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Jobs Report: More Companies Are Hiring But Small Businesses Remain Cautious

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The U.S. job market is finally showing signs of life, but small-business hiring is down slightly, according to several reports released this week.


The economy added 165,000 jobs in April, and the unemployment rate ticked down slightly to 7.5 percent, the U.S. Bureau of Labor Statistics reported today. 

The job growth and unemployment rate were both slightly better than economists had predicted and an improvement from the previous month. In March, a revised 138,000 jobs were added and unemployment stood at 7.6 percent. 

Unemployment has been dropping for the past several months, but previous reports showed that people were leaving the workforce rather than finding jobs. This month, however, the decline in the unemployment rate is a sign of a stronger job market. 

"Today's report is pretty good news," says David W. Berson, chief economist at financial services company Nationwide Insurance. "It [shows] stronger job growth, not declines in the labor force as it has over the last six months."

In another sign of economic improvement, the employment data for February and March were revised upward. In those months, 114,000 more jobs were added than previously reported, suggesting that the job market in 2013 is somewhat stronger than people thought, says Berson. What's more, a Labor Department report on Thursday revealed that first-time claims for unemployment benefits slid to their lowest level in five years, indicating fewer layoffs.

To be sure, economists aren't breaking out the champagne yet. The job numbers are considered good but not great, and unemployment is still higher than forecasters would like.

Related: Survey: Fewer Small Businesses Expect to Hire or Grow

Meanwhile, hiring among small-business owners is not keeping pace with the national average. On Wednesday, payroll processor ADP released a private-sector jobs report showing that small businesses added 50,000 jobs in April, compared with 60,000 in March. And a report this week by online payment processor SurePayroll showed that hiring fell 0.2 percent in April from the previous month at companies with an average of eight employees. 

It appears that the impending health-care reform may be negatively impacting hiring at companies around the 50-employee threshold. The slowdown in small-business hiring is coming primarily from the leisure and hospitality, retail trade and construction sectors, according to ADP. These are industries where one would expect the effects of health-care reform to be more significant, says Mark Zandi, chief economist of Moody's Analytics. Under the Affordable Care Act legislation, known as Obamacare, companies with more than 50 staffers have to provide health-care insurance to workers or face substantial fines. 

Related: Bracing for Obamacare, Some Businesses Try PEOs 

Higher payroll taxes and government spending cuts may also be taking a toll on small-business hiring. In January, the payroll tax increased to 6.2 percent after two years at 4.2 percent, taking a larger chunk out of workers' take-home pay. What's more, industry observers say uncertainty surrounding the automatic federal budget cuts, known as the sequester, is likely having some effect.  

Cheryl Winokur Munk

Written By

Cheryl Winokur Munk is a freelance writer and editor in West Orange, NJ. She is a former reporter for Dow Jones Newswires and American Banker where she covered the financial services industry. She earned a B.S. in journalism from Boston University.