Last week’s Labor Department report signaled a cooling job market, but some economists caution employers from celebrating just yet. There are still labor challenges up ahead. 

While larger companies slowed hiring in December and wage growth is cooling, there’s a mad dash for new talent at small and medium-sized firms and businesses based in the South, according to ADP’s National Employment Report released last week. 

“It just shows that hiring across firm sizes and across industries has not been in lockstep. You see that different pockets of the labor market have matured in terms of hiring at different rates,” ADP’s chief economist Nela Richardson tells Fortune. 

While private employers added 235,000 jobs in December, large companies observed a decline of 151,000 jobs, per the report. Small and regional companies gained 195,000 and 191,000 jobs, respectively. 

As for regions, the West saw a drop of 142,000 jobs, while the South added 253,000 positions.

Cooling wage growth has also offered companies that once struggled to compete on compensation a leg. Annual pay across all sectors rose 7.3%, slightly decelerating from months past. December saw the lowest pay growth since March 2022. 

As tech jobs leave the West Coast, travel and leisure jobs are ballooning in the South. Understandably, places with more service jobs are where you see strong hiring, explains Richardson. (Think of the hospitality industry in Florida.) There’s more hiring for consumer-facing industries than those that are sensitive to interest rates like tech companies.

Richardson points outs that small and medium enterprises, and companies between the coasts, are finally getting a taste of what their larger, metropolitan counterparts have experienced for the last few years—an all-out brawl for top talent. “They’re picking up the slack for larger establishments,” says Richardson. During the pandemic, many small companies were crowded out by large organizations that could pay higher salaries and offer geographic flexibility. 

But the economy is cyclical and holding onto this newly acquired talent will require that smaller companies lean into their engagement and retention strategies while they’re ahead. 

“Companies that figure out how to not only get good people through the door, but make them better and keep them, are the companies that win post-pandemic,” she says.

Amber Burton
amber.burton@fortune.com
@amberbburton

Reporter's Notebook

The most compelling data, quotes, and insights from the field.

Returning to work in the new year might feel like turning a new page, but many working parents are still dealing with the 2022 “tripledemic” of the flu, RSV, and COVID that hit young children across the U.S. In December, 51,000 Americans missed work due to childcare issues, according to the Bureau of Labor Statistics’s latest report. The childcare crisis will yet again land in employers’ laps, writes Fortune’s Megan Leonhardt.

“This surge is taking yet another toll on parents’ PTO and productivity at work, especially since many childcare centers have instituted stricter protocols and quarantine rules than they did pre-pandemic,” she writes.

Around the Table

A round-up of the most important HR headlines, studies, podcasts, and long-reads.

- The unemployment rate hit a half-century low, dropping to 3.5% in December from 3.6% the month prior. Wall Street Journal

- The number of temp jobs fell in December, signaling that hiring is cooling. Economists often consider temp jobs a leading indicator for the labor market. Bloomberg

- While former Twitter employees received their severance offers last week, current employees took to Slack to ask Elon Musk for toilet paper in the New York City office. Insider

Watercooler

Everything you need to know from Fortune.

Invisible labor. The term “kinkeeping” is the latest workplace buzzword following a viral TikTok video. It's defined as the invisible, and often unseen work, women do that frequently goes without credit. —Orianna Rosa Royle

RTO…again. Barely a week into the new year, employers are calling workers back to the office. Some leaders are betting that the fear of an economic downturn and cutbacks will coax employees back to their desks. —Chloe Berger

Royal pain. Prince Harry’s new book provides an insider look at the British monarchy’s working culture. While a juicy read, experts advise against publicly airing grievances against a former employer. —Orianna Rosa Royle