Uncertainty, Optimism, and Small Business Employment: 5 Things I Learned from Paychex CEO Martin Mucci
Paychex is an impressive company – it pays one out of every 12 American private-sector employees. With a base that expansive, Paychex has insight into the employment and wage trends that are driving the U.S. economy.
Paychex CEO Martin Mucci oversees the work done for the company's more than 600,000 customers who are mostly small- and medium-sized businesses. As a result, he's learned a lot about the U.S. economy and the issues facing small businesses. This knowledge is bolstered every month by the Paychex |IHS Markit Small Business Employment Watch, which tracks small business employment growth. Just this month, the report began tracking the change in wages small businesses pay their employees.
I sat down with Mucci earlier this month in front of an audience at an event sponsored by The Hill to discuss the Employment Watch and other issues facing the small business economy. I learned these five things:
1. Small business employment paused a little in April, but wages are going up.
The company’s April index took back the hiring gains so far this year and now shows that employment growth is below the same time last year. However, average hourly earnings paid that month were $25.67, a 2.73 percent increase from the prior year. "We had some very strong gains during the first quarter of this year, when optimism was at its highest," Mucci told me. "Growth is still positive - at 100.50, which shows that it's a half a percent better than in our base year, 2004. Wages are up 2.7%, that's very positive; and in the last three months, if you annualize growth, we're closer to 3%. So while we've moved toward full employment and job growth has slowed, wages have come up, which is a good thing."
2. Some areas of the country are doing better than others.
The southern region of the U.S – states like Tennessee and cities like Dallas, Atlanta, and Miami are the best places to find jobs. Employment activity in the Midwest wasn't as strong. Western states and cities - like Arizona and California, led the study in wage increases. Again, some areas in the Midwest lagged. Mucci is seeing a lot of construction in the south, particularly Georgia and Florida. Unfortunately, he's concerned about manufacturing, which is down across the country. "This is a bit of a cautionary tale because we’re seeing job growth in leisure and hospitality – restaurants and discretionary services,” he said. Why such a problem? "Many of those jobs are part-time," he explained. "It's good news, but we've got to watch the trend – it's more part-time growth than full-time."
3. Optimism doesn't always translate into action.
Survey after survey has expressed small business owners' confidence in the future. A great majority feel optimistic about their prospects. They are happy with the pro-business attitude in Washington. They're hoping to see a reduction in taxes, better control of their healthcare expenses, and less regulations. However, as we've seen with the Paychex | IHS Markit Small Business Employment Watch, so far the optimism hasn't turned into an investment in employees. Why? For Mucci, it's all about demand: "As a business, you need to see the demand for your services increase - that gives you confidence. Business owners are also looking for stability through some of the legislative reforms on the horizon – tax, healthcare, etc. – they want to be certain of what their expenses are going to be before bringing on more workers."
4. Healthcare and regulations are still the top priorities for small business owners.
"If you go back 40 years ago," Mucci told me, "one in 20 businesses had to be licensed. Today, it's one in four. You don't get into business to handle red tape.” As a business owner, myself, I couldn’t agree more. Small businesses like mine have struggled against double-digit healthcare premium increases and a growing amount of regulatory rules issued out of Washington. These have contributed to higher costs which, when combined with relatively slow economic growth over the past years, has challenged the profitability of many small business owners and held back investment.
5. The outlook is good, but uncertainty still reigns.
Change is never easy and if laws are overturned and rules are relaxed, the resulting effect on many industries could be significant and small business owners are expecting there to be a great deal of uncertainty over the next few years. "Even though the prospects for the country's economy and business environment appear bright, there are still a lot of questions to be answered and a lot of actions need to be taken by our legislators," said Mucci. “This is holding back investment.”
Mucci, like any successful business person, sees the world as a glass half full. "Optimism is still at its highest point in 43 years, based on the current research we’re seeing. If we could reduce uncertainty, it would be even stronger, and hiring will likely pick up as a result."