A Tale of Two Job Markets
If you follow financial and economic news, you’ve likely seen the flood of layoff announcements that have been rolling out pretty much every week in 2023. Major companies have slashed tens to hundreds of thousands of jobs this year. You wouldn’t be mistaken for thinking that the interest rate hikes of this last year are finally having their desired effects by reducing spending, and adding some slack to the labor market.
But, it’s a little more complicated than that (isn’t it always?). The majority of the job cuts so far have been in the information sector (tech). This sector only accounts for about 2% of all private sector jobs. And those headline-grabbing layoffs at big companies were countered with some news that seemingly everyone was surprised about at the beginning of February when the U.S. Bureau of Labor Statistics announced that the U.S. economy added 517,000 jobs, more than doubling estimates.
With all of these contradictory forces swirling around, you’ve likely got a lot of questions about what appears to be two very different narratives from the world of jobs, and lucky for you, we’ve got…some theories.
Where are all these job gains coming from?
The biggest gains came from the hospitality and leisure sectors which added around 115,000 jobs in January. Professional and business services, health care, retail trade, construction, transportation, warehousing, and manufacturing were other notable gainers.
So why don’t we hear more about those gains outside of the monthly Jobs Reports? Leisure and hospitality are much more fragmented industries made up of thousands of small, medium, and large businesses. These sectors aren’t as concentrated as tech, and, therefore a little more difficult to cover. Plus, financial news outlets want to get clicks, and let’s face it, “Amazon Lays Off 18,000” draws more eyeballs then “Albuquerque Holiday Inn Express Hires 23.” There’s a lot of hiring going on out there, but in smaller doses across a much wider of number of companies.
But I thought these interest rate increases were supposed to slow down growth?
They are, just not everywhere, and not right away. Higher interest rates increase the cost of borrowing, which slows down major capital expenditures for both businesses and households. But, what about normal expenditures that don’t require new debt/equity? For example, if a) you own and operate a hotel, b) your current and forward bookings are showing strong demand for the months ahead, and c) you have low fixed rates locked in on debt that was acquired before rates started rising, you don’t need new capital in order to build new capacity and/or scale up a sales team to drum up demand and bring in cash flow. You already have capacity (your current hotel) and current cash flow (booking and demand) to hire and pay the team you need to serve the incoming business. Therefore, rising rates aren’t going to stop you from hiring at this moment.
Another way to frame this is that the Leisure and Hospitality sectors aren’t growing – they’re still recovering. Employment in those sectors is still 2.9% below their pre-pandemic level. Job growth won’t be hampered by high interest rates until existing capacity can no longer service current demand, and new capital expenditures (construction of new hotels, restaurants, resorts) are required to meet rising demand.
But eventually, prices & wages are going to return to 2021 levels, and interest rates will start dropping, right?
Eh, I’m not holding my breath. Here’s a thing about inflation to keep in mind – it generally only gets measured against the previous month and and the previous year. So when the Federal Reserve says they are going to keep raising interest rates until inflation drops to the target level of 2%, that means when prices / wages / general economic growth are only increasing 2% compared to a year ago, at whatever point in time we are now. So, if a year from now a bushel of bananas is only 2% more expensive than it is today, then – Ta Da! – inflation has cooled, and interest rates may begin to drop. But the price of that bushel of bananas will still be 15 – 20% higher than it was in 2021. Only if we enter into a deflationary cycle (a pretty rare occurrence in the U.S.) will overall prices and wages begin to decrease.
So what does this mean for you? How do you sort through the headlines and figure out how these macroeconomic trends could affect your business, and what steps you should take to be prepared? Perhaps the biggest takeaway is this: the United States is largely a service based economy driven by consumer spending, and as long as unemployment remains low, people will continue to earn money, and spend that money on services and experiences. Higher interest rates are currently only impacting major household expenditures (purchases of home, vehicles, appliances – financed purchases). This is why the Leisure and Hospitality sectors continue their upward trajectory, because there is steady demand for travel, dining, and recreational experiences. Because of this, there will likely to continue to be strong demand for hospitality workers.
Simplify Your Hiring
There are lots of steps you can take as an employer to navigate a competitive hiring landscape, and we’ve outlined many of them in our Employer Resources section. But perhaps the most impactful action you can take today is to simplify your hiring process. Many employers follow the same playbook from one year to the next, but you really should be taking a fresh look at this every year and identify opportunities to remove barriers for applicants. If your hiring process is overly complicated, especially in the earliest stages, you are likely losing out on potential candidates. Maybe you don’t need a 4 page application with 5 references for a lot of your positions, and should move those requirements and a more in-depth interview process for later stages. Perhaps you are including education and/or years-of-experience requirements that no longer align with the actual needs of the department or position. Maybe the whole process is taking more than a month, at which point many applicants have already received and accepted offers from other employers.
Identify those snags and remove unnecessary hurdles for prospective applicants to make sure you’re capturing active interest, and not missing out on candidates that would otherwise be really interested and excited to join your team.
Thanks for tuning in, and we wish you all the best in finding those All Stars for your next season!