Is it time to celebrate or send out an SOS?

Is it time to celebrate or send out an SOS?

by Sara Bennett | October 5, 2023

0 Author-Jeanne, Hiring Strategies and Tactics

There are some things going on in the current job market that aren’t showing up in the headlines!

Yes, we just got the news that September produced 336,000 new jobs – blowing out all predictions and giving ongoing testimony to the resilience of the US job market in the face of so many reasons to slow down. Unlike August, where job growth was focused on leisure/hospitality and healthcare jobs, increases in government jobs was added to the list of primary job growth drivers in September.  Is that a good thing? 

Some look at these numbers as signs of a healthy economy – clearly showing how much the job market is marching to its own drum, resistant to both escalating inflating and threats of slowdown. Others worry these numbers will signal the federal reserve to go for another round of interest rate hikes to settle us down.  Increases in interest rates have a disparate and negative impact on small to medium sized employers.

Whether the economy starts to sail, heads for a soft landing, or takes a deep dive into recessionary territory, is a prediction still up for grabs and well outside our pay grade to make comment. The purpose of this blog is to talk about trends in the current employment market that our clients may or may not be seeing. Our reference point for the comments to follow come from public data but also what we are seeing in our own business.  Because PACE offers a full menu of staffing solutions that support all kinds of staffing strategies, we are in a good place to watch how employers are choosing to get work done.     

First, let’s talk about what is going on in the world of temporary staffing.     

One of the trends that is likely outside mainstream visibility is what is going on in temporary staffing businesses across America.  As backdrop for the comments to follow, the employer community’s use of temporary staffing is often looked to as one of the canaries in the economic mine shift.  When temporary staffing slows, some economists believe its a sign of a weakening economy.  At the same time, when employers turn to temporary employees as a way to get work done, they are also hedging their bets against a dicey future by reducing their fixed commitments to more employees.

So what’s going on now??????

You may or may not be surprised to learn that the number of temporary employees working in US businesses has been trending downwards since it hit it’s peak in early 2022.  Whether that is an SOS from a very wise but resilient canary or something else is up for grabs. A downtick lasting this long without culminating in a recession is clearly not the norm.      

This national data has been echoed in our own business where the number of requests we have been fielding for temporary assignments has been declining on a year over year basis since January of this year. Here’s what we’re seeing….

  • Traditional Temporary Staffing. Our recruiting team hasn’t been fielding requests for short term temporary staff – the 2 week to 1 month type of assignments that historically represented the traditional side of temporary staffing – since before the COVID downtick. We suspect this trend means companies are staffed up at levels that allow them to deal with short term staffing absences or blips in their business cycle without the need for interim employees. They are clearly preferring to staff up with full time permanent employees.
  • Project Staffing. Project work, requiring large numbers of temporary staff, were prevalent throughout 2022 and drove up the demand for “temps”.  As these projects came to an end in 2023, there doesn’t appear to be the same need for project staffing that would absorb the employees losing their contract or temporary roles.
  • Temp to Hire Staffing. At PACE, we’re still doing a lot what we call Extended Selection, (temp to hire staffing), but employers today are moving more quickly to hire our “temps”, than they have in the past – shortening up the auditioning period. It’s almost like employers have a huge appetite to staff up now, before the next disruption?????  We are also seeing this trend on the direct hire side of our business where we continue to field more and more requests for recruiting support from clients who are clearly preferring to hire direct, even though the candidate marketplace is making that increasingly difficult to do.
  • Strategic Staffing. Believe it or not, one of the trends that hasn’t happened this year that we thought would, would be the increased use of flexible staffing models (using temporary and contract staff in lieu of hiring direct) as a way to deal with extended periods of economic uncertainty. It simply hasn’t happened as we had anticipated or hoped…..see our comments to follow.

Hiring Trends – Growing Headcounts! 

The preference we are seeing in the current marketplace for our clients to add permanent FTEs to their teams  instead of using more flexible staffing models (long term temporary or contract workers) is of interest to us as it seems contrary to what we expected from businesses dealing with extended periods of uncertainty. That said, it is a trend that is very familiar to us.     

The decline in temporary staffing, driven largely by our clients preference to hire direct rather than embrace flexible staffing models,  was a trend we saw in 2001, again in 2008, and in both cases proceeded sharp downticks in all forms of staffing PLUS an increase in layoffs. 

Is that what is to follow now?  We’re not sure.    

