Dive Brief:

• Small business employment grew by 0.25% in May, according to research data from HR outsourcing vendor Paychex and IHS Markit, marking a slight increase after a sharp drop in April.
• The firms' index still recorded a year-over-year decline of 3.95%, most of which occurred in the past quarter, according to a statement, and small business job growth remained below the weakest level reached during the Great Recession. The COVID-19 pandemic's impact also shifted the index's employee mix toward jobs with higher pay rates, causing a 12-month growth in hourly earnings slightly above 3%.
• "While there are still many unknowns with the pace of recovery, the slight increase in employment numbers last month indicates that employers are starting to bring back employees who were furloughed or temporarily laid off during pandemic-related business closures," Martin Mucci, Paychex president and CEO, said in the statement.

Dive Insight:

The findings for small business employment growth came days before the National Bureau of Economic Research (NBER) announced its determination that the U.S. economy entered a recession beginning in February.

"The committee recognizes that the pandemic and the public health response have resulted in a downturn with different characteristics and dynamics than prior recessions," the NBER's Business Cycle Dating Committee said in a June 8 statement. "Nonetheless, it concluded that the unprecedented magnitude of the decline in employment and production, and its broad reach across the entire economy, warrants the designation of this episode as a recession, even if it turns out to be briefer than earlier contractions."

Meanwhile, the U.S. added 2.5 million jobs in May, the U.S. Bureau of Labor Statistics announced June 5, while the nation's unemployment rate decreased by 1.4%. The agency did however disclose a "misclassification error" which may imply that "the unemployment rate should be higher," The Washington Post reported, but the adjusted data still indicates an improvement over April.

Most small and midsize businesses (64%) in a survey published earlier this month by The Harris Poll and TriNet said they expected their businesses to emerge either stronger than or the same as they were prior to the pandemic. But the recession has taken a toll: 60% of respondents in the same survey said they had reduced their workforce in some capacity during the pandemic, and 83% said they saw decreased revenue since February.

Congress enacted the Paycheck Protection Program (PPP) to provide loans to small businesses, and a subsequent revision to the law's statute permitted borrowers to use 60% of their loan funds for payroll costs — down from the 75% previously required under the program, HR Dive sister site CFO Dive reported. The government also extended the period over which borrowers must spend loan proceeds from eight weeks to 24. Both updates were part of a list of changes to the program recommended by small business groups, according to CFO Dive.

Mucci said that PPP funds have been "helpful" in supporting small business employee retention, but that an extension of the loan forgiveness timeline and new parameters "would be a positive next step" in supporting recovery.