Fifth District Employment: Findings From the June Business Surveys

Introduction

In our June business surveys¹, we asked Fifth District firms how their ability to hire workers has changed since last year and what their expectations are for their workforces over the next six months. Firms reported little change in their ability to hire workers compared to this time last year. Moreover, firms that experienced changes in their ability to hire workers, for better or for worse, cited changes in the labor pool — both in size and skills available — as the driving factor. Over the next six months, most firms expect to hold headcount steady. However, the minority of firms planning on reducing headcount intend to do so through attrition.

Firms Report Few Changes in Hiring Challenges Compared to Last Year

Overall, about half of responding firms in our June survey reported it being about the same level of difficulty to hire workers compared to this time last year. However, fewer services firms (49 percent) reported their ability to hire being the same as last year compared to manufacturing firms (54 percent). Slightly more services firms (29 percent) reported it being easier to hire compared to manufacturing firms (22 percent).

When asked for reasons why hiring became more or less difficult, several themes emerged. The applicant pool — both the quantity and quality — had the largest impact on making the hiring environment harder or easier. Firms reporting more difficulty in hiring indicated that fewer applicants had the skills required for the position (66 percent), and 61 percent reported too few applicants applied. There were other factors why the hiring environment was more difficult, such as candidates dropping out of the hiring process with no communication (32 percent), candidates refusing to accept the level of compensation (30 percent), and candidates refusing a position based on an inability to work from home or have a hybrid posture (23 percent). As an engineering firm in North Carolina said, "The biggest challenge that we face is finding skilled workers in the civil engineering field. In addition, when we find candidates, the available compensation package does not align with the exorbitant cost of housing."

Among those who found the hiring environment easier, 83 percent of firms said that more applicants were applying for jobs, 59 percent reported that more applicants had the necessary skills, and 49 percent reported that more applicants were willing to accept the offered compensation. Interestingly, only 3 percent of such firms eased their hiring requirements, suggesting a more favorable labor market for some employers.

Firm's Expect Employment to Hold Steady — With Caveats — in Next Six Months

Over the next 6 months, most firms expect to keep employment levels unchanged. However, more manufacturing firms (69 percent) expect to maintain headcount than services firms (63 percent). Of the firms that do expect a change in employment levels, slightly more expect to increase their employment levels rather than decrease them (21 percent versus 15 percent). There are differences between these two types of firms, as services firms were more likely to expect increased employment levels compared to manufacturing firms (25 percent versus 11 percent).

Among firms expecting to have fewer employees in the next six months, 47 percent of these firms plan to decrease headcount primarily through only attrition, while 16 percent of firms plan on using only layoffs, and 16 percent expect to use a combination of attrition and layoffs.

Why Do Firms Intend to Change Headcount?

The top reasons that businesses cited for expected reduction in employment levels were needing to reduce operating costs (76 percent), expecting a decrease in demand (68 percent), and economic uncertainty (53 percent). As a Maryland equipment manufacturer noted, "We see customers continue to hold back spending while they try to understand the overall uncertainty around the economy."

On the other side, most firms that expect an increase in employment levels need to increase headcount due to expected increases in demand (56 percent). According to a real estate brokerage firm in North Carolina, "Our property management department has been static until two years ago when we had a change in leadership. Our accounts have doubled, and we need new people to handle the increased workload and to be able to expand further."

Firms also reported needing to increase headcount because their current staff are overworked (31 percent), they are releasing new products (30 percent), or they are always looking to increase employment levels (22 percent).

Looking Ahead to the Future of Our District's Labor Market

It is uncertain what our region's labor market will look like in the next six months. Businesses — via our surveys — provide us with their expectations on where they believe employment is heading. This information provides us with a signal on how firms are feeling about the direction of business conditions. In our most recent survey, firms reported little change compared to one year ago in the ease or difficulty of hiring workers. Additionally, most firms plan to keep employment levels the same. About 1 in 10 responding firms plan to have fewer employees in the next six months, achieved mostly through attrition.

Understanding the health of our labor market is critical in understanding the health of our regional economy. As business conditions evolve, we will continue to ask businesses throughout the Fifth District about realized and expected changes in their employment.

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.