The Paychex Small Business Employment Index rose to 99.34 in May, up 0.18 points from April and marking its third consecutive monthly increase. Small business hiring momentum is now at its strongest level of 2026, the first three-month improvement streak in more than three years.

• Despite the recent acceleration, the index remained -0.47 points lower YoY, highlighting that hiring conditions are still softer than a year ago.
• Regionally, the Midwest remained the strongest performer with an index reading of 99.71, continuing a two-year run as the top region for small business employment growth. The South posted the largest three-month improvement, gaining 0.75 points, while the West remained the weakest region at 98.78 despite recent gains.
• At the state level, Tennessee led the rankings with an index of 100.87 after gaining 1.62 points in May. Maryland posted one of the strongest turnarounds, climbing from last place in April to fifth in May and recording the strongest one-, three-, and 12-month growth rates.
• Sector performance was mixed. Education & Health Services remained the strongest sector at 100.37, continuing its long-standing leadership in small business hiring. Manufacturing stood out with the strongest short- and long-term employment gains, pushing its index up to 99.04.
• Construction weakened further, falling to seventh place among sectors with an index of 98.79, its lowest ranking since September 2022. Leisure & Hospitality remained the weakest sector at 97.87 and has ranked among the bottom two sectors consistently over the past two years.
• Overall, the May report points to a modest improvement in small business hiring conditions, with strength concentrated in manufacturing, healthcare-related industries, and several Midwestern and Southern states.

Small business wage growth remained subdued in May, with hourly earnings rising 2.73% YoY, extending a streak of 19 consecutive months below 3%. One- and three-month annualized wage growth measures have now remained below 3% since April 2024.

• Weekly earnings growth improved to 2.98% YoY, the highest since January 2024, driven by a combination of steady wage gains and a continued increase in hours worked.
• Weekly hours worked rose 0.12% YoY, marking the third straight monthly increase and the first three-month positive streak since 2021. The improvement suggests small businesses are increasing labor utilization even as wage growth remains contained.
• Regionally, the Northeast led in both hourly earnings growth (2.92%) and weekly hours worked growth (0.39%), while the South remained the weakest region for wage growth at 2.47% and posted a -0.09% decline in hours worked.
• At the state level, Indiana continued to lead the nation with hourly earnings growth of 4.43% and weekly earnings growth of 4.74%, the only state above 4% on either measure. New Jersey saw a notable acceleration, with hourly earnings growth rising to 3.34% and one-month annualized growth reaching a three-year high.
• By industry, Other Services posted the strongest hourly earnings growth at 3.10%, while Manufacturing led weekly earnings growth at 3.66%, supported by both wage gains and a 0.52% increase in hours worked. Education & Health Services remained the weakest sector across all major wage and hours metrics.
• Overall, the report points to a labor market where compensation growth remains modest, but improving hours worked are helping support overall earnings growth for small business employees.