A Remedy For Wages Falling Behind Inflation? Join A Small Business Where Wages Are Hot

Bank of America economists Anna Zhou and Taylor Browley released a note on Aug. 16 regarding the analyst firm's small business checkpoint.

Key Points: “Following rapid growth during the first half of this year, Bank of America Small Business total payments per client moderated in July with a 3% increase year-over-year (YoY), while Bank of America Small Business credit and debit card spending per client increased by 7% YoY,” the BofA economists said.

There were fewer business days this July than the previous year, and a decline in small business sentiment most likely contributed to slower year-over-year growth, they said. 

Yet early signs are pointing towards a possible spending rebound in August, according to BofA. 

In addition, the analysts said construction firms saw the largest increase in payments on a year-over-year basis.

On the contrary, retail trade and real estate firms saw the lowest payment growth, which BofA said is most likely due to weakening demand for goods and a slowing housing market.

Small businesses' payroll payments remained elevated in July on a year-over-year percentage basis and continued to outpace wage inflation, which showed resilience in small business hiring, BofA noted.

Payroll Spending Remains Hot: “Bank of America Small Business outflow data demonstrates continued strength in payroll spend growth. The three-month rolling average of payroll spend per client was up 12% YoY in July, one percentage point lower than the prior month … According to the [U.S.] Bureau of Labor Statistics, average weekly earnings for July increased by 4.6% YoY. This would roughly translate to a 7% YoY increase in small business employment,” Zhou and Browley wrote. 

The Bureau of Labor Statistics report issued Aug. 5 stated job growth was widespread in July: "total nonfarm payroll employment rose by 528,000 in July, and the unemployment rate edged down to 3.5%."

The Labor Department reported on Aug. 10 an 8.5% year-over-year increase in the consumer price index in the month of July, a potential sign that inflation may finally have peaked.

And both the sentiments and charts shared in the note point toward the idea that small business wages are beating inflation. As the economists shared, in July small business wages grew faster than the overall nation, underscoring the growth that small business wages are having this quarter.

Photo: Courtesy of Randy von Liski on flickr.