Tennessee leads nation in small business hiring

Tennessee continued to lead the nation in small business hiring last month, as the Volunteer State remained one of the most affordable places to start a company, according to payroll data compiled by the nation's biggest processor of worker paychecks.

But another study released Wednesday also found that the Volunteer State lags behind a majority of states in its business assets for many small and startup companies.

A report by payroll processor Paychex Inc. said Wednesday that Tennessee led the nation in small business job growth during June with employment gains of 1.31 percent over the past year.

Nationwide, the pace of small business hiring is slowing, and the Paychex | IHS Markit Small Business Employment Watch fell during June for the fourth consecutive month to its lowest level since late 2011.

As the job market has tightened, wages are beginning to rise more, pushing up the U.S. average for small businesses last month by 75 cents an hour in the past year to an hourly pay rate of $25.82.

"Small business job gains have slowed, consistent with tightening labor markets," said James Diffley, chief regional economist at IHS Markit. "Wage gains continue at a moderate pace, up 2.88 percent from last year."

Marty Mucci, president and CEO of Paychex, told CNBC's Squawk Box Wednesday that the South led the nation in job growth during June, although wages tended to be lower in the South.

"We're seeing the biggest growth in wages on the lowest paying jobs," Mucci said.

Some of those gains are due to minimum wage increases adopted in several states and cities this year. Wages are also being bid up as employers compete for workers in a tighter labor market.

Tennessee's jobless rate in May, the most recent month for which data is available, fell from 4.7 percent in April to 4 percent in May to drop below the U.S. rate by the biggest amount in more than a decade. Nationwide, unemployment in May was 4.3 percent.

Unemployment in metro Chattanooga dropped in May even more to 3.3 percent - the lowest monthly rate since the spring of 2001.

The June jobless rate for the United States as a whole will be reported Friday.

"Part of this wage increase (among small businesses) is being driven by the increases in minimum wage law, but overall we're seeing pretty consistently across the country that we're in that 2.5 to 2.7 percent (annual) wage growth," Mucci told CNBC. "I think we'll continue to see that and that will be the thing to watch to see if these wage increases give more spending power to consumers."

While Tennessee led the nation in small business growth, a study by WalletHub ranking states as a place to start a business rated Tennessee No. 27 overall among the 50 states. The Volunteer State boasts the fourth lowest cost of doing business in the country, according to WalletHub. But the online financial web site said the startup rate, success and labor and capital access in Tennessee was generally below average.

WalletHub ranked Tennessee in the bottom 10 of all states for access to resources, which includes venture capital, college-educated workers and the working age of the state's population. Tennessee is older than the U.S. as a whole and its workers are less likely to have a college degree, although the state is offering two years of free tuition to college under its Tennessee Promise and Connect Tennessee programs.

Charlie Brock, the Chattanooga native who heads LaunchTN - the statewide initiative to promote business startups - said Tennessee is making progress in capital formation, educational quality and its overall reputation in meeting its goal of making Tennessee the most startup-friendly state in the country for business.

The Kauffman Foundation, which ranks states for the growth in entrepreneurship, placed Tennessee No. 14 among the 50 states in 2016, up from the state's 18th place rating the previous year.

Brock said Tennessee led the Southeast last year in the growth of venture capital and LaunchTN's 36/86 conference in Nashville and other statewide entrepreneurship forums are attracting more investors to the state.

But Tennessee and most other states still lag the top three states for venture capital - California, New York and Massachusetts, which collectively get more than 75 cent of all venture capital investment in the entire country.

"Access to capital is huge and there is still a significant gap that we continue to work on to overcome," Brock said.

LaunchTN, which was started five years ago to promote and nurture more business startups in the state, boasts the most business accelerator programs of any state its size.

The state program also added $1.5 million of state matching funds this year to match any federal Small Business Innovation Research grants with state money. Tennessee is the 19th state to provide such a match to encourage the growth of startups and new technology companies.

Chattanooga, which created one of the first and most successful of the business accelerator programs funded by LaunchTN - the Company Lab - is part of one of the most aggressive communities trying to promote entrepreneurship.

Chattanooga is home to the state's biggest business incubator - the Chattanooga/Hamilton County Business Development Center on the North Shore - and has added other venture funds and incubators such as Lamp Post Group, the Dynamo Group, the Jump Fund and the Chattanooga Renaissance Fund over the past four years.

EPB's fiber optic initiative brought high-speed broadband service to all homes and businesses in its service territory in 2010, turning Chattanooga into "Gig City" as the first city in the Western hemisphere to offer gigabit-per-second internet service to every address.

To capitalize on such broadband access and the growing number of startup businesses downtown, Mayor Andy Berke has created a 140-acre Innovation District in the central city and funded the Enterprise Center, Tech Town and Tech Goes Home.

Jack Studer, a former partner at the Lamp Post Group who now heads CoLab in Chattanooga, said the WalletHub study is interesting, but he argues that "there is no single metric for success when it comes to company and job creation."

"The only real way to get a sense of what's going on in the community is to be inside of that community," he said Monday. "And I can say from inside the Chattanooga community there is a sense of optimism and a willingness to roll up sleeves and get work done that is palpable and pervasive."

Contact Dave Flessner at dflessner@timesfreepress.com or at 423-757-6340.