It’s been a summer full of contradictions for the US economy.
As recovery from the pandemic continues, we’ve experienced a tumultuous period of labor shortages, inflation, and now fears of an impending economic downturn. However, while some industries are facing very hard times and difficult choices, others are still booming.
“We’re just in this weird economy that sometimes feels like a recession, but is growing at the same time,” says Robert Daugherty, senior vice president of global talent acquisition at ZoomInfo.
Even the savviest recruiters and talent acquisition (TA) managers may find themselves struggling to navigate this “everything-is-weird economy.” Here’s what you need to know.
An Economy in Limbo
The August 2022 jobs report follows a surprisingly strong July 2022 jobs report, giving businesses a reason to remain cautiously optimistic.
Unemployment rose from 3.5% in July to 3.7% in August, but that coincides with an increase in the number of people actively seeking jobs, rather than major job reductions.
Hiring saw little change in July with 6.4 million positions filled across all industries.
Pay rates have increased overall, as average hourly earnings increased by 0.5% from June to July, higher than economists anticipated. As wages rise, consumer prices can follow — both factors in inflation.
However, in August, average hourly wages rose 0.3% from July, up 5.2% from last year. This indicates that the prolonged disparity between labor demand and supply might finally be realigning.
While these are encouraging signs that indicate a strong labor market, other trends indicate economic weakness — making it hard to agree on a cohesive narrative about where the economy is headed.
“Many people see good news as bad news these days,” says Julia Pollak, chief economist at ZipRecruiter, “because such strong job numbers imply that people are going to be spending a lot, and that inflation will be more persistent.”
Labor Force Participation
The labor force participation rate remained virtually unchanged this summer, moving from 62.2% in June to 62.1% in July, and then increasing to 62.4% in August.
That leaves the labor force one percentage point below its February 2020 level, showing some lingering effects of the pandemic.
The number of job openings dropped from 11.3 million in May to 11 million in June and landed up at 11.2 million on the last day of July. However, this is significantly more than the 6.9 million job openings of February 2020, showing a still-robust demand for talent.
A reported 4.2 million people quit their jobs between June and July, marking the 13th month that over 4 million people handed in their resignation.
“Companies are hiring far more people each month than they were, and still seeing more quits than before the pandemic,” Pollak noted. “As a result, many are dealing with huge recruiting and retention difficulties while facing way more churn than usual — and they are struggling.”
The period between mid-June to mid-July was tough for businesses as rising inflation, interest rates, gas prices, and a teetering stock market sparked fear about the possibility of an oncoming recession.
However, whether this period will actually be recorded as a recession is still debatable. Two quarters of negative GDP growth is usually shorthand for a recession, but the definition used by the National Bureau of Economic Research includes a much longer list of indicators, which all looked rosy through May.
If a recession is called, it won’t be for a while. A recession may have started in June or July, but many economists say it’s more likely that if a recession happens it will start in the fourth quarter or early next year.
“We may avoid a recession entirely. It could be that the gains we’ve seen in the labor market are self-perpetuating. When so many people gain jobs, they gain incomes, they spend more and businesses need to hire more,” Pollak says.
News of layoffs at major companies, such as Netflix, JPMorgan Chase, and Tesla, caused alarm. Many workers in these spaces turned to social media to announce their layoffs and find new jobs as a career-boosting strategy, further propelling recession fears among online professional networks.
The changes appear to be concentrated in the automotive, financial services, and tech industries. Many of the layoffs at US corporations have either been at startups that are suffering as venture capital (VC) funding gets pulled, or at large companies that are exposed to stock market fluctuations and face pressure from investors to cut costs and show profits.
While layoffs haven’t been widespread, the job cuts that have occurred could also be an echo of COVID-era scrambles for recovery. Following the initial phase of the pandemic, there was a ramp-up in hiring, while at the same time, many people couldn’t return to the labor market.
“Companies ended up hiring warm bodies to just do the work, sometimes two or three people to execute the same role. It could be that they now have to consider downsizing their workforces to achieve better efficiency,” Daugherty says.
According to the federal jobs report, layoffs and terminations were little changed at 1.3 million in July. When it comes to aggregate data, the reported layoffs are quite negligible and less than what they were before the pandemic.
It’s also important to note that other indicators — such as length of unemployment — aren’t increasing. This means that even if people are getting laid off, they are likely to get snatched up by other employers quickly.
Unevenness in the Labor Market
Despite a few sectors reducing their workforce, job growth in July and August was notable. Gains were seen mainly in leisure and hospitality, retail trade, professional and business services, and health care. This means that the labor market remains tight for those industries, continuing a particularly tough hiring environment for hospitals, restaurants, and hotels.
“Employers in these industries are giving workers second, third, fourth, 10th chances. They’re not laying people off because they can’t replace them. And this is still a great job seeker’s market,” Pollak says.
How will all this affect recruiters?
Regardless of whether a recession is officially called, businesses are already starting to act conservatively. Here’s how recruiters and TA managers will likely be impacted:
1. It’s Going to be a Long Haul
The challenges recruiters face now probably won’t resolve on their own. They have to focus on building processes that hold up in what is still a very tight labor market.
“We aren’t likely to see a sudden wave of people reentering the labor market. If your hiring challenges ease, it’ll be because your company’s business challenges are growing. Say unemployment goes up to 6% — your business won’t be doing well and you won’t need to hire in the first place. Hopefully, we avoid that scenario,” Pollack says.
Ironically, if things continue to improve in the economy, recruiters will face their current challenges for a prolonged period of time.
2. Speed is Key
To be successful in a hot labor market, recruiters have to drive the hiring process with speed, assuming that a strong candidate will have multiple offers on the table.
“Good talent has a short shelf life. Recruiters need to be more like salespeople. Whether it’s an entry-level opening or an executive hire, you’ve got to move fast,” Daugherty says.
Additionally, building out strong internal hiring processes also helps recruiters work quickly and more smoothly with internal stakeholders such as hiring managers, HR, and finance to convert candidates quickly.
3. Budget Constraints
With business leaders feeling pressure to reduce costs, recruiters may have to work with limited resources, even as costs overall continue to increase.
“The cost of recruiting has gone up significantly. Key indicators such as cost per click or cost per applicant have close to tripled from before the pandemic,” Daugherty says.
It boils down to supply and demand. Job boards that employ programmatic advertising have a tougher time getting applicants because there are fewer people in the market for a new job, making the whole process more expensive.
4. Make the Most of Technology
With tighter budgets, recruiters might have to consolidate their technology stacks or see what they can do without. TA teams should look to leverage technology, such as artificial intelligence, machine learning, and automation, to perform basic tasks and reduce costs.
While some people might be locked into long contracts with recruitment software providers, it’s less likely that they will be adding new tech as belts tighten.
5. Focus on Retention
While recruiters can bring new candidates in, companies must start to invest in retaining their own people.
Human resource departments must do the hard work of really listening to what candidates and workers want. Conducting interviews and surveys can help leaders learn how they can improve the experience of working for the company. Managers should be given tools to incentivize employees who have been performing well, especially at a time when companies are hiring candidates that they may not have considered in the past.
Here is some low-hanging fruit you might consider: