As U.S. jobs go begging, forget those monthly gains of 200,000

Register now

(Bloomberg) – Gail Reinhart of Hidden Creek Landscaping Inc. has been feeling the crunch.

As the peak season for her industry ramped up, job applicants were scarcer than usual though business was soaring. It took almost a year to find a new project manager, one design position remained open and she was hoping to find four more interns for the summer rush.

“Earlier, we’d get a decent number of applications we could pull from,” but now there aren’t enough, said Reinhart, who runs human resources for the 95-employee business located near Columbus, Ohio. And it’s hard to match offers from larger rivals, who often sweeten their competing package for a candidate and “blow it right out of the water,” she said.

Hidden Creek’s woes are emblematic of small firms across the U.S., who face persistent vacancies or are turning away customers because they lack enough staff in a tight job market. Such difficulties also indicate nationwide payroll gains will eventually cool from this year’s average monthly pace of 200,000, amid relatively slow growth in the labor force.

“We’re not going to be able to sustain that 200,000 pace month in and month out,” said Ryan Sweet, head of monetary-policy research at Moody’s Analytics Inc. in West Chester, Pennsylvania. “Businesses of all different sizes will have to ramp up their efforts to get workers. It’s even more problematic for small employers.”

Ahead of the government’s monthly employment report due Friday, ADP Research Institute figures showed small firms’ hiring lagged that of large companies in May, similar to the trend in recent years.

What to expect from the may jobs report

Nonfarm payrolls projected to rise 190k after 164k gain, continuing run of solid growth Unemployment rate probably held at 3.9%, lowest since 2000 and below the 4.5% rate Federal Reserve officials see as consistent with full employment Average hourly earnings seen rising 2.6% y/y for a fourth month, continuing trend of modest pay gains Carl Riccadonna of Bloomberg Economics: “If payroll gains continue to handily exceed the natural growth rate of the labor force, the unemployment rate will fall further over the next several months.”

Some 22% of small businesses in April said finding qualified workers was their “single most important business problem,” ahead of taxes or regulations, according to the National Federation of Independent Business. Some 35% reported positions they weren’t able to fill, while a net 33% raised compensation, matching March for the highest share since November 2000.

Small companies are nonetheless adopting many of their larger rivals’ tactics that are creative and sometimes cheaper, ranging from part-time jobs, flexible shifts, or allowing people to work from home, to helping with student-loan repayments. They’re also using more technology and social media to reach potential hires, especially millennials.

Unlike large firms who can poach employees easily because of resources including dedicated recruitment teams, small companies “don’t have the benefits packages to attract” workers amid the shortage of qualified labor, said Martin Mucci, chief executive officer of Rochester, New York-based Paychex Inc., a provider of payrolls processing and other services to more than 600,000 U.S. businesses.

Lately, small-firm employment is moderating, consistent with the later stage of an economic cycle, Mucci said. During the past year, job growth slowed nearly 1% for businesses with fewer than 50 employees while cooling only a quarter of a percent for those that employ up to 1,000 people, a Paychex analysis showed. A small-business jobs index developed by Paychex and IHS Markit fell 0.7% in the year through May and is near its lowest level since 2011.

While Hidden Creek’s $8.6 million in sales wouldn’t quite fit the image of small firms typical of the landscaping industry, size matters when it comes to competing with larger regional or national chains. “The biggest thing we come up against is benefits” even when “doing well in wages,” Reinhart said.

The company is paying $1 per hour more than in 2017, has boosted health-insurance contributions and is allowing all workers to participate in a retirement plan earlier meant for salaried staff. It’s also sharing the cost of maintaining uniforms, and running apprenticeship-type training. Still, larger rivals have bigger budgets and full-time recruiters, while that’s just one of the many hats Reinhart said she wears.

“We also have to see what’s sustainable for us. If we just keep paying people more and more, we’ll have to pass on the costs,” she said. “But if you start charging more, that starts to turn off customers. We’re in a Catch-22.”

Thin profit margins and stiff competition in the fast-growing food and beverage industry around Charleston, South Carolina, also are hurdles for Corner House Cafe. Manager Jacki Mallett said she found only two new hires in three months to bring staffing to 10, four short of her ideal level. “It’s a very tight ship right now,” she said.

Recruitment is by word of mouth, storefront postings and Facebook ads to lure students looking to pick up extra cash. The $8-an-hour-plus-tips job pays just above the state’s $7.25 minimum wage, but comes with half-off food and free coffee. Workers choose their schedule, with some doing just 10 hours a week -- flexibility Mallett touts to attract and retain employees.

“We’re all competing for the same people,” she said.

Bloomberg News
Recruiting Workforce management Workplace management Employee retention Employee turnover Employee engagement