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What Do Softened Business Expectations Mean for Hiring?

Regional Matters
November 28, 2023

In October, we saw a downturn in our Fifth District indexes for expected demand and business conditions over the next six months, especially in the service sector. Employment expectations over the same period, however, remained largely unchanged. This month, firms' six-month expectations for demand and business conditions remained soft, and near-term employment expectations remained steady.

Every November, we ask firms for their employment outlook over a longer time horizon: the next 12 months. Longer-run employment expectations also appeared to remain positive. Compared to last year, a similar share of firms plans to increase employment over the next 12 months. Among businesses that plan to increase employment, the most cited reasons were high expected sales growth and overworked staff. While nearly four in 10 respondents plan to hire, businesses reported recent difficulty finding workers with the necessary skills, leading them to seek various ways to meet their workforce needs. Few firms planned to decrease their workforce unless demand for their products and services decreases unexpectedly.

Firms Generally Expect to Either Increase or Maintain Employment in 2024

When asked about their employment outlook over the next 12 months, responses were similar, but not identical, to those in 2022. Thirty-eight percent of firms plan to increase employment, and half plan to leave it unchanged. Although only 12 percent of firms noted that they plan to decrease employment, that is up slightly from last year and is the highest share in the last six years.

Firms that planned to increase employment over the next 12 months were then asked to rank the three most important reasons. Seventy-seven percent of these firms plan to hire because expected sales growth is high, while 64 percent said that their current staff are overworked.

But Finding Workers Hasn't Been Easy for Firms, Despite Their Best Efforts

Many firms plan to hire over the next 12 months, but finding workers with the necessary skills has proved difficult. In fact, just under half of firms noted their difficulty finding qualified applicants, and 24 percent reported that candidates are not willing to accept offered compensation packages. Only 19 percent have been able to hire without difficulty.

Firms that reported difficulty hiring workers in the last three months were asked what they have tried to attract workers.

Just under half of businesses have focused on retaining and promoting internally, a similar share has increased compensation, and 32 percent has begun hiring less-qualified workers and providing on-the-job training. Many firms have tried several of these approaches to meet their labor demand.

How Would Firms React if Demand Decreased Unexpectedly?

While most firms plan to increase or maintain employment in 2024 despite softened near-term expectations for demand and business conditions, one important follow-up question is: How might firms' employment projections change in the case of a bigger-than-expected slowdown in economic activity? To get a sense of how firms might react, we asked our survey participants how they would respond over the next six months if demand for their products and services was 10 percent lower than they currently anticipate.

Most firms responded that they would either reduce headcount or hours worked. Thirty-seven percent of firms reported that they would reduce headcount more than currently anticipated by not replacing workers who leave the firm, 29 percent reported that they would reduce headcount by selectively laying off workers, and 28 percent responded that they would reduce hours worked more than currently anticipated. While 34 percent of firms reported that they would maintain current headcount, this still represents a decline in employment expectations. Of the 60 businesses that reported they would maintain current headcount in the event of an unexpected downturn, 26 previously responded that they expected to hire.


Despite softened six-month expectations for demand and business conditions, employment expectations in November remained relatively unchanged. Data from annual questions in our November business surveys suggest that 12-month employment expectations also remain positive. Most firms either plan to hire or maintain their workforce over the next year. A relatively small share of firms plans to decrease employment. Additionally, most firms continue to have difficulty hiring workers and have, among other things, focused on retaining and promoting workers, increasing compensation, or hiring less-skilled workers and investing in training. However, if faced with weaker-than-expected demand, more firms would likely reduce headcount.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.