Payroll moderates

Payroll payments per small business rose 1.7% in December compared with the same period last year, according to new data from Bank of America.

That reflects the general trend in 2023, with payroll payments rising most months. But the growth is moderating. According to the Bank of America report, the pace of payroll growth has slowed “significantly” from its peak in March 2022. Data is culled from Bank of America’s business clients with less than $5 million in annual revenue.

Still, that’s not necessarily a negative. The moderation could indicate more sustainable payroll growth going forward, Bank of America analysts said in a new report.

“We think this primarily reflects slowing wage growth, especially in high-touch sectors like leisure and healthcare that were more strongly impacted by persistent labor problems during that period,” economist Taylor Bowley wrote in the report.

Small businesses have been pressured over the past two years due to high inflation, high costs and a labor crunch. But labor shortages are easing, and wage inflation is starting to come down.

The trends differ by industry.

There’s some slowing of payroll growth in lodging, restaurants and retail, though continuing strong jobs growth in these areas is somewhat offsetting this impact, according to the report.

The healthcare industry, meanwhile, is still seeing strong payroll growth, reflecting post-pandemic staffing increases and higher demand for health services among aging Baby Boomers (those born between 1946 and 1964).