Fifth District Firms' Employment Expectations for the Year Ahead: Findings From the September Business Surveys

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Introduction

In our September business surveys, we asked Fifth District firms a series of special questions about their employment expectations for full-time workers for the year ahead. Most firms (83 percent) intend to increase full-time employment or hold it steady. However, 17 percent of firms intend to decrease their full-time employment levels. Of the firms that plan to decrease employment, the majority intend to use either attrition or a combination of attrition and layoffs. They also cited uncertainty and rising costs as the main reasons for a reduction in labor. Meanwhile, firms that indicated plans to increase employment expect to do so in response to projected demand increase.

Most Firms Expect to Maintain or Increase Employment in the Next Year

Over the next year, most firms expect to increase or maintain their current number of full-time employees. Manufacturing firms (28 percent) were slightly more likely to expect increases in employment than non-manufacturing firms (23 percent). Almost 1 in 5 firms expect to decrease headcount over the next year, with similar shares between manufacturers and non-manufacturers (19 percent and 16 percent, respectively).

The main reasons that firms expect to increase employment are 1) projected increases in demand (59 percent); 2) invested in new products, services or markets (44 percent); and 3) overworked current staff (37 percent). Manufacturing and non-manufacturing firms expressed some differences in their reasons to increase headcount. For example, manufacturing firms were more likely to report continuous hiring, whereas non-manufacturing firms expect increased demand and the need to alleviate overworked staff. Several firms provided "other" reasons for increasing full-time employment, such as succession planning and a desire to hire any skilled workers in the applicant pool.

Among the firms that expect a decrease in full-time employment over the next year, economic uncertainty (65 percent), reduction in operating costs (65 percent), reduction in labor due to other cost increases (60 percent), and expected declines in demand (49 percent) were the most cited reasons. Manufacturing firms were more likely to cite economic uncertainty (80 percent) and a decline in demand (60 percent), whereas non-manufacturing firms were more likely to cite a reduction in operating costs (68 percent) and a reduction in labor due to other cost increases (64 percent).

How Do Firms Expect to Decrease Full-Time Employment Levels?

Overall, 17 percent of firms in our September survey expect to decrease employment over the next year. Of these firms, a majority expect to do so through attrition (82 percent). Non-manufacturing firms were more likely to use only attrition (67 percent) rather than only layoffs (8 percent) or a combination of attrition and layoffs (17 percent). Manufacturers were more likely to use a combination of both attrition and layoffs (50 percent) instead of a single headcount reduction strategy.

Conclusion

Firms expect increased demand and investment in new products, services, or markets as the main reasons for increasing employment. On the other hand, the reasons for reducing headcount were economic uncertainty, a decline in demand, and higher costs. A small number of firms that plan to decrease employment expect to do so largely through attrition or a combination of attrition and layoffs, depending on firm type. We will continue to monitor business conditions as they evolve and further our understanding of our region's economy and the conditions faced by Fifth District businesses.

Views expressed are those of the author(s) and do not necessarily reflect those of the Federal Reserve Bank of Richmond or the Federal Reserve System.