Upcoming Downturn in Labor Needs
January 13, 2023
Labor issues have burdened businesses since the COVID-19 pandemic started. With a recession coming in 2024, how may your labor needs change for the future? Tune in to the latest episode of TrendsTalk with ITR Economics Senior Forecaster Connor Lokar to learn more.
The below transcript is a literal translation of the podcast audio that has been machine generated by Rev.
Hello, everyone. Connor Lokar, Senior Forecaster and Keynote Presenter with ITR Economics, checking in, for another TrendsTalk. Today, we're talking labor, and how your needs evaluation may or may not have changed, based on ITR's new and lowered forecast for 2024.
Now, I'm going to assume most of you have heard about that forecast change, at this point, but in the off-chance you had a super busy holiday season and missed it, I'd recommend you check out our Trends Report or any of our other TrendsTalks, from the last four weeks or so, because we've discussed it at length. Super abbreviated outcome is that recession is coming, not right away, but starting late this year, and extending through the majority of 2024.
So, with that in mind, what do we do about labor? Most businesses have been forced to engage in that unprecedented, and just horrible war for talent, over the last couple of years, in the wake of COVID 19. And some folks might even be excited about a recessionary outcome fixing all of your problems. I would caution against that. We are certainly more confident at ITR, in these slowing and eventual contracting macroeconomic environment, to fix things like inflation. To fix things like the supply chain problems, which are both actively improving. Inflation rates are coming down. Supply chain is actively getting better.
Labor is a little trickier. Now, to be fair, some aspects of labor are going to get better, certainly, over the next 12 to 24 months. For example, parties seeing the National Quit Rate, which is a statistical measure of turnover, that's coming down. And weakening economic conditions, higher economic angst, and likely slowing job openings growth, if not some outright job openings decline, should see your retention metrics improve. A lot of my clients have said that they noticed that, particularly, in the second half of 2022 for themselves. So, we've got that going for us.
Additionally, our forecast of easing inflation pressure, this year and next, should alleviate some of that burden on employers to give out monster raises, to match or exceed inflation. So, keeping labor, and the cost of keeping it, should be a little bit easier to manage, over the next couple of years, compared to the last couple of years. But, what about just the absolute need? The absolute demand for labor? Is finding new people going to become easy? Short answer, I think that's doubtful. It's just unlikely to happen. Just the way that we are demographically constructed right now. Some food for thought.
At present, the manufacturing industry job openings, 12 month moving average, is roughly 840,000 open; 840,000 open manufacturing positions. Now, you might be curious to know, that the mid- 2019 pre-COVID job openings peak was in the neighborhood of 470,000. So, let's just say, that manufacturing job openings collapsed by 40%, as a result of this mild recession. ITR's forecasting, and manufacturers back way off on hiring and job postings. You know what that would bring job openings down to? Around 500,000 above the COVID 19 level. Meaning, it would still be harder to find people, there would be more openings than before COVID, even with a huge drop in openings. And we don't necessarily see that as probable, because with nearshoring, reshoring efforts, buttressing overall manufacturing trends in North America, we just don't see a collapse of that magnitude, especially with a mild recession.
I remember, all too well, in my presentations on the road in 2019, before COVID, labor was a massive issue, even then, in the trades, in manufacturing, trucking, any skilled labor position. So, I guess that lengthy preamble is to say, do not overreact to 2023-2024 in our forecast. This will not fix your labor problems long term. Like I said, it'll make some things easier to manage over the next year or two. And sure, some areas like mortgage lending, tech positions, startups, and all the terrible headlines that you've been reading about; layoffs from Amazon Meta, Microsoft, so on and so forth.
But unless you're of the mind that you're going to take a laid off Gen Z-er from Amazon or Facebook, and plug them into hourly shift work at the plant or the fab shop, or into operating an excavator, you're still going to have problems. So, hold onto your A and B level talent. Sure, avoid over-hiring in the short term, but I'd be trying to use any slack that may appear next year, to refill the ranks. Get ready for growth in 2025, and beyond, and stay committed to those long-term investments into productivity and efficiency, that are going to bear fruit, offset labor inflation for years to come. Something to think about. So, that's it for this one. I'll see you on the next one. Thanks for stopping by.