Jobs Data Signal Main Street Small Businesses Foresee Resilient Consumer Demand

Uncertainty reigns, but if the spate of jobs reports that marked a busy week of economic data show a trend, it’s that Main Street small businesses are banking on a resilient consumer.

And to meet that anticipated demand, these firms are adding workers.

The Labor Department reported on Friday (June 2) that employers added 339,000 jobs in May, as calculated on a seasonally adjusted basis. That tally is a jump from the revised 294,000 number seen in April.

Drilling down into the report, which lists growth in particular segments and verticals, professional and business services added 64,000 jobs in May. Employment in leisure and hospitality continued to trend up in May, where that sector added 48,000 jobs, largely in food and drinking establishments, which gained 33,000 jobs.

The Labor Department’s report follows the ADP National Employment Report released Thursday (June 1) showing that small establishments — with an employee roster spanning 1 to 49 workers — added 235,000 jobs. At the same time, annual pay for workers in these small firms rose year on year by 5.4% to 6.5% depending on the firm’s staffing size.

If companies are adding jobs and boosting pay, the read across is that they’ll need to beef up to meet end customers’ demand that is on the horizon; if they’re boosting wages they want to keep the staff on hand in place (and prevent them from leaving for competitors). The wage increases also signal some competitive jousting for new talent.

The growth in leisure and hospitality segments more than offsets the Labor Department’s finding that furniture and home appliances businesses declined slightly, while retail trade positions edged up a bit.

Walking a Tightrope

The forementioned jobs reports show that Main Street firms walk a bit of a tightrope here. As we reported over the past several weeks, 59% of owners expect the economy to enter a recession in the next 12 months. Inflation has been cited as the top challenge faced by these companies, at nearly 43% of the overall sample.

And in an environment where a cash crunch has been settling in — retail trade and professional services enterprises see a recession on the horizon, and more than 40% of each of those segments have less than 30 days’ worth of cash in the coffers — hiring workers is a strategy that hopefully will pay off over the longer run. There’s Catch 22 in the mix: Adding staff pinches operating cash — but if the staff is not on hand to meet demand, then sales suffer, and playing catch-up is no solution. If the demand does not materialize, then down the line the firms may have to shed workers, which in turn pressures spending because paychecks are no longer steady.

There are some indications that, with the debt ceiling drama all but over (at least for now), consumers may feel a bit more sanguine about spending money at the smaller, community-based firms that are so vital to the economy. The next few months will be critical ones.