Labor and Wage Stats Serve as Inflationary Warning Signs for Main Street SMBs 

Economic data tell a story, and all stories have multiple angles.

And while Friday’s job growth data show the biggest monthly gain in several months, and the unemployment shrank, there are some warning signs in the mix from the small and medium-sized businesses (SMBs) that make up the backbone of the U.S. economy.

As the headline data from the U.S. Bureau of Labor Statistics showed, non-farm payrolls rose by 678,000 positions in February. The unemployment rate was 3.8%.

We’re headed back to toward that pre-pandemic high water mark, where the U.S. economy, as measured through February’s gains, now is 1 million jobs shy of where we were before COVID-19 decimated businesses and payrolls.

It’s important to see that wage inflation was somewhat kept in check, gaining a penny over the previous month, and came in at 5.1% as measured year over year.

Gains in Leisure and Hospitality  

As economies reopen, it stands to reason that the leisure and hospitality sectors would see snapbacks — and February proved true to form, as those businesses added 179,000 positions — yet remain 1.5 million positions below early 2020 (pre-pandemic levels).  The unemployment rate in this sector is about 9%, which gives a hint as to what runway is left for these firms to see some real sense of normality.

Elsewhere, professional and business services firms added 95,000 positions.

The labor force participation rate stood at 62.3%, roughly only 1.1% below February 2020.

On the wage front, the Labor Department data showed that wages for retail workers were up 7.2% in the period, as measured year on year; the leisure and hospitality sectors saw wage gains of 11.2%.

And here it is that we see some warning signs for SMBs. Inflation and supply chain shortages linger, and have, in recent weeks per the National Federation of Independent Business (NFIB) stoked at least some concerns over near term prospects, as the federation’s optimism index dropped slightly in January.

Read more: SMB Confidence Drops Amid Inflation, Supply Chain Issues

Among the saving graces might be continued investments in advanced technologies. These are the investments that can improve cash flows, which in turn can mitigate at least some of the impacts of inflation. Coming into the beginning of the year, 64% of firms said 2022 would see top-line growth; less than a third of companies expect sales to be “unchanged” in the current year. As the labor market tightens, it will be a challenge to keep payrolls from churning, while keeping top lines intact and revenue growth flowing to the operating income line.

Among the ways in which Main Street firms will see that anticipated growth: making it easier for end users to pay is a key strategic focus. That would include enabling contactless payments, digital wallets and buy now, pay later (BNPL).

The battle between inflation-stoked input costs and the operational efficiencies created by technology is primed to be front and center as the year winds on.

Read also: Main Street SMB Optimism Fueled by Digital Tech Investments