RX2 Solutions Q3 2023 Hiring & Economic Outlook

Despite what many news stations are reporting, the US economy is doing well, and we are still seeing strong demand for staffing services. Demand has gone down some from where it was in Q1 and Q2, and historically, we have experienced a slowdown during the summer months. This year, some of our clients are experiencing temporary hiring freezes in some departments as they wait and see what the economy will do, and fortunately, the outlook is positive.

We keep hearing about a pending recession, and some believe it’s already started. With a number of high profile companies announcing layoffs this year in Entertainment (Disney/ESPN, Paramount, Showtime/MTV), Tech (Microsoft/LinkedIn, Oracle, Meta), and Financial Services (JPMC, USAA, Morgan Stanley) many people believe that the economy is doing poorlyⁱ. It’s our opinion that the majority of these layoffs are due to a correction from over-hiring during COVID or from the consequences of making poor strategic decisions rather than from broader economic issues.

One factor that is worse than it was before the pandemic is inflation. To combat this, the Federal Reserve has increased interest rates from .25% to 5.25% from March 2022 until todayⁱⁱ. One of the consequences of the interest rate hikes and inflation is that US Savings Bonds have gone down in value leading the failure of Silicon Valley Bank and speculation of the overall economic health of the Countryⁱⁱⁱ. Increasing interest rates appears to be having the desired effect and inflation is down from over 9% in June 2022 to just over 4% today^iv.
The target inflation rate is 2% so there is still work to be done and the Fed has indicated that they will likely raise rates further this year which may have an impact on the demand for labor^v.

Unemployment, the measure of how many people are actively looking for work vs how many are working, reached a 20+ year low of 3.4% in April 2023 and is doing better than pre-pandemic levels^vi. The US unexpectedly added 339,000 jobs in May 2023, sending the stock market higher in June^vii. One factor that is worse than it was before the pandemic is the labor participation rate – this is the measure of how many non-incarcerated people between the ages of 18-65 are working. This rate was 63.4% in February 2020, hit a low of 60.8% in May 2020 and has slowly risen to 62.6% where it stands today. This represents that around seven million people who were working before the pandemic have not returned to the workforce yet^viii. There are a number of reasons why economists believe people have not returned to work including desire for higher wages reducing interest in low-paying jobs, aging baby boomers taking early retirement, increased dependent care needs, and a possible increase in people being paid under the table^ix. With unemployment rates being historically low and seven million people leaving the workforce that have not returned yet since 2020, it’s unlikely that we will see a dramatic shift in the labor supply in the near-term.

On the demand side, there are a historic number of advertised job vacancies in the US currently. Across all regions and industries there were 10.1 million job postings as of April 2023^x. Over the past 25 years, there were never more than 8 million postings (until mid-2021), and the historical average is around five million. Economists were surprised by the April numbers as the number of postings declined for three straight months from a near-historical high of 11.2 million in December 2022 and then spiked in April. This data is good news for employees and not necessarily the best news for employers as the demand for labor is high and the supply is low. This trend will likely lead to further increases in wages for employers to remain competitive in the marketplace and attract the talent they need. Some areas we’ve identified where employers can improve their hiring success is to increase their perceived employee benefits and to streamline and expedite their interview process. If you’d like to discuss your hiring strategy with RX2 Solutions and how we can play a part in it, feel free to reach out to info@rx2solutions.com, 610.340.3490.