Interest Rates…
…are going up.
A lengthy report this week: some business news, the recession, but mostly about employment, employees and your workforce. So if you have no employees, skip it and go check the ‘gram. If you are having problems finding employees, you probably should read on…
The Fed (that government entity that all finance folks look to like the Eye of Sauron) is expected this week to continue to raise the Fed Funds Rate by 0.75%. That’ll take it to 2.25% to 2.5%. If you own a business and you borrow at the Prime Rate, you are starting to feel it.
Also in the news…
Freight rates are declining – finally.
Good news: After two years of rapidly rising freight expenses, the costs are not just leveling off – they are decreasing.
Bad news: You are still paying several times more than you did pre-pandemic.
Business insurance cost increases decrease – huh?
Yes, insurance costs are still rising, but at a decreasing rate. Well, I guess that’s good news…
Business activity declines sharply, according to the survey of purchasing managers.
The previous month, the index was 52.3. Anything over 50 indicates a belief that the business will be expanding.
In July, it dropped to 47.5. Anything under 50 indicates a contraction from the purchasing managers point of view.
Keep your business plans up to date and make sure you have a back-up plan.
It’s All in the Demographics…
OK, we are going full bore into the weeds to partially explain what is going on with the American economy.
Where we are now:
In a recession. As a reminder and for new readers, a recession is defined as two consecutive calendar quarters of economic contraction. Think of it as your boss coming to you and saying “Look, would you mind taking a 1.6% pay cut for the first quarter and then a 1.2% pay cut in the second quarter? That’s a good chap – you’re a company man!”
That’s a little bit like what’s happening to the totality of businesses in the United States.
Q2 results are not out yet, but the Atlanta Federal Reserve has estimated a second quarter contraction of 1.2%. That would make it a recession.
With a $23 trillion economy, that is a $276 billion cut in pay.
But wait, we have full employment! Yes, and this is where it gets into the weeds. Refill your coffee cup and we’ll be on our way.
Economic growth has been slowing for decades. Why? Well, let’s first examine a key driver for economic growth: companies making stuff and people buying stuff. The more people, the more stuff. The more stuff, the more growth. Or the people decide to buy less stuff. Why? Not enough cash, too expensive, borrowing is tight, spending falls, people get laid off etc. Easy enough. That would really be a recession (or the aftereffects) as we know it.
But what if there aren’t enough people? Well, then you are like Japan. Their population peaked in 2010 at 128.5 million. As of 2020, they are at 126.5 million. Their GDP also peaked in 2012. Their base case has a population of $87 million in 2060. Want to buy a house in Japan? Wait 40 years – it’s going to look like Detroit – vacancies everywhere. Their unemployment rate is 2.6%.
We are not Japan, but our population, and by extension our workforce, is growing at a reduced rate. Our participation and employee pool peaked in the ‘70’s and has been going down since.
Along with this, the workforce participation – the % of the population that can work or is looking for work – is also declining; it peaked at 67.3% in 2000. More people are leaving – retiring – from the workforce. Today’s participation rate at 62.2% is the lowest it’s been since Saturday Night Fever came out in 1977.
So, when you combine a reducing participation rate with a declining workforce growth, you can have the economy slow down without a significant increase in unemployment – like Japan. As I have said over the past several months, there are still 11 million jobs wanting to be filled. That’s why I’m not a doom and gloom guy for this downturn. In past downturns when the average worker got laid off, there really weren’t a lot of other jobs to choose from. In this downturn, there are. It’s just a question of how badly you want to be a server at your local Italian restaurant, also known as the under-employed. The real question is, what happens to future growth?
Let’s transition to your workforce…
I have talked to numerous companies that have had job candidates no-show for their interview without saying a word.
I have even heard of candidates getting offers and being a no-show for the first day but then answering the phone and stating they got a better offer elsewhere.
While signs are pointing to the job market cooling for salaried employees, it’s still hot for the hourly folks.
So what do you do when you successfully got them to interview and then show up for their first day? You keep them for 90 days!
The first 90 days are key.
For Waste Management, they consider the first 120 days key.
There is constant communication between the new hire and the hiring manager as well as the new hire and their co-workers.
The co-workers can leave anonymous messages for the hiring manager as a way of providing feedback – a checks and balances sort of thing.
Some companies have a specific Onboarding Coordinator whose job it is to make sure that the new hires are contacted before their first day, make sure all Day One tasks are completed, and that all company contacts are introduced to the new hire over the first two weeks.
It’s odd, but I always thought that was the hiring manager’s job. When did the hiring manager start abdicating their role in the new hire process?
If you are the hiring manager, leave nothing to chance.
Evidently statistics show that if you can get your new hire engaged in the first 90 days, they are very likely to stick around.
It used to be that you were using the first 90 days as a probationary period to see if they were a fit. Now your new hire is using the first 90 days to see if you are a good fit.
If they leave before the 90 days, the costs of lost time, training, supplies etc. are significant – it really does pay to make sure they stay – assuming they are a good fit for your company.
The key takeaway is to make sure that each new hire is celebrated. Baby boomers would scoff at this – “they should be happy to have a job” – is the “back-in-the-day” sentiment.
True, but your company should be happy to have them and happier to have them stay.
It should be a win-win.
That’s way too many warm and fuzzies for this boomer, so we’ll end on the “win-win” note. Have a good week!
