Labor market woes: US small businesses scale back hiring plans

U.S. small businesses’ hiring plans fell last month to the lowest level since the early stages of the COVID pandemic even as the labor market remains tight, according to the latest jobs report from the National Federation of Independent Business (NFIB).

The NFIB’s report found that just 11% of small businesses surveyed in March planned to create new jobs in the next three months, down one point from February and the lowest level since May 2020. The decline brings the index below its historic average of 11.8% and the NFIB noted in its report that, “Job creation plans are now below what would be typical in a strong growth economy.”

More than half of small business owners, 56%, reported hiring or trying to hire in March – a metric that was unchanged from February and prompted the NFIB to note that “employment activity remains solid, although waning from peak levels.” 

“Job openings on Main Street are now in line with the levels before the pandemic,” NFIB Chief Economist Bill Dunkelberg said in a press release. “Even with the slowdown in openings, the small business labor market remains tight, and owners continue to compete to retain and recruit employees.”

WHAT TO EXPECT FROM THE MARCH JOBS REPORT

The competitive labor market prompted a net 38% of small businesses to report raising compensation, an increase of three percentage points from February which was the lowest reading since May 2021.

Nearly one-third of small business owners, or 31%, have job openings for skilled workers while 14% have openings for unskilled labor.

PRIVATE SECTOR JOB GROWTH RISES MORE THAN EXPECTED IN MARCH

The industry with the highest percentage of small businesses reporting job openings was transportation with 77%, up from 53% a year ago. It was followed by services and construction, which each had 44% of small businesses report job openings.

Construction job openings were down nine points from last month and 29 percentage points from a year ago, and almost half of small businesses in the sector reported having a job opening they can’t fill.

US HAS A SHORTAGE OF MANUFACTURING WORKERS AND IT THREATENS GLOBAL COMPETITIVENESS

Of those small businesses hiring or trying to hire, an overwhelming 86% of owners reported finding few or no qualified job applicants.

The NFIB’s report comes after the ADP National Employment Report released earlier this week showed U.S. companies hiring more than expected in March despite high interest rates and uncertainty over when inflation will subside enough for the Federal Reserve to cut rates.

The reports come ahead of Friday’s jobs report from the Bureau of Labor Statistics, which will give Fed policymakers a fresh data point to consider as they weigh potential interest rate cuts this year.

Reuters contributed to this report.