Government data, and a new poll we did, point to a job market that looks to heat up quickly, driving higher levels of hiring and featuring a lot more people quitting for other jobs. On top of that, it’s looking like wage pressure and other retention-era factors are on the way.
Let’s look deeper.
HireRight conducted a poll in March exploring private-sector hiring expectations over the next two quarters. Almost 800 companies responded to the poll representing a cross section of U.S. commercial employers. The poll points to an overall positive picture for job growth this year. Overall, 66% of respondents expect to grow their U.S. employment base in the next two quarters, with 18% of the total seeing job growth to exceed 6% and 48% expecting job growth in the 1%-5% range. Thirty percent of the respondents forecast their employee base to remain flat over this time period and only 4% see a decline.
The differences across companies of different sizes were generally small, with two exceptions. Among employers with less than 50 employees, only 48% expected job growth with 51% expecting to remain flat. This contrasts with recent job growth trends, where jobs have for the most part been mostly added among smaller companies. One problematic aspect of the job market is that large employers have not, as a group, been adding jobs. In HireRight’s survey, 74% of employers with more than 4,000 employees expected to add jobs over the next two quarters, the highest percentage in the poll.
To put these findings in perspective, look at recent private sector hiring patterns since the start of the last recession. Monthly hires bottomed out at around 3.5 million in June 2009 based on U.S. Bureau of Labor Statistics data. The number of hires then grew over subsequent quarters, exceeding 3.8 million in December 2010. Since then, hires have been generally flat, ranging between 3.8 million and 4.0 million — still 1 million monthly hires below the levels seen in 2005, 2006, and 2007. The fact that private sector hires have not grown much, if at all, over the last year raises real questions about the nature of the economic recovery.
A look a historical quit trends also is informative. Voluntary quits can be an indicator of worker confidence as well as the velocity in the hiring market (as indicated by the rate of open positions getting filled and movement between jobs). In September 2009 the private sector quit level reached a decade low at just over 1.5 million quits in the month, again based on BLS data. Like hires, the level of quits then started to grow, reaching over 1.8 million in December 2010. Since then, the level has been between 1.8 million and 1.9 million most months. These flat quit levels raise questions about the nature of the labor market over the last year. How can job growth, as reported by the BLS each month, be occurring when there is no discernable increase in quits? Are new jobs only filled by previously unemployed workers? Why aren’t quit levels growing as the job market appears to be improving? In 2011, the quit levels grew only 44% as fast as the hiring levels.
The trends over the last year haven’t all been flat. One bright spot has been job openings. Private sector job openings reached a recession low in April 2009 at just under 2 million. Since then, job openings have grown steadily and now stand at over 3.1 million with further growth likely. If we consider actual hires as a percentage of job openings plus quits, we get a directional view of fill rate. In January 2012 this rate was 77%. This compares to a rate that actually slightly exceeded 100% in July 2009. This means, in theory, that all open positions and positions opened due to quits were filled that month, a very unusual situation that points to the economic challenges at the time. Prior to the recession, fill rates generally ran in the low 70s. January 2012 and December 2011 rates of 77% were the lowest since November 2008. These data point to a hiring environment that should be heating up, but the other data don’t yet show this is happening.
So what’s going on? There are a number of potential explanations and all probably play some part.
- Jobs Mismatch — There have been numerous articles over the last year that point to a potential mismatch between jobs created and skill sets available in the labor market. This issue exists on opposite ends of the employment spectrum (highly skilled and unskilled) and may point to real structural issues in the U.S. labor market in such areas as educational focus, job training, and vocational programs. More on this here and here.
- Flat Wage Growth — Another contributing factor to the relatively low level of quits may be the lack of real wage growth. Employees, even in less-than-desirable job situations, may be hesitant to make moves without clear financial upside through better compensation. According to the BLS, during the second quarter of 2009 the annual rate of wage growth fell below 2% for the first time in the decade. This metric has stayed below 2% ever since. After bottoming out at 1.3% in the fourth quarter of 2009, the rate increased slightly but has averaged just over 1.6% ever since. This rate is generally a full percentage point, or more, below the levels experienced quarterly through the decade prior to the recession. More on this here and here.
- Consumer Confidence — With the strong and consistent growth in open positions, even with flat wages, we would expect some increase in the level of quits. This hasn’t happened. One possible factor is consumer confidence. The first half of 2011 generally saw higher consumer confidence, as reported by the Conference Board Consumer Confidence Index, than over the same period in 2010. Then it fell below 2010 during fall 2011 with generally flat levels ever since on a year-over-year comparison. Compared to levels before the recession, consumer confidence is consistently more than 40% below the levels back in 2006 and 2007. It is likely that the sustained lower levels of confidence are another factor in employees’ willingness to change jobs. When confidence is low, workers may be more risk averse about taking a new opportunity at another company. More on this here and here.
- Hiring Company Considerations — Interestingly, business confidence looks more robust than consumer confidence. After bottoming out in January 2009, business confidence, as reported by the Purchasing Managers Index, rose steadily into 2010, reaching levels not experienced since 2004. In the middle of 2011, confidence fell somewhat and has remained relatively flat since. It is possible that this lower level of confidence is resulting in employers planning for growth but moving very cautiously to make investments, including filling open positions. This level of caution, together with a potential structural skills gap and risk-averse employee base, may collectively result in very long fill rates. This is addressed well by the Wall Street Journal. More on business confidence here and here.
As I mentioned at the outset, the job openings data and HireRight’s poll point to a job market that looks to heat up quickly, driving higher levels of hiring, increased quit rates as employees change jobs for better opportunities or compensation, and upward pressure on wages as companies have to start paying more attention to retention.
At the same time, though, most of the labor market indicators do not yet reflect this situation. Are we poised for an inflection in hiring trends or more of the same? So, what’s your prediction?