where does my party all level 2 hunt at

Explore around town; there is quest and exploration experience to be had, and loot to be found. Companions start on level 3 (and scale up if recruited later), so (if you're not playing 2 lone wolf main characters) they can help quite a bit for early combat.

When you leave Cyseal, the easiest way to go is out the north west gate (the only one not closed off), behind the King Crab tavern. Before that, the tunnel under the town is more suited to level 2/3 characters; there are several entrances in town if you explore, or dig (though be careful with where you are digging), and another way to enter not too far out the NW gate.

where do I buy a shovel at

You can find a shovel in the Cyseal graveyard, as well as near the south beach teleporter waypoint (before you get to the 2 drunk guards at the bridge).