The Economic Forecast: Vital Insight on Hiring Costs, Talent Availability and Wages

Tuesday, June 18, 2019

Executive Summary

What’s coming: the bull or the bear? Every day there’s a new prediction about the future of our economy – leaving many business leaders in a state of decision-making paralysis: Do I invest, cut back, or maintain the status quo? The question is especially pressing for hiring and procurement leaders responsible for navigating one of the scarcest talent markets ever.

No matter how you look at it, today’s market is volatile, unpredictable, and complex.

To provide insights and clarity to our customers, we sat down with Jason Thomas, Chief Economist at The Carlyle Group, Workforce Logiq’s parent company. At Carlyle, one of the largest and most successful global investment groups, Jason leads the firm’s economic and statistical analysis of macro-economic trends. Prior to joining Carlyle, he served on the White House staff as Special Assistant to the President and Director for Policy Development at the National Economic Council.

How do you expect the U.S. economy to perform over the next two years?

The economy is currently in a period of deceleration. After the headline-grabbing expansion in Q1 2019 (+3.2%), we expect growth to eventually level out to around 1.75% or as high as 2%. While we’re certainly observing a deceleration in growth, from our perspective, it’s not alarming.

Is there a recession on our horizon – and if so, how bad will it be?

It’s impossible to forecast the exact timing of a recession. Anyone who tells you differently is making promises that they cannot deliver. What we can project, however, is the depth and severity of a recession. And right now, all the indicators tell us that any upcoming slowdown or recession will be shallow and short lived. In fact, it’s possible that we’ll be climbing out of the next recession before it’s even been officially declared.

What economic indicators lead you to believe the next recession will be shallow and short lived?

The number one factor is the lack of excess capacity. Many of our past recessions have been exacerbated by imbalances – more capacity than could be sustained by final demand, such as more residential real estate development than available new home buyers, business capital expenditures that exceeded future demand, or excessive product inventory. When supply outstrips demand, organizations don’t need as many workers. Layoffs and production decreases create a vicious circle during any economic downturn – expanding and extending its impact as workers and business managers in unrelated industries feel less secure and cut back on their own spending.

The encouraging news is that business managers seem to have internalized these risks; as a result, there appears to be an intentional lack of excess supply in the economy. Some of this is technology driven as it’s become a lot easier to track inventories and forecast demand than in the past. Consumers and corporations are also behaving in a more risk-averse, conservative manner compared to prior economic cycles.

Workforce Logiq recently conducted proprietary consumer research and found that 72% of U.S. employees are planning to stay at their current jobs due to fear of an upcoming economic downturn. And 57% of workers believe that the economy is going to get worse over the next two years. Do they know something we don’t?

Employees’ willingness to leave jobs is a key indicator of consumer confidence. This data reveals a few things: First, as mentioned above, the market is more risk-averse than before. When people take less risk – jobs, stocks, real estate, entrepreneurism, etc. – it creates less imbalance and excess, and slower growth. It’s safe to say that most people staying put at their current jobs also are being more risk averse in their household purchasing. This helps to explain why our current recovery has been relatively slow, and why imbalances haven’t piled up.

The May 2019 jobs report supports Workforce Logiq’s research, showing that workers are still reluctant to quit their jobs to seek better opportunities elsewhere. The quits rate was flat at 2.5% for private-sector employees in May, according to the Labor Department. It’s one of the primary reasons hiring has been so hard.

Are employees making the wrong decision by staying put?

Quite possibly. Some are likely missing out on better opportunities. The problem is that people see 10 years of economic expansion and wrongly think that the market will come crashing down sooner rather than later. The conventional wisdom is that “it’s time” for something bad to happen to the economy. The reality is that downturns are not connected to length of expansion. There is no “right” number of positive years of growth before a downturn should occur.

The stock market is a good comparison. Psychological scars from the last crisis have made this one of the most unloved bull markets in history. While the S&P, Nasdaq, and Dow Jones are all up 300-plus percent since their lows in 2009, the percentage of Americans households owning stocks has declined from 65% in the pre-crisis year of 2007 to 55% now, which means nearly half of Americans missed out on one of the greatest periods of wealth-building in history.

Given the scarcity of available talent and the pressure organizations are under to fill jobs, a similar story is likely playing out in the workforce.

What’s the impact on wages and hiring? We keep hearing that wage growth has been relatively modest, but our clients experience something completely different in the marketplace.

Yes, overall wage growth has been moderate, but that’s not reflective of what we’re experiencing. In fact, the average doesn’t tell you much at all. If I was sitting in a room with Warren Buffet and Bill Gates, and you took an average of our net worth, the result would be unusable data.

Today, human capital income is the biggest driver in the disparity for wage costs. Looking at pre-2011 data, current unemployment rates would be consistent with wage growth in the 4.5 – 5% range. While the overall average isn’t close to that today, if you look at the pockets of the skilled workforce where demand has been consistently high, wages have hit and exceeded that number with regularity.

So, to recap: the economy is experiencing a deceleration, talent is still extremely scarce, and the next recession will be shallow and short lived. What’s your advice to hiring leaders?

There’s going to be a slowdown. But organizations can’t let that scare them into paralysis. Every recession impacts growth, employment levels, and wages – but I don’t expect the effects of the next downturn to be material, especially for the skilled workforce.

Finding the people you need to grow is very hard right now; you can’t afford to take your foot off the pedal. While overall deceleration is likely, it’s doubtful that we will see a measurable impact in the pockets of our economy where talent is in such high demand today.

Unless you believe the recession will be deep-rooted and protracted – which is contrary to my interpretation of available data – it’s unwise to slow your contingent or permanent hiring efforts, or lay people off with the intention of re-hiring when growth picks up.

Beyond the costs associated with hiring, re-training, and lost productivity, there’s a chance that skilled talent will be even more scarce – and likely more expensive – than it is now. The bottom line: don’t overreact in the event of a downturn – it should be short lived. Continue to proactively invest in creatively retaining, developing, and expanding your team.

Download a PDF of The Economic Forecast: Vital Insight on Hiring Costs, Talent Availability and Wages

For insight into our Workforce Logiq U.S. Employee Fear & Mobility Index Study, download our white paper and view our infographic.


Jason Thomas, The Carlyle Group’s Chief Economist

Jason Thomas is a Managing Director and Director of Research at The Carlyle Group, focusing on economic and statistical analysis of Carlyle portfolio data, asset prices, and broader trends in the global economy. He is based in Washington, D.C.

Mr. Thomas serves as the economic adviser to the firm’s corporate private equity, and real estate, and credit investment committees.  His research helps to identify new investment opportunities, advance strategic initiatives and corporate development, and support Carlyle investors.

Previous to joining Carlyle, Mr. Thomas was Vice President, Research at the Private Equity Council. Prior to that, he served on the White House staff as Special Assistant to the President and Director for Policy Development at the National Economic Council.  In this capacity, Mr. Thomas served as the primary adviser to the President for public finance.

Mr. Thomas received a B.A. from Claremont McKenna College and an M.S. and Ph.D. in finance from George Washington University where he studied as a Bank of America Foundation, Leo and Lillian Goodwin Foundation, and School of Business Fellow.

Mr. Thomas has earned the Chartered Financial Analyst (CFA) designation and is a financial risk manager (FRM) certified by the Global Association of Risk Professionals.

Related Insights

View all Posts