What Do Softened Business Expectations Mean for Hiring?

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In October, we He saw failure Indexes for expected demand and business conditions in the fifth district over the next six months, particularly in the service sector. Employment aspirations have not changed much over the same period. This month, companies’ six-month expectations for demand and business conditions were soft, and near-term employment prospects remained firm.

Every November, we ask organizations their outlook for work over the longer term: the next 12 months. Long-term job prospects also looked positive. Compared to last year, the same share of companies plans to increase employment in the next 12 months. The main reasons cited by businesses planning to increase employment are expected sales growth and overworked staff. With nearly four in 10 respondents planning to hire, businesses said they have recently struggled to find workers with the skills they need, prompting them to look for different ways to meet their workforce needs. Few companies plan to cut their workforce unless demand for their products and services unexpectedly declines.

Companies generally expect to increase or maintain employment in 2024

When asked about their outlook for their jobs in the next 12 months, responses were similar to those they gave in 2022, but not identical. Although only 12 percent of companies said they plan to cut jobs, that’s slightly higher than last year and the highest share in the past six years.

Organizations planning to increase employment in the next 12 months were asked to rate the top three factors. 77 percent of these companies plan to hire because of the expected sales growth, while 64 percent of their current employees are overworked.

But despite their best efforts, it was not easy for companies to find employees

Many organizations plan to hire in the next 12 months, but must find employees with the necessary skills. It turned out to be difficult. In fact, less than half of companies report having difficulty finding qualified applicants, and 24 percent report that candidates are unwilling to accept compensation packages offered to them. Only 19 percent were able to hire without difficulty.

Firms that said they had difficulty recruiting in the past three months were asked what they had tried to do to attract workers.

Less than half of businesses have focused on internal retention and promotion, a similar share have increased compensation, and 32 percent have begun hiring less qualified workers and providing on-the-job training. Many companies have tried many of these methods to meet their labor needs.

How will companies respond if demand drops unexpectedly?

While most firms plan to increase or maintain employment in 2024 despite recent expectations for demand and business conditions softening, an important follow-up question is how firms’ hiring forecasts might change in the face of a slower-than-expected slowdown. Economic activity? To understand how companies might react, we asked our survey participants how they would react in the next six months if demand for their products and services were 10 percent lower than they currently estimate.

Most companies responded that they would reduce headcount or reduce working hours. Thirty-seven percent of organizations said they would reduce headcount by not replacing departing employees, 29% said they would reduce headcount by selecting employees, and 28% said they would cut more hours. Currently more than expected. While 34 percent of companies say they expect current headcount, this still reflects a decline in job prospects. Of the 60 businesses that said they would continue their current headcount in the event of an unexpected downturn, 26 responded that they expect to hire.

Summary

While six-month expectations for demand and business conditions softened, employment expectations remained relatively unchanged in November. Data from annual inquiries in our November Business Surveys show that 12-month job prospects also remain positive. Most organizations plan to hire or retain their workforce over the next year. A relatively small share of companies plans to cut jobs. In addition, most organizations continue to have difficulty recruiting employees and are focused on, among other things, retaining and promoting employees, increasing compensation, or hiring and training less skilled employees. However, if they experience weaker-than-expected demand, many firms will reduce headcount.


The views expressed are those of the authors and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.



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