WASHINGTON, March 6 (Reuters) – At the worst of the pandemic labor shortage, convenience store chain Sprint Mart struggled to staff its southern U.S. stores as available workers drifted toward wages higher than Amazon.com Inc offered in its fulfillment centers or opted for flex jobs in the gig economy.
It took two years, sequential pay rises totaling 20% to 30% and new software to select your own schedule, but Sprint Mart’s chief human resources officer, Chris McKinney, said the Mississippi-based company had turned the corner, with a steady headcount at around 1,400 and enough applications in the pipeline to accommodate the turnover.
“We started gaining ground six to nine months ago, getting back to where we felt we needed to be,” after numbers dipped to 1,100, he said. “We are taking applications, and we are currently in a mode where we are not looking for an endless increase in hourly wages.”
In the Federal Reserve’s quest to tame inflation and find a stopping point for interest rate hikes, few dynamics will be as important as what has played out in Sprint Mart’s drive to bring workers to return to the type of frontline service jobs hardest hit by the pandemic.
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Fed officials, led by Chairman Jerome Powell, have pointed to hiring and wage trends in the broader service sector as central to their inflation outlook and, therefore, monetary policy. While there is disagreement over the extent to which wage increases directly influence price increases, Powell in particular said the recent pace of wage growth – ranging from 4.4% to over 6% per year by two common measures – is inconsistent with the Fed’s inflation mandate. .
This target is defined as a 2% annual increase in the Personal Consumption Expenditure Price Index (USPCEY=ECI), which in January was increasing at an annual rate of 5.4%.
Powell will present his semi-annual report to Congress on monetary policy and the economy this week, testifying before the Senate Banking Committee on Tuesday and the House Financial Services Committee on Wednesday.
If the Sprint Mart experience is any indication, the situation may be slowly improving in the Fed’s favor as companies slowly complete adjustments to wages, benefits and working conditions needed to stay competitive in the global economy. post-pandemic economy and, as McKinney put it, “flex the gas.”
Companies are “looking to have more workers rather than less. That’s a general proposition,” Atlanta Fed President Raphael Bostic told reporters last week. Yet they also “expect the pace of wage increases to slow and eventually normalize… We’re hearing broad consensus that it’s still in catch-up mode and going subside”.
‘PROVISIONAL SIGNALS’
As the labor market remains tight overall, with millions more workers than available, Atlanta Fed Vice President and Chief Economist Jon Willis said recent data and surveys show good reason to believe that wage growth will continue to slow.
After the pandemic-era adjustments, companies “are very conscious that they don’t want salaries to be too out of alignment with long-term plans,” he said. Data like a recent increase in the number of those choosing part-time work suggests companies are using flexible hours and other incentives besides higher wages to attract employees.
Upcoming data will tell the story in more detail, including the latest federal job openings and layoffs survey released Wednesday, followed Friday by a jobs report for February that will include an update on the wage growth.
Like Willis, private economists and analysts at payroll firms and staffing firms also see a stressed but adjusting labor market.
A recent study by Goldman Sachs concluded that wage growth should continue to slow even with the current low unemployment rate of 3.4%. Once the pandemic-related changes are complete, companies won’t have to perpetually increase worker incentives beyond the new baseline, wrote Goldman Sachs economist Manuel Abecasis. Between lower inflation, a slow but steady decline in job creation and the end of pandemic adjustments, wage growth is expected to fall by the end of next year at the considered 3.5% annual rate. as more in line with the Fed’s inflation targets.
Fed officials at their January 31-February 31 meeting. 1 meeting seemed to generally agree that there were “tentative signs” that hiring was getting easier and employment cost growth was slowing, according to meeting minutes.
An explosion of 517,000 new jobs added in January raised concerns that the economy remains too hot. But even that was accompanied by a slowdown in wage growth, and the gain was amplified by seasonal adjustments used to account for expected fluctuations in hiring during the holidays and summer. Companies have apparently retained more vacation staff than usual, which could dampen future seasonal hiring and bring the labor market closer to equilibrium.
TAKE UP THE SLAM
A job posting index from recruitment firm Indeed remains above pre-pandemic levels, but is trending lower. The closely watched “quits” rate, seen as an indicator of the overall strength of the labor market, has been declining for about a year, although it remains above pre-pandemic levels.
There have also been high-profile layoffs. But while a series of firings at companies like Alphabet Inc’s Google and parent meta-platforms Facebook have rattled the tech industry, other companies are picking up the slack.
“It’s no big surprise that the big companies are the ones laying off. They’ve exceeded expectations” during the pandemic, said Dave Gilbertson, vice president of payroll provider UKG. The company’s analysis showed that scores at companies with more than 5,000 people fell 3% in January.
By contrast, companies with 50 to 250 employees, which are often a strong contributor to U.S. job growth, accounted for more than half of average net hires in the three months to December, the largest share since the start of the pandemic, according to the Federal Job openings and hiring data.
Nela Richardson, chief economist at payroll processor ADP, said that while economy-wide hiring remains strong, tech layoffs could help dampen overall wage growth.
Information from ADP shows that the median salary in the tech sector is falling as layoffs add to the pool of available workers. A drop she has seen in overall job turnover rates also likely means less bargaining power for workers than at the start of the pandemic.
“If this is a trend…we would expect there to be less momentum for wage growth,” she said.
Reporting by Howard Schneider; Editing by Dan Burns and Andrea Ricci
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