One-quarter of small businesses report difficulty in finding qualified employees, yet January hiring remained strong.

Today’s NFIB jobs report contained both good news and foreshadowing of problems to come. The graph below shows the problem: small businesses still struggle to find qualified workers and the trend has been escalating.

Here’s the good news.

Small businesses started 2020 on a strong note, adding an average employment change per firm of 0.49 workers, the highest level since March 2019, according to NFIB’s monthly jobs report. The small business labor market overall is starting on a good note, with strong hiring and higher employee compensation.

But,

Continuing from last year, small businesses’ biggest problem is finding qualified workers for their open positions. Twenty-six percent of owners reported it as their No. 1 problem, one point below the August 2019 record high. Sixty-two percent of construction firms reported few or no qualified applicants and 42% cited the shortage of qualified labor as their top business problem. Comparable figures for manufacturing were 52% and 34% respectively.

A seasonally adjusted 37% of owners reported job openings they could not fill in the current period, up four points from December.

With unemployment rates down and compensation increasing, the labor market challenges risk accelerating the predicted economic slowdown.