Why Jobs And Economic Growth Aren’t Always Good News For SMBs

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The July jobs report allowed some U.S. analysts to breathe a sigh of relief, with data from the Bureau of Labor Statistics revealing a 224,000 addition in non-farm payrolls for June.

That’s significantly above expectations of 160,000 added jobs for the month, Bloomberg said, though noted that the figures weren’t all good news: The Bureau revised May’s figures down to 72,000 positions added from the initial 75,000 estimation, while the unemployment rate increased slightly from 3.6 percent to 3.7 percent.

Still, labor force participation and average hourly earnings both increased, with the professional and business services, healthcare, transportation and warehousing industries seeing the greatest job gains for the month.

Demonstrating the unexpected performance of the month, the report noted that the manufacturing sector added 17,000 positions in June. Economist had only predicted job addition to the tune of 3,000.

“The unemployment rate rose, wage growth is flattening out, there is still residual slack in the jobs market,” said Neil Dutta, the head of U.S. economics at Renaissance Macro Research, in a statement provided to Yahoo Finance last week.

Separate reports in USA Today noted the Labor Department’s data has eased concerns of a recession among some analysts and corporate executives for the time being, while also dampening expectations for any interest rate cut by the Federal Reserve.

“The bounce-back in the June jobs number may splash cold water on the notion of an imminent Fed rate cut,” said Citizens Bank Managing Director and Head of Global Markets Tony Bedikian in an interview with the publication. “We will have to see whether the equity markets can shrug that off when balanced against other macroeconomic factors, such as the hope of a China trade truce.”

In other words, while the latest jobs report is certainly positive for many, it does not spell the end for any upcoming economic concerns.

And in the near-term, small businesses aren’t necessarily jumping for joy over the figures.

Small Business Frustration

Days before the Labor Department’s report, Paychex published its Paychex | IHS Markit Small Business Employment Watch for June, noting small business job growth slowed while wages increased, putting further pressure on entrepreneurs hoping to expand their business through staff expansion.

“The two-year long, gradual slowing of small business job growth took on a more rapid pace in June,” said IHS Markit Chief Regional Economist James Diffley in a statement.

ADP Research Institute and Moody’s also published their June jobs data that week, similarly finding mounting pressure for small businesses.

“While large businesses continue to do well, small businesses are struggling as they compete with the ongoing tight labor market,” said ADP Research Institute vice president and co-head Ahu Yildirmaz in a statement.

According to ADP’s report, small businesses with fewer than 50 employees saw a decline in open job positions by 23,000; even smaller companies — those with 19 or fewer employees — saw payrolls decline by 37,000.

It was a far less optimistic conclusion than the Labor Department’s report, and one met with anecdotal commentary from the small business community that further illuminates the small business hiring challenge.

Interestingly, low unemployment and a drained talent pool are not the only factors behind small businesses’ biggest labor concerns.

According to Associated Press reports Monday (July 8), small businesses are holding back on hiring because of rising fears of an impending recession.

“Businesses are charging ahead, but there is a small element of uncertainty in the economy, and we are noting that it continues to be on the minds of business owners,” said Scott Fish, co-owner of business consulting firm Off Road.

“It’s a chicken-before-the-egg thing,” he continued. “Do you have enough clients to support the cost of hiring someone great, or do you hire some great people and hope the revenue comes in?”

Reports said some small businesses are turning to freelance workers to fill their labor needs without making the long-term commitment of full time staff. With wage pressure rising, small businesses are also struggling to offer the competitive salaries they need to poach talent, the Associated Press added.

According to CNN reports, the U.S. is now officially in its longest-ever economic expansion. But with rapid job expansion headed for a slowdown, small businesses are apparently not only struggling to hire the workers they need to fuel growth, but are also expecting an inevitable economic downturn that halts their hiring activity, too.