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09/19/2012

What We Heard on Labor Markets

Every Federal Open Market Committee (FOMC) cycle, the Atlanta Fed's Regional Executives meet with business and community leaders to ascertain the current and future state of the economy. We focus on several areas, perhaps none more important than employment. Here's our take on what we learned about labor markets in August through early September:

A review of Regional Economic Information Network (REIN) reports on labor market developments over the past FOMC cycle does not reveal a "downshift" in hiring. That said, reports do not indicate an increase either. The overriding theme from the current FOMC cycle, and from the last several cycles, is that businesses remain very conservative and are only hiring full-time staff to meet current needs. We saw some acceleration in hiring earlier in the year based on the need to staff up to necessary levels, but the increase in hiring tapered off in the spring.

There was little evidence that firms see the need to add to staff to meet expected needs. Hiring seems to be concentrated in getting to the appropriate staffing levels to accommodate growth in business specific to new customers, which mainly reflects market share gains by these companies. Evidence that hiring is tied to organic growth is limited.

Weak sales expectations and a lack of clarity about the near-term outlook were cited most often when businesses were asked why their hiring intentions remained subdued. With regard to the latter, we continue to hear that uncertainty over tax and regulatory policies was a significant factor in keeping businesses conservative in their approach to hiring.

When considered in total, our take is that it appears that weak sales expectations were the overriding factor in limiting hiring. When firms see clear evidence of increasing sales, hiring is taking place. However, when improvement is marginal or volatile or unknown, uncertainty is factoring into decisions to keep workforce levels unchanged.

In sectors where demand is strong, hiring is occurring. For example, energy exploration and extraction firms are increasing their workforces, or they plan to. Auto manufacturers and suppliers are running at capacity, and that increased demand will result in either additional hours or staff. Another area where some hiring momentum appears to be building is the housing sector, where some builders and building products manufacturers reported adding to staff to meet increases in broader demand. That said, we have not seen a turn with regard to construction employment data through July.

Many companies reported that they are shifting existing employees' responsibilities from less productive divisions to more productive areas as they struggle to restructure themselves to adapt to current conditions. In addition, the underlying, ongoing theme of technology replacing labor in certain occupations—most notably, those that can be described as performing routine tasks—continues.

And the ongoing theme of difficulty finding qualified workers for some specialized positions was reinforced during the current FOMC cycle. Several contacts report that finding qualified candidates for certain specialized positions remains a challenge. Trucking and energy firms were the most vocal about this lack, but across the board firms were searching hard to find qualified IT-related workers, engineers, and finance/accounting experts.

Our bottom line is that demand—or the lack thereof—appears to be the driving force behind hiring decisions. Uncertainty and limited visibility are having an impact on hiring decisions at the margin. The ongoing drive for efficiency through the application of technology is also playing a role in limiting overall increases in workforces.

Going forward, we will continue to tap our network and reach out to businesses and community leaders to plumb labor market conditions.

Photo of Michael ChrisztBy Mike Chriszt, a vice president in the Atlanta Fed's research department

September 19, 2012 in Employment | Permalink

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