After playing wage catch-up, U.S. firms may have found their footing
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[March 06, 2023] By
Howard Schneider
WASHINGTON (Reuters) - At the worst of the pandemic labor crunch,
convenience store chain Sprint Mart struggled to staff its shops across
the southern U.S. as available workers drifted to the higher wages
Amazon.com Inc offered at its fulfillment centers or opted for flexible
gig economy jobs.
It took two years, sequential wage hikes totaling 20%-30%, and new
pick-your-own-schedule software, but Sprint Mart human resources chief
Chris McKinney said the Mississippi-based firm has rounded the corner,
with headcount stable at around 1,400 and enough applications in the
pipeline to account for turnover.
"We started gaining traction six to nine months back, returning to where
we felt we need to be," after staffing dipped as low as 1,100, he said.
"We are getting the applications, and we are in a mode right now that we
aren't chasing a never-ending increase in hourly wages."
In the Federal Reserve's quest to tame inflation and find a stopping
point for interest rate increases, few dynamics will be as important as
what played out in Sprint Mart's drive to coax workers back to the sort
of front-line service jobs hit hardest by the pandemic.
Fed officials, chief among them Chair Jerome Powell, have singled out
hiring and wage trends in the broad service sector as central to their
outlook for inflation and, therefore, monetary policy. While there is
disagreement about the degree to which wage increases directly influence
price hikes, Powell in particular has said the recent pace of wage
growth - anywhere from 4.4% to over 6% annually according to two common
measures - is inconsistent with the Fed's inflation mandate.
That target is defined as a 2% annual increase in the Personal
Consumption Expenditures price index, which as of January was rising at
a 5.4% annual rate.
Powell this week will deliver his semiannual report to Congress on
monetary policy and the economy, testifying before the Senate Banking
Committee on Tuesday and House Financial Services Committee on
Wednesday.
If Sprint Mart's experience is any indication, the situation may be
slowly improving in the Fed's favor as companies bit-by-bit finish the
wage, benefit and working-condition adjustments needed to stay
competitive in the post-pandemic economy and, as McKinney put it, "ease
off the gas."
Businesses "are looking to have more workers than fewer. That is a
general proposition," Atlanta Fed President Raphael Bostic told
reporters last week. Yet they also "expect to ratchet down the pace of
wage increases and eventually expect it to normalize...We are hearing a
great consensus that this is still in catch-up mode and that it will
attenuate."
'TENTATIVE SIGNS'
While the job market overall remains tight, with millions more workers
needed than are available, Atlanta Fed Vice President and Senior
Economist Jon Willis said recent data and surveys show good reasons to
think wage growth will keep slowing.
After pandemic-era adjustments, companies "are very much aware that they
do not want to get wages too much out of alignment with long-term
plans," he said. Data like a recent jump in those choosing part-time
work suggests firms are using flexibility on hours and other incentives
short of higher wages to attract employees.
Upcoming data will tell the tale more fully, including the latest
federal survey on job openings and layoffs released Wednesday, followed
Friday by an employment report for February that will include an update
on wage growth.
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A sign advertising job openings at
Jenkinson?s Boardwalk is posted in Point Pleasant Beach, New Jersey,
U.S., May 25, 2021. REUTERS/Joseph Ax/File Photo/File Photo
Like Willis, private economists and analysts at payroll firms and
staffing companies also see a labor market that is stressed but
adjusting.
A recent Goldman Sachs study concluded wage growth should continue
slowing even with the current low unemployment rate of 3.4%. Once
pandemic-related changes are completed, companies won't have to
perpetually ratchet worker incentives beyond the new baseline,
Goldman Sachs economist Manuel Abecasis wrote. Between lower
inflation, a slow but steady drop in job openings, and a wrapping up
of pandemic adjustments, wage growth should fall by the end of next
year to the 3.5% annual rate considered more consistent with the
Fed's inflation goals.
Fed officials at their Jan. 31-Feb. 1 meeting appeared to generally
agree there were "tentative signs" hiring was getting easier and
growth in employment costs was slowing, meeting minutes showed.
A blowout 517,000 new jobs added in January raised some concerns
that the economy remained too hot. But even that came with slowing
wage growth, and the gain was amplified by seasonal adjustments used
to factor out expected swings in hiring during holidays and summer.
Firms apparently retained more holiday staff than usual, which may
mute future seasonal hiring and bring the labor market closer to
balance.
PICKING UP THE SLACK
An index of job openings from hiring firm Indeed remains above
pre-pandemic levels, but has been trending down. The closely watched
"quits" rate, considered a proxy for the overall strength of the
labor market, has been falling for about a year even as it remains
above pre-pandemic levels.
There also have been high-profile layoffs. But while rounds of
firing at companies like Alphabet Inc's Google and Facebook-parent
Meta Platforms have roiled the tech industry, other firms are
picking up the slack.
"It's not a big surprise that larger companies are the ones doing
layoffs. They overachieved" during the pandemic, said Dave
Gilbertson, vice president of payroll provider UKG. The company's
analysis showed time clock punches at firms of more than 5,000
dropped 3% in January.
By contrast firms in the 50 to 250 employee range, often strong
contributors to U.S. job growth, accounted for more than half of
average net hiring over the three months ending in December, the
largest share since the start of the pandemic, according to federal
job openings and hiring data.
Nela Richardson, chief economist at payroll processor ADP, said even
as economy-wide hiring remains strong, the tech layoffs may be
helping mute overall wage growth.
ADP information shows the median tech sector salary is in decline,
with layoffs adding to the available worker pool. A drop she has
seen in overall job turnover rates likely also means less worker
bargaining power than earlier in the pandemic.
"If that is a trend...we would expect there would be less drive for
wage growth," she said.
(Reporting by Howard Schneider; Editing by Dan Burns and Andrea
Ricci)
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