Small Business Job Growth Stalls as Wage Inflation Remains Subdued

Event summary

  • The Paychex Small Business Employment Watch revealed minimal change in U.S. small business job growth throughout 2025, with the Jobs Index averaging 99.67.
  • Hourly earnings growth remained below 3% for 17 consecutive months, ending 2025 at 2.71%.
  • The Midwest led in small business employment growth for the entire year, tying with the Northeast in December.
  • Indiana ranked first among states for small business employment growth, with an index level of 101.50.
  • The Education and Health Services sector demonstrated consistent job growth, averaging an index level of 100.52 in 2025.

The big picture

The Paychex report underscores a broader trend of slowing economic growth and moderating wage inflation impacting U.S. small businesses. While the consistency in job growth might appear stable, the lack of significant upward momentum, coupled with the subdued wage environment, suggests a cautious outlook for the sector. This contrasts with larger businesses, which saw stronger job growth, potentially widening the gap in economic performance between small and large enterprises.

What we're watching

Regional Disparities
The continued strength in the Midwest, despite tying with the Northeast, suggests regional economic divergence that warrants further investigation into localized factors impacting small business growth.
Wage Pressures
The prolonged period of wage growth below 3% indicates a potential dampening effect on consumer spending and overall economic activity, and whether this trend can be sustained.
Sector Resilience
The consistent growth in Education and Health Services highlights the sector's resilience and may signal a shift in demand towards essential services, impacting other industries.