Small Business Economy News: The Main Street Health Report

Stronger Under the Surface: September’s Small Employment Gain (+29,000) Is Just a Speed Bump in the Recovery

Last month, we warned readers not to get too excited about a surprisingly robust gain in the US’ nonfarm payroll employment. This time around, our message is the opposite: a disappointingly small increase in employment is masking labor market momentum.

At Homebase, we assess the labor market on Main Street via the lens of more than 100,000 businesses and 2 million hourly employees active in the US on our platform. Coupled with the data published by the US Bureau of Labor Statistics (BLS), we have a rich view of trends in employment, unemployment, turnover, and wage growth. All data below is from September’s Main Street Health Report unless otherwise specified.

Coming into October 2nd (“Jobs Friday”), labor market forecasters expected nonfarm payroll employment to grow by a healthy 84,000 (+0.05%).  The actual gain was much smaller: +29,000 (+0.02%).  These meager job gains came primarily from just a few sectors: +23,000 in health care & social assistance, +11,000 in construction, +10,000 in leisure & hospitality, +9,000 in manufacturing.  The largest job losses came in four sectors: government (-17,000), information services (-10,000), professional & business services (-9,000), and financial services (-7,000).  

That September weakness in employment growth was also apparent in Homebase’s proprietary data; the number of employees working at small businesses fell by 3.5% Y/Y, worse than the 0.8% Y/Y decline recorded in August.  We don’t think these declines reflect labor market weakness. Instead, we suspect immigration policy and an aging US population are restricting labor supply growth, leaving Main Street employers with a shrinking pool of available workers.

That said, our hunch is that the labor market has some momentum, notwithstanding one month of bad data from the Bureau of Labor Statistics. The unemployment rate was 4.18% unrounded in September, a little above August’s 4.14% but well below the 4.44% of a year earlier. On Main Street, we’re seeing signs of warming too. In Homebase’s data, hiring turned positive year-over-year for the first time in almost two years (+0.1% Y/Y), and turnover was up year-over-year for the second consecutive month (+6.5% Y/Y).

There’s an ongoing disappointment in the BLS jobs report: weak wage growth. Average hourly earnings growth slowed to 3.0% year-over-year in September, the slowest pace in over five years. But in Homebase’s data, things look better. Wage growth has accelerated slightly this year; at 6.8% year-over-year, it grew at its fastest pace since January.  

Given rising hiring and turnover and wage growth accelerating, it is likely that the Main Street labor market is heating up heading into the end of 2026. But what’s interesting is, it’s not necessarily heating up in areas typically associated with fall surges, like retail. 

Folks often talk about seasonal hiring as we head into every holiday season, and surely some hiring momentum is there. But it’s not really noticeable in the aggregate; indeed, the opposite happens. Hiring on Main Street tends to rise in the first half of the year, reaching a crescendo in mid/late spring; in May and June, hiring can be 20-25% higher than it was in the prior year’s December doldrums. Then, after a summer lull, there’s a brief, slightly lower resurgence in August and September (15%-20% above prior December levels), before a rapid slowing as we head to year-end. What gives?

Some of this is that not all sectors have the same seasonal pattern in the fall. For instance, the period that we typically think of as associated with fall hiring, October and November, usually looks fairly feeble in key industries. During that two-month period over the last three years, hiring declined (on average) 9.4% in food & drink and 10.9% in entertainment. In retail, the decline was much smaller: 4.8%. Only health care, a sector experiencing an ongoing boom during this period, did better (2.8% decline).

That’s not to say that retail entirely avoids the fall slump. But it’s milder; hiring declines more slowly in this sector, which may be what creates the “conventional wisdom” of fall hiring. In the last 3 years, overall hiring was only 3.6% higher on average in November relative to the prior December; in retail, it was slightly higher over the comparable period, by 5.4%. But in December, the hangover comes for retail, too.

For readers watching the hiring trends this fall, especially if you're outside of retail, your competitors will be ramping up hiring a lot less than you think - so don't worry, it's not just you!