US companies wary about their economic prospects are battening down the hatches.
Recent job market data shows more and more businesses have taken to “labor hoarding” and maintaining headcounts even as demand softens.
Hiring has scaled back and so have layoffs (to an extent), as firms try to ride out any impending storm with what they have.
“I think there is quite a bit of hoarding going on in the labor market,” said Dana Peterson, chief economist at the Conference Board. “And that’s why we haven’t seen this big collapse in the labor market, because you still have some industries that are trying to catch up from pandemic losses; and then you have a whole number of businesses that are just holding on to people, waiting for the bad things to happen and then go away so they could get back to business.”
Headcounts have become increasingly stable at US businesses, according to the Conference Board’s survey of chief executive officers as well as a separate survey released Wednesday by the Business Roundtable.
Both reports, which tracked CEO sentiment during the second quarter, showed that executives’ hiring plans diminished, net workforce reduction expectations nudged slightly higher, and those who expected little to no change in headcount became the largest camp.
“CEOs have been saying for at least a year that they expect there will be a recession in the US, but it’s going to be shallow, and it’s going to be short,” Peterson said in an interview with CNN. “So if you think that the recession is not going to be too bad, and it’s not going to be too long, and you spent a lot of money trying to attract and retain labor, you’re less likely to let those people go.”
Cross-training and flexibility
As with any emerging industry, volatility is to be expected, but the cannabis industry in California has been particularly fraught.
Legal cannabis sales have declined in the Golden State and a growing number of firms have closed up shop amid issues such as increasing debt burdens, rising tax bills and declining wholesale prices.
CannaCraft, a cannabis grower, producer and retailer based in Sonoma County, is trying to keep its business sure-footed amid the California industry’s tumult and overall economic uncertainty, said Tiffany Devitt, the company’s chief of regulatory affairs.
“The cannabis industry in California and, frankly, nationwide has been rather unstable,” she said. “To a very large extent, our operational mission has been ‘stability, stability, stability,’ and part of that stability is our workforce.”
CannaCraft wasn’t immune to the “epidemic” of layoffs that hit the industry pre-pandemic, Devitt said. The company had to conduct a couple of rounds of job cuts and is running lean now, she said, adding that’s not expected to change in the next six to 12 months — even if there’s a downward turn in the economy or demand.
To weather volatile times, CannaCraft pulled back on new product releases; focused on cautious, strategic growth; and is prepared to shift employees to different roles as needed, she said.
“We cross-train our workforce [across areas such as agriculture, manufacturing, distribution and retail] and flex different parts of the organization to minimize seasonal employment and maximize full-time employment,” she said.
The data signals
At this point, the majority of industries have recouped their losses and have returned to or exceeded their pre-pandemic employment levels, Bureau of Labor Statistics data shows.
As such, the overall labor market is showing more signs of slack.
One of the areas where that’s showing up most clearly is in the unemployment claims data, with continuing claims — those filed by people already receiving unemployment insurance benefits — on an upward trend since last fall, said Stephen Juneau, senior US economist with Bank of America.
That suggests spells of unemployment are becoming more lasting, Juneau said.
“So if you do lose your job, you maybe aren’t seeing the same rehiring rate as you were earlier on in the pandemic recovery,” he said. “When you look at initial claims, on the flip side, they’re running at such low levels. That’s really a sign that we’re seeing these high retention rates.”
Labor turnover data also shows a similar trend. As of April, the rate of new hires as well as workers who quit their job as a percent of total employment matched their respective rates seen in February 2020, according to the Bureau of Labor Statistics’ Job Openings and Labor Turnover Survey (JOLTS) data released last week.
However, the layoff rate dropped to 1%, landing a tick above an all-time low and remaining below the 1.3% pre-pandemic average, according to JOLTS data.
Additionally, average hours worked have been on a decline since hitting a peak of 35 hours in January 2021. In May 2023, that average was 34.3 hours, BLS data shows.
“To us, that’s a signal that businesses are cutting back first on hours worked even though they’re still trying to fill open positions,” he said. “That speaks to that retention mentality.”
Holding on to skilled workers
Matt Bigelow, the president of American-made apparel company USA Brands, has seen a pullback in e-commerce sales for the company that makes and sells clothing under the Vermont Flannel Co., All American Clothing and Diamond Gusset Jean Co. brands.
However, the company has been fortunate that its retail stores are located in tourist destinations and have been able to capitalize on the post-pandemic travel surge, he said.
While Bigelow is closely monitoring for any softening in demand for apparel, he’s maintaining an approach of employee engagement and a focus on retention. He said he personally tries to spend an hour per week with each employee.
“When you have good people who believe in your mission and demonstrate your values, obviously you’re going to want to weather these temporary downturns,” he said. “Human capital is irreplaceable.”
And that’s especially true when there are fewer workers with these particular skills.
“It’s no secret that the apparel industry left the US en masse [in recent decades], so when we have the opportunity to hire someone with sewing experience or cutting experience, we do it,” he said.
‘Waddle through the winter’
In an industrial building located in the first-ring Twin Cities suburb of Roseville, Minnesota, Grey Duck Outdoor runs a “lean and mean,” 2.5-employee operation.
About 18 months ago, Rob Bossen, Grey Duck’s founder and then sole employee, made a decision to diversify the business and try to “onshore” the firm that sold stand-up paddle boards manufactured in China.
Bossen, a lover of canoeing trips in Minnesota’s scenic and remote Boundary Waters, first tested the new product waters by collaborating with Canadian manufacturer Rheaume Canoes. Following that launch, Bossen was approached by an experienced canoe-maker who became Grey Duck’s second full-time employee and helped produce canoes in Roseville.
After blockbuster sales in 2022, it’s been fairly quiet this year, Bossen said, noting retailers’ demand for the canoes and paddle boards have softened as sales patterns appear to be normalizing.
Grey Duck’s sales picture will become clearer in the next three months, Bossen said.
“We’re going to do whatever it takes to keep that staff employed and productive, even if things slow down,” he said.
And if the economy holds on through the summer, it’s likely Grey Duck will add some more workers next year, he said.
“We might waddle through the winter and then ramp up in the spring,” he said.
