Job market is softening and bankruptcies are rising, Paychex CEO says

By Tomi Kilgore

Stock is suffering biggest selloff in nearly three years after HR services company misses revenue expectations

'While we haven't seen any normal signs of a recession in our data, we started to see some softening in seasonal hiring in the quarter, particularly in our large-client segments, including our HR-outsourcing businesses, many of which typically add seasonal employees at this time of year.'Paychex CEO John Gibson

That comment, made by Paychex Inc. Chief Executive John Gibson during a conference call with Wall Street analysts on Thursday, came after the Rochester, N.Y.-based human-resources-services company reported fiscal second-quarter profit that topped expectations but revenue that came up short amid cost and labor-market challenges.

Paychex's stock (PAYX) sank 6.6% in afternoon trading on its way toward a one-month low. The stock was headed for its biggest one-day selloff since it tumbled 8.4% on March 27, 2020.

"The macro environment and labor environment continue to be challenging for small and midsize businesses," Gibson said, according to an AlphaSense transcript. "Our small-business-employment watch continues to show moderation in both job growth and wage inflation, which is indicative of a stable macro environment and that the actions taken by the Fed are having their desired impact."

Basically, he was saying that the Federal Reserve's plan to fight inflation by raising interest rates enough to slow the economy is working.

Also read: Powell surprises with a dovish turn, and economists debate how many Fed rate cuts in 2024

Gibson's comments reflect that while layoffs remain very low, overall growth in U.S. payrolls has slowed.

Data from the American Staffing Association showed that the four-week average of temporary and contract employment for the week ending Dec. 10 was down 1.9% from the previous week and down 8.1% from the same period a year ago.

Gibson also said Thursday that bankruptcies "continue to accelerate" this year, to the point of surpassing the levels seen during the first part of the COVID pandemic. But he warned against viewing that as a danger sign for the economy.

"The fact of the matter is we had such high levels of new-business births two years ago during the pandemic, that if you just do the math of survivability rates of those businesses, that most of them are gone after five years, and 50% of them are gone in the first two years," Gibson said.

"You're still seeing births outpacing deaths," he added.

-Tomi Kilgore

This content was created by MarketWatch, which is operated by Dow Jones & Co. MarketWatch is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

12-21-23 1552ET

Copyright (c) 2023 Dow Jones & Company, Inc.