LINE: Hiring Anticipation Grows as Recovery Gains Traction 

 

As the long labor-market recovery emerges, more manufacturers and service-sector companies are expected to add to their payrolls in March 2010 than did so in March 2009, according to the Society for Human Resource Management’s (SHRM) Leading Indicators of National Employment (LINE) survey, released March 5, 2010. 

“Though overall the labor market continues to struggle, LINE is revealing some positive trends,” said Jennifer Schramm, SHRM’s manager of workplace trends and forecasting. “This is the fifth month in a row in which hiring is up on an annual basis. HR professionals in manufacturing are reporting hiring rates at levels not seen since June 2008, and the percentage of companies hiring in the service sector is the highest since July 2007.”

The LINE Employment Report, based on a monthly survey of private-sector human resource professionals at more than 500 manufacturing and 500 service-sector companies, examines four key areas: employers’ hiring expectations, new-hire compensation, difficulty in recruiting top-level talent, and job vacancies. SHRM has tracked manufacturing-sector hiring trends since 2004 and service-sector trends since 2005 through its LINE indices, which are not seasonally adjusted.

Source: SHRM Leading Indicators of National Employment, www.shrm.org/line.

Meanwhile, monthly job cuts fell in February 2010 to the lowest level since 2006 as companies announced plans to reduce payrolls by only 42,090, according to the latest job cut report released March 3, 2010, by global outplacement consultancy Challenger, Gray & Christmas, Inc. The February 2010 total was down 41 percent from January’s 71,482 announced job cuts, according to Challenger—77 percent lower than the 186,350 job cuts announced in February 2009.

“Most economists agree that a recovery is well under way, a position that appears to be supported by declining job-cut activity,” said John A. Challenger, CEO of Challenger, Gray & Christmas. “It may be a couple of more months before hiring begins to surge, but it is clear that employers have shifted away from downsizing and are poised to start adding workers.”

Perhaps most telling of the economy’s turnaround are the declines experienced by some of 2009’s largest job cutters, says Challenger. For example, in the first two months of 2009, retailers announced 72,727 planned job cuts. So far in 2010, retail job cuts were down 75 percent to 18,271. In addition, by the same time in 2009 automotive companies had already announced 70,058 job cuts. As of February 2010, these firms had planned just 7,334 cuts—a 90 percent drop.

Pendulum Swinging to Job Creation?

The most recent LINE data show that hiring in March 2010 will reach levels not seen in quite some time. The percentage of manufacturers adding jobs in March (45.8 percent) is the highest since June 2008; the overall index improved by a net of 53.3 points, with a net of 33.7 percent of companies reporting they will hire in March 2010, compared with a net of 19.6 percent that conducted layoffs in 2009. In the service sector, 51.7 percent will hire in March 2010—the highest level since July 2007. The service hiring index rose for March by a net of 38.0 points (a net of 46.5 percent will add jobs, compared with a net of 8.5 percent that conducted hiring a year earlier).

March 2010 marks the ninth straight month that more companies will hire rather than cut jobs in manufacturing (45.8 percent will hire, 12.1 percent will eliminate jobs), and it is the 11th straight month this has occurred in the service sector (51.7 percent will add jobs, 5.2 percent will cut jobs).

“We are seeing more job cuts related to business strategy, as opposed to cuts stemming from recessionary pressure,” says Challenger. “In other words, we expect more cuts from mergers and acquisitions or from companies shifting focus from one business area to another.”

For example, one of the largest planned job cuts announced in February 2010 came from pharmaceutical giant Merck & Co., following its acquisition of competitor Schering-Plough. Database software company Oracle Corp. reported that there would be about 1,000 job cuts resulting from its acquisition of Sun Microsystems. At the same time, however, the company announced plans to add 2,000 workers over several months to support the newly acquired Sun businesses.

“Such moves may not make much sense to the casual observer,” says Challenger. “Why not simply move people around instead of announcing layoffs? However, it is not always as simple as that, particularly in the technology sector, where specialized skills that are not easily transferable are often required.

“What is most promising about these recent cuts is that they are being made to put the company in the best position to take advantage of future growth opportunities,” Challenger added.

Recruiting Difficulty

The swap of workers with differing skills sets will be manageable for most companies, SHRM LINE results show.

“Because there continues to be such a large pool of qualified job seekers, most HR professionals are not reporting increased recruiting difficulty yet,” says Schramm.

For the 12th consecutive month, the LINE recruiting difficulty index recorded single-digit response levels in February 2010 for those reporting increased difficulty with recruiting. In the manufacturing sector, the same percentage of companies reported less difficulty with recruiting as more difficulty (8.6 percent each, for a net of 0.0). This is still a sharp net increase from February 2009, when a net of 22.7 percent reported less difficulty with recruiting.

In the service sector, a net of 17.7 percent of companies had less difficulty recruiting (3.0 percent had more difficulty, 20.7 percent had less difficulty) in February 2010. This was also an increase from February 2009, when a net total of 26.2 percent of companies had less difficulty with finding top talent.

“Though increased recruiting difficulty is not currently widespread, the percentage of respondents who report that they are finding it more difficult to recruit for key positions is higher than at the same time last year,” says Schramm.

New-Hire Compensation

The continuing high rate of unemployment and a large pool of job seekers have given many companies the option of reducing the wages and benefits they are offering to new hires in the effort to control costs. But new-hire compensation edged into positive territory in February 2010, according to the LINE report.

In the manufacturing sector, a net total of 1.2 percent of respondents said they would increase new-hire compensation in February 2010 (2.8 percent increased, 1.6 percent decreased). That is an increase of 1 point from February 2009. In the service sector, a net total of 0.2 percent of companies raised new-hire compensation in February 2010 (3.1 percent increased, 2.9 percent decreased). That is a net increase of 4.2 points from February 2009, when a net of 4.0 percent of service companies decreased new-hire compensation.

The low rates of change in both sectors indicate that most organizations are keeping new-hire compensation rates flat and that people landing new jobs are continuing to accept relatively low wages and benefits as the labor market remains weak. Still, February 2010 marks the first month since July 2007 that the rate of increase for new-hire compensation rose in both sectors from the previous year.

“For many months, new-hire compensation was negative in both sectors, indicating that not only were companies keeping the compensation packages of new hires at a standstill, they were actually cutting the wage and benefits packages they were offering new employees,” says Schramm. “But last month the rate of new-hire compensation in both sectors rose on an annual basis.”

“Make no mistake, many are still struggling, but there is an overall sense that we have turned a corner. With downsizing showing dramatic signs of stabilization, chances are good that increased job creation is approaching,” said Challenger.