SHRM's LINE Report August 2011


Layoffs pose concerns for country's economic recovery 

Don’t look now, but U.S. hiring is once again sliding down the slippery slope of the country’s economic recovery. Job growth will be scaled back in August 2011 compared with August 2010 in the manufacturing and service sectors, and payroll cuts are slowly starting to rise, according to the Society for Human Resource Management’s (SHRM) latest Leading Indicators of National Employment (LINE) survey report, released Aug. 4, 2011.

“The August LINE employment expectations index shows a worrisome rise in layoffs, especially in the service sector, where planned layoffs are more than double the rate from August 2010,” says Jennifer Schramm, GPHR, manager of SHRM’s Workplace Trends and Forecasting program. And with the recent flurry of job cuts announced by such heavy hitters as Cisco Systems, Lockheed Martin and BlackBerry maker Research in Motion, the question now is, “Is this only a temporary setback for the labor market’s recovery or a sign of a more troubling trend?” Schramm noted.

The LINE Employment Report examines four key areas: employers’ hiring expectations, job vacancies, difficulty in recruiting top-level talent and new-hire compensation. It is based on a monthly survey of private-sector human resource professionals at more than 500 manufacturing and 500 service-sector companies. Together, the sectors employ more than 90 percent of the nation’s private-sector workers.

Projected Hiring and Job Vacancies

The manufacturing hiring index will drop in August 2011 on a year-over-year basis by a net of 1.6 points (i.e., a net of 35.6 percent of companies will hire in August 2011, compared with a net of 37.2 percent that added jobs in August 2010). Service-sector hiring will decrease in August 2011 by a net of 19.1 points (i.e., a net of only 19.2 percent of companies will add jobs in August 2011, compared with a net of 38.3 percent that added jobs in August 2010).

The LINE results for August 2011 are in accord with recent federal data. Nonfarm payrolls grew by only 18,000 jobs in June 2011, according to the U.S. Labor Department’s Bureau of Labor Statistics (BLS). An even more troubling finding from the August LINE report is the rise in layoffs: 13.4 percent of manufacturers plan job cuts in August 2011, up from 7.7 percent in August 2010. The 15.3 percent of planned service-sector layoffs is more than double the rate from August 2010 (6.0 percent).

Salaried and hourly job vacancies, or open positions that employers are actively trying to fill, also have dropped slightly in the manufacturing sector and sharply in the service sector compared with July 2010. Changes in the number of job vacancies can be one of the earliest indicators of a shift in the balance between labor supply and demand.

In the manufacturing sector, a net total of 12.5 percent of respondents reported increases in exempt vacancies in July 2011, representing a 4.1-point decrease from reported exempt vacancies in July 2010. In the service sector, a net total of 0.9 percent of respondents reported increases in exempt vacancies in July 2011—a 15.7-point decrease from July 2010.

A net total of 17.6 percent of manufacturing respondents reported that nonexempt vacancies increased slightly in July 2011 (29.9 percent increased, 12.3 percent decreased). This represents a 2.1-point decrease from July 2010. There were 223,000 job openings in manufacturing in May 2011, down slightly from 226,000 in April 2011, according to the BLS.

For nonexempt service positions, a net total of 4.0 percent of respondents reported increased vacancies in July 2011 (26.3 percent increased, 22.3 percent decreased). This marked a decrease of 16.6 points from July 2010. The sharp drop in service vacancies might be partially a function of decreased hiring in temporary help services, which shed 12,000 jobs in June 2011, according to the BLS.

The tech industry is still hanging tough, however. “The Cisco cuts notwithstanding, the overall health of the technology sector remains very strong,” said John A. Challenger, CEO of consultancy Challenger, Gray & Christmas, in a statement reflecting on the sector’s recently announced job cuts. “In fact, it is one of the best-performing industries in the economy at the moment. It is highly unlikely that planned layoffs in the second half of [2011] will be heavy enough for the year-end total to surpass [2010’s] record-low 46,825 job cuts.”

The 14,308 tech-sector job cuts announced so far in 2011 represent just 5.8 percent of the 245,806 job cuts announced across all industries. In contrast to the 60 percent decline in tech-sector job cuts, the overall job cut total for the first half of 2011 is down only 17 percent from 2010’s six-month total, according to Challenger data.