From our perch a significant factor in the reduction in use of temporary staffing not often talked about is the decline in the quantity and quality of the workers available for either temporary assignments or long term employment.  Not unexpectedly the employment marketplace has been dominated by companies choosing to hire direct as a way to compete for top talent – even when long term, that may not be in their best interests.  And they make these decisions to add to their fixed headcounts, knowing there is some risk of layoffs down the road if the economy sours.

And what we know is that is the vicious cycle that ultimately leads to reductions in temporary staffing.  The more employers choose to hire direct, the fewer number of quality employees available to be placed into temporary roles.

Even if they wanted to, its very difficult for employers to execute flexible staffing strategies in a tight candidate market where there simply aren’t enough talented employees to go around!     

Looking at this trend from where we sit, walking into 2023, we anticipated that employers, facing economic uncertainty, would embrace flexible workforce strategies as a way to hedge their bets against a potentially recessionary economic cycle. We actually tried to make the case that employers didn’t always have to add to staff to grow,  and that  it might be smarter to consider  more flexible staffing models that might be better equipped to support growth in an unpredictable or volatile economy. We talked about how hiring, only to layoff later, might jeopardize their brand, and worse case, compromise their ability to retain their core employees.

Given the increases we are seeing in our clients preference to hire direct instead of electing more flexible ways of getting work done that better fit periods of economic uncertainty,  it would appear something else has been in play. 

We suspect that the very tight candidate market has forced employers to increase their commitments to permanent staff – commitments that might not be in their best interests down the road. 

Candidate shortages in almost all areas of the marketplace is a systemic issue that will continue to get worse, not better.      

Unemployment Rates are Increasing but What Underlies those Increases

We’re definitely noting that there are more candidates (and notice I didn’t say better) entering the marketplace now then there have been post COVID. Nationally, increases in unemployment and labor participation rates, both bringing good news for small to medium sized employers, first showed up in August and were maintained in  September.

There are many scenarios that might be driving this positive change for companies in a hiring mode, but an increase in employee fears around job security is definitely in the mix of possible causes.

If Mary and John – once a two income family but now choosing a lifestyle based only one parent working – start to worry that John will lose his job, Mary is likely to start looking for work.

Employers have been looking for a way to tap into the female marketplace that got dramatically hit during and after COVID. Getting this segment of the workforce back to work would make a huge difference in the employment marketplace, and offer an opportunity for small to medium sized employers to hire employees who need more flexible work arrangements.

Strategic Right Sizing’s – Pending Lay Offs

While we’re seeing large companies continuing to strategically downsize – engineering new work processes, investing in new technologies to get work done, right sizing their businesses to deal with changing consumer demands – we’re not yet seeing the same with small to medium sized businesses, who are still adding to staff just to keep up.

The data indicates that while lay offs actually decreased in September compared to August, they are up 58% over what they were in September 2022.  That should tell us what is happening in the big picture.

As affirmation of this trend, according to last quarter’s Business Roundtable CEO Survey, 32% of CEO’s plan to decrease their headcounts in the next 3 months, a trend that has been on the move since late last year.

Issues with hiring, employee demands for increased wages to offset inflation, increases in minimum wage levels, and mandated benefit offerings – are all things that have prompted larger employers to look carefully at growing their head counts.  Companies with deep pockets are turning to investments in technology rather than people to get more done with fewer FTEs. 

What Happened to the Great Resignation?

Some good news for employers in the latest job market data is that this thing called the “Great Resignation” may have finally come to an end. July data showed quit rates declining to levels we hadn’t seen since early 2021.  Employees appear to be getting the message that if you quit your job there may not be another one waiting or you.

While the numbers of quits may be declining, we’re yet to see how this change will impact the challenges of the current candidate marketplace which is very impacted by issues with candidate quality.   From our perch, chronic quitters haven’t exactly been our best candidates.

The continued mismatch between the skills our clients want and the skills that out there in the candidate marketplace continues to be a serious strategic issue for all employers, with small to medium sized companies feeling the most painful pinch.  Unfortunately there is no quick fix!

PACE Staffing Network is one of the Puget Sound’s premier staffing /recruiting agencies and has been helping Northwest employers find and hire employees based on the “right fit” for over 45 years.

A 5-time winner of the coveted “Best in Staffing” designation , PACE is ranked in the top 2% of staffing agencies nationwide based on annual surveys of customer satisfaction.

PACE services include temporary and contract staffing, temp to hire auditionsdirect hire professional recruiting servicesEmployer of Record (payroll) services, and a large menu of candidate assessment services our clients can purchase a la carte.

If you’re a hiring manager looking for a service that will actually “make a difference” to who and how you hire, contact us at 425-637-3312 or fill out this form and we’ll be in touch!

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