Q3 Employment Outlook: More Market Optimism, Dismal Hiring Plans

By Theresa Minton-Eversole




There are signs of increased faith in the U.S. job market for the third quarter of 2009, although many companies are still having difficulties projecting their hiring plans, according to the latest Labor Market Outlook (LMO) Survey by the Society for Human Resource Management (SHRM).

The survey examines recruiting and hiring trends across six months based on a quarterly survey of public- and private-sector human resource professionals at small, medium and large U.S. firms who have a direct role in the staffing decisions at their companies.

“The good news is that HR professionals are more optimistic about the third quarter than they were in the first half of the year,” said Jennifer Schramm, SHRM’s manager of workplace trends and forecasting. “But the bad news is that they continue to forecast fairly flat payrolls throughout the quarter.”

Thirty-five percent of the nearly 500 HR professionals who responded to an e-mail survey sent to SHRM members in February 2009 said they believe that the job market will improve somewhat during the third quarter of 2009. Another 29 percent said they were neither optimistic nor pessimistic about job growth during the quarter.

Thirty-seven percent of respondents said they were pessimistic about U.S. job growth and expect increased job losses. This, however, is a major reversal from the LMO survey for the second quarter of 2009, when 70 percent of respondents expressed pessimism and predicted deeper cuts in the job market.

The degree of optimism did not vary much by U.S. geographical region. Not surprisingly, respondents from the Midwest and Southeast regions expressed the highest degree of pessimism (39 percent), while those in the West expressed the greatest degree of optimism (41 percent).

Even with the boost in confidence, many respondents said their companies are planning to hold the line on hiring in the third quarter. A majority of respondents (56 percent) said they will remain at their current staffing levels in the third quarter. In every size category of company that responded to the survey, at least 72 percent of respondents plan to keep payrolls flat or eliminate jobs in the third quarter of 2009. The highest concentration of respondents who are maintaining or decreasing total staff (86 percent) came from large companies, those with more than 500 employees.

Twenty-one percent of companies expect to hire in the third quarter. Privately owned for-profit entities (29 percent) report adding the most jobs, followed by the government sector (24 percent), publicly owned for-profit companies (18 percent) and nonprofits (14 percent).

Government data support these findings, showing that hiring conditions are still difficult but are improving. In May 2009, for example, employers eliminated 345,000 jobs—a terrible month by many standards but only about half the average monthly decline for the prior six months, according to the U.S. Bureau of Labor Statistics (BLS).

Risks of Wage Stagnation

Though less attention has been paid to the trend, many companies are increasing their use of wage freezes and salary cuts. The result: Wage growth has slowed to levels not seen in decades. If the trend continues, experts say, it could have a prolonged negative impact on the country’s economic recovery.

While little current data is available to suggest that wages have taken a downward spiral, there is evidence of corporate cutbacks used to control operating costs. For example, companies that intend to raise salaries in 2009 intend to increase workers’ wages only by a median 2.5 percent, according to SHRM’s 2009 Human Capital Benchmarking Survey. This is down from 3.5 percent in 2008 and the lowest increase in the survey’s five-year history.

Equally troubling, writes Joe Coombs, report author and specialist for SHRM workplace trends and forecasting, is that some of the largest U.S. job sectors are raising salaries below that median rate in 2009. Take durable goods: Manufacturers are planning a nominal 1.5 percent wage increase, while professional, scientific and technical services companies collectively expect to increase wages by only 1.9 percent, according to survey data. Further, government sector employers report they’ll raise salaries by just 2.1 percent in 2009.

Salary cuts, unlike freezes, are extremely rare during periods of slow economic growth, though many employers are not shying away from them during this recession. Compensation for new hires is being curbed at a rapid rate, according to data from SHRM’s Leading Indicators of National Employment (LINE) Report, which show that the rate of increase for new-hire compensation from November 2008 to June 2009 fell in the manufacturing and service sectors from the previous year.

Because new-hire compensation growth is a leading indicator of overall wage trends, this suggests that at this point in the recession, overall compensation rates for all workers might begin to be affected.

The BLS has tracked compensation costs for more than 30 years on a quarterly basis, and its employment cost index (ECI) numbers for the first quarter of 2009 caused many observers to do a double-take. For the January to March 2009 time frame, wages and salaries for private industry workers rose just 0.2 percent from the previous quarter—the lowest increase since the BLS began recording the data in 1975.

“There is a fair amount of information that shows things are particularly weak,” said BLS economist Wayne Shelly in the report. “You can clearly see the deceleration.”

Shelly noted, however, that for the past 10 years the index has remained relatively flat and has stayed ahead of the Consumer Price Index. And low inflation has made it harder for employees to get upset over small pay increases.

If unemployment remains elevated for years and is coupled with depressed wages, it will have a resounding effect on the economy’s ability to recover. For starters, low salary growth rates will impact consumer spending, which could lead to a significantly negative impact on the overall economy.

In addition, “the suppression of wage increases is clearly a potential morale killer for employees,” writes Coombs. “It could also lead to loss of loyalty from workers and, without adequate compensation, top-tier talent can quickly develop a roving eye for work elsewhere. [So] for some small employers, this may be a good opportunity to hire highly qualified job candidates.”