While small businesses remain eager to expand their workforce, economists say many job seekers are likely chasing higher salaries at larger companies with deep pockets.
The U.S. economy added 303,000 jobs last month, far more than expected, the Bureau of Labor Statistics announced Friday. The explosive report comes just days after private payroll processing company ADP similarly confirmed that job growth in March was higher than expected. But competition for staff may now be tough for many small employers.
“The challenge, especially for small businesses, is that the labor market remains competitive,” ADP chief economist Nella Richardson said on a conference call Wednesday.
2024 begins with a spate of high-profile layoffs, with many job seekers taking longer to find work, but still strong labor demand means 'times are tough' for many employers. To do. Easier hire, but not easy It’s about hiring,” Richardson said.
A separate BLS report on Tuesday found that employers with fewer than 1,000 workers accounted for the largest share of job openings in February, but filling those jobs is another matter. be. ADP said small businesses with between 20 and 49 employees cut 11,000 roles last month, but only some employers did.
It's easy to hire, but it's not easy to hire.
The ability to offer a competitive salary may be a factor. The BLS said Friday that average hourly wages rose 4.1% in March from a year earlier. The pace remains faster than inflation, which was 3.2% in February, but has been slowing in recent months.
Not all small businesses are scaling back their hiring efforts. The smallest companies, those with 19 or fewer employees, added 27,000 positions last month, according to ADP research.
But Richardson speculated that hiring declines at some small businesses may reflect job seekers chasing the dollar in an economy where big raises aren't easy to come by everywhere.
“Workers may have moved to larger companies where they could potentially earn more,” she says.
ADP found that private sector workers still received healthy average raises. Wages for those who changed jobs between February and March increased by 10% compared to the same period last year, while wages for those who continued to change jobs increased by 5.1%. However, the companies with between 20 and 499 employees saw the biggest wage increases last month. This could indicate that many small businesses are trying to secure jobs in a tight market and perhaps close the gap with larger rivals.
Tuan Nguyen, U.S. economist at financial services firm RSM, said Thursday that small and medium-sized businesses have played a big role in job growth over the past three years. However, many companies are “constrained by limited resources” and still “face long-term challenges recruiting qualified candidates,” he said.
They are competing for talent amid a post-pandemic startup boom, which is helping to drive widespread labor demand and contributing to talent shortages that still persist in some sectors. There is. Nguyen said new business formations will average nearly 500,000 per month in 2023, up from an average of 300,000 per month just four years ago.
The high interest rate environment is “further exacerbating the challenges for small businesses,” it added, adding that small businesses often face higher borrowing costs than larger businesses.
Federal Reserve Chairman Jerome Powell reiterated Wednesday that the central bank is likely to remain on track to cut interest rates “at some point this year,” and Wall Street investors are worried. This prediction is widely shared. But Powell, as he has in recent months, stressed the need to see more evidence that inflation is trending down toward the Fed's 2% target.
Mark Hamrick, senior economic analyst at Bankrate, said in a statement after Friday's jobs report, citing the central bank's dual mission of maintaining price stability, that “Federal Reserve officials are “We can continue to be confident that we meet the maximum employment element of our dual mandate.” And employment is high.
With the unemployment rate falling slightly to 3.8%, hiring accelerating and wage growth slowing, many analysts remain optimistic that the economy can continue to grow without a resurgence of inflation.
“The economy continues to show remarkable resilience,” Hamrick said.
