The U.S. is poised to have a big year of hiring, especially after consecutive months of strong growth to kick off 2022. But global turmoil may present challenges and uncertainty for many businesses. The Russia-Ukraine war and the recent surge in Covid cases and lockdowns in China both elevate the risk for a recession in 2022 or 2023.
Also, rising energy prices will likely increase the pace of inflation, global trade could be interrupted resulting in further supply-chain challenges, and broader conflict or economic recession in Europe could all impact the U.S. economy.
Despite the uncertainty abroad, 2022 did begin with an incredibly strong start to hiring in the U.S. Job gains for January and February totaled 1.2 million. Before the pandemic, annual job gains averaged just over two million, so job gains for the first two months are equivalent to roughly six months’ of gains in pre-pandemic times.
The progress is likely to slow throughout this year as we approach recovery. We are currently about 2.1 million jobs below pre-pandemic employment, so even with moderate gains of around 200,000 jobs per month, the U.S. will reach pre-pandemic employment levels by the end of this year. Since January 2021, the economy has averaged 562,000 jobs per month — at that pace we will reach pre-pandemic employment levels by this June!
Getting Back to Normal
This month marks exactly two years since everything shut down in the early days of the pandemic. The U.S. economy has proven more resilient than many expected — the labor force and job market are nearly back to pre-pandemic levels, and it feels like day-to-day life is returning to normal.
Reflecting back, travel was much more limited, and restaurants and bars were operating at reduced capacity, if they were open at all. Workers and business owners in leisure and hospitality were among the hardest hit by the pandemic. And while there is still a long way to recovery, the industry consistently shows the biggest gains. Leisure and hospitality employment increased by 179,000 jobs in February, whereby 1 in 4 national job gains last month was in this sector.
Contributing to the feeling of normalcy, many cities and states that were at the epicenter of the early outbreak and subsequent waves — like California, Massachusetts, and New York — have rescinded mask mandates and other restrictions. Additional pandemic waves are likely to come, but the labor market and economy both have proven to persevere during delta and omicron. Businesses and workers are now accustomed to adapting to these cycles.
The Longer Road to Normal
Many things are starting to feel more normal compared to the past two years, but the labor market remains one of the tightest in recent memory. Businesses across industries continue to struggle with finding and retaining talent. The unemployment rate fell to 3.8% in February, and there are over 11 million job openings but just 6.3 million unemployed workers.
The low unemployment rate makes competition for talent even more challenging. In some places, the talent crunch is even more evident. With unemployment rates below 2.5% in places like Salt Lake City; Madison, Wis.; and Lincoln, Neb., it’s even more difficult to fill open roles. Employers in these markets may be looking elsewhere for talent, but it could be challenging given the lower wages compared to larger cities. And those larger markets will be lower-cost areas for talent as well. This cycle is one of many factors contributing to wage growth.
Speaking of, rising wages have been great for workers, although largely mitigated by rising prices and inflation. Still, businesses are struggling to keep up. In February, inflation hit a four-decade high, with prices for key consumer goods rising 7.9% over the past 12 months, while average hourly earnings rose by 5.1% over the same period.
Things have been particularly difficult for some sectors, like no-profit organizations, many of which have historically paid lower wages. We have been hearing from a lot of nonprofits lately that they are losing talent due to higher wages in other industries. As more for-profit organizations begin to offer employees the opportunity for mission-driven work, with higher pay and flexible working conditions, nonprofits are facing pressure to craft competitive compensation strategies to attract and retain talent.
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Remote Work Impact on Local Economies…and Real Estate
Remote and hybrid work are here to stay, benefitting some businesses and locations while providing additional challenges for others. The businesses poised to capitalize on remote work tend to be in high-paying and high-cost-of-living areas. But for lower-paying areas that tend to have lower costs-of-living, businesses face another set of challenges — their talent is getting poached with higher-paying offers.
In lower-paying areas, these trends can hurt businesses and industries with a majority of office jobs, as such work can now be done remotely. However, local economies may benefit because residents have more money to spend in other local businesses, like bars and restaurants. In recent meetings, we have heard from businesses in Amarillo, Boise, and Greensboro that are losing talent to companies in New York (paying New York salaries) or big firms that can offer higher pay than smaller local businesses.
Conversely, businesses in higher-paying areas, such as New York and San Francisco, are poaching talent by offering remote work at wages higher than local firms can afford to pay. However, in these more expensive locales, certain businesses, especially in the service industry, don’t have the option to hire remote workers. As more businesses in these cities increase the share of the remote workforce, the service industry could suffer even more as there’s less foot traffic in city centers.
Remote and flexible work have also shaken up real estate markets across the country. Markets that have previously experienced relatively slow growth are now seeing big increases in home prices, so rising salaries are often necessary to afford a home in a new city.
Focusing on two of the examples mentioned — according to data from Realtor.com and the Federal Reserve Bank of St. Louis — Amarillo has seen home prices rise by over 30% to $315,000 since February 2020. In the two years prior, prices increased only by around 10% total. And in Boise, home prices have increased from $377,000 in January 2018 to just over $700,000 in January 2022. People migrating to those markets for work are faced with higher housing costs, which reinforces the higher salaries needed. The question is when the cyclical equation of wage and expense inflation will end, or at least slow in pace.
Employee Turnover = Talent Acquisition in High Demand
2021 was a record year for labor-market turnover. Hires, quits, and job openings all reached record highs, and HR and TA professionals were kept hard at work. Expect turnover to remain elevated this year, but things should ease from last year’s all-time highs. In January, hires remained steady from the previous month at 6.5 million, while job openings and quits decreased slightly to 11.3 million and 4.3 million, respectively.
While it looks like turnover and hiring will moderate in 2022, numbers will remain elevated as we continue the path to recovery and expansion. Talent acquisition professionals will remain in high demand as businesses shift focus to competitive compensation to retain workers.