“As many sectors outside of government continue to see relatively low downsizing activity, the tech sector is one of the few areas actually adding workers,” Challenger said. “Through June [2011], companies in the sector announced plans to add nearly 26,000 workers.”

According to BLS payroll, employment within computer systems design and related services has grown by 42,000 since the beginning of 2011. Computer and electronics manufacturers have added more than 12,000 workers to their payrolls.

The hiring should continue into the second half of 2011, according to a survey by IT job site The site’s June 2011 survey of nearly 900 hiring managers and recruiters found that 65 percent expect to hire more technology professionals in the second half of 2011 than the first half.

Recruiting Difficulty

Meanwhile, “the recruiting difficulty and new-hire compensation indices continue to rise, suggesting that even as many continue to struggle to find work there are also a large number of employers having trouble filling key positions,” Schramm says.

LINE’s recruiting difficulty index measures how difficult it is for firms to recruit candidates to fill the positions of greatest strategic importance to their companies.

In the manufacturing sector, a net of 14.7 percent of respondents had more difficulty with recruiting in July 2011. This is a modest net increase of 11.2 points from July 2010. In the service sector, a net of 0.8 percent of HR professionals had more difficulty recruiting in July 2011. This is a small increase of 2.7 points from July 2010 and, taken with the manufacturing data, suggests that the labor market is weak from a lack of demand and possibly from structural issues such as an overall market skills deficit.

Considering that millions of people are seeking work in their industries, the rise in recruiting difficulty might be attributed to new or enhanced skill requirements for newly created, high-level jobs. With the exception of March 2011, recruiting difficulty has risen on annual basis in both sectors for every month since December 2009.

“Job seekers possessing very in-demand skills may find a more welcoming labor market than the high unemployment rate would suggest,” Schramm said.

New-Hire Compensation

Chances are those skilled workers will find a better starting compensation package, too. July 2011 was the 10th consecutive month that the rate of increase for new employees’ wages and benefits rose.

During the recession, a high rate of unemployment and a large pool of job seekers in the market gave many companies the option of holding down the wages and benefits they offered new hires in a continuing effort to control costs. New-hire compensation is now beginning to rise, albeit slightly, according to LINE data.

In the manufacturing sector, a net total of 4.6 percent of respondents reported increasing new-hire compensation in July 2011 (7.6 percent reported increases, while 3 percent reported decreases). That is an increase of 2 points from July 2010. In the service sector, a net total of 12.3 percent of companies increased new-hire compensation in July 2011 (13.4 percent increased, 1.1 percent decreased). That represents a 5.8-point increase from July 2010.

With the exception of September 2010, the rate of new-hire compensation has risen in small increments on an annual basis in both sectors for every month since February 2010. But overall, most organizations are still keeping new-hire compensation rates flat. This is consistent with BLS findings that show that real average hourly earnings changed little from May to June 2011.

According to Mercer Consulting’s 2011/2012 U.S. Compensation Planning Survey report, 97 percent of 1,200 U.S. employers polled plan to increase salaries in 2012, too, with the average increase expected to be about 3 percent.

Half of that survey’s respondents said they intend to raise salaries to keep their top employees, many of whom have been working double time to compensate for staff reductions and hiring freezes.

“The risk of losing key employees weighs heavily on employers as their compensation budgets remain flat,” said Catherine Hartmann, a principal with Mercer’s rewards consulting business, in a statement about the survey findings. “Employers realize that to hang onto their best employees, they’re going to have to reward them. And while noncash rewards, such as training, enhance retention, base pay is still the most important element of the employment deal.

“Distinguishing pay based on performance is an effective way for employers to assess workforce needs and invest in those employees who will advance in the organization,” Hartmann said. “And by doing so, they’re establishing higher expectations for top performance—essentially a ‘new standard’ for their employees.”

So even though jobs are still scarce, “If you are a top performer in a critical role, you are still valuable in the marketplace,” Hartmann told in a July 27, 2011, article. “But it’s a select group of folks.”

Unsure whether you fall into that category? Then chances are you don’t, she said. “Those who are top performers know it.”

Theresa Minton-Eversole is an online editor/manager for SHRM.