The State of Hiring in the Fifth District

The past two years have been marked by a historically tight labor market in which many firms have had difficulty hiring and retaining workers who possess the necessary skill sets. In a recent post, we explored evidence from our business surveys that suggests that the labor market may be cooling somewhat. Our employment and availability of skills indexes have returned to pre-pandemic levels, and our estimates of wage growth have come down from their 2022 peak. Nonetheless, wage growth estimates remain above pre-pandemic levels, and data from our August surveys suggests that many firms are still having trouble hiring and retaining workers with the desired skills. This is especially true among manufacturing firms, which continue to have a harder time hiring workers with the necessary skill sets than their service-sector counterparts.

Manufacturing Firms Are Having Difficulty Finding Skilled Workers…

The manufacturing and service sector availability of skills indexes indicate that on balance, it has not gotten harder to hire workers with the right skills — but it is still not easy. To construct these indexes, we subtract the share of firms that report more difficulty finding workers with the necessary skills in the past month from the share of firms that report it has gotten easier. When the index is above zero, a larger share of firms reported that it was easier to find workers with the necessary skills. Toward the end of 2021, the indexes began increasing for both sectors, but earlier this year, the manufacturing index flattened below zero while the services index continued its upward trajectory.

This suggests that, while more service-sector firms are having an easier time finding workers with the right skill sets, manufacturing firms are still struggling to find the workers they need.

…And It Doesn't Look Like It's Getting Any Easier to Hire or Retain Workers

In our August survey, we asked firms how the ease of hiring or retaining workers with low-, mid-, and high-skill¹ backgrounds has changed since the beginning of 2023. For many firms, hiring workers at each skill level is just as difficult now as it was at the beginning of the year.

However, to the extent that difficulty hiring workers has changed since the beginning of 2023, it has become more difficult for both manufacturers and service providers to hire mid- and high-skilled workers. These findings are in line with outreach in the Fifth District, specifically among construction and real estate firms, which are included in the service sector survey. Relatively few firms reported that finding workers of any skill level has gotten easier over the course of the year.

It has not gotten noticeably easier to retain workers either. Although compared to hiring, a larger share of firms across sectors reported the same difficulty retaining workers (rather than increased difficulty) in the past nine months.

Of those firms reporting changes in the difficulty retaining workers, manufacturing firms seem to be having more difficulty retaining workers at all three skill levels, whereas service-sector firms reported experiencing more difficulty retaining mid- and high-skilled workers.

When we asked these questions in September of last year, a much larger share of firms reported finding it more difficult to hire and retain all workers (especially mid- and high-skilled workers). So, even though firms generally aren't reporting that it is getting easier to hire and retain workers, difficulty hiring and retaining isn't increasing for most firms in our sample like it was this time last year.

What Are Firms' Hiring Plans Going Forward?

There are other indications from the Fifth District business surveys that although labor market expansion is cooling somewhat, firms are not taking actions that are often precursors to employment declines. Responses to additional August special questions indicate that only a minority of firms have plans over the next three months to reduce temporary workers, permanent employees, hours worked, or job openings.

Of these actions, firms are most likely to reduce their number of postings, but many firms also have plans to continue hiring over the next three months.

Forty-nine percent of firms plan on hiring for new positions, while 60 percent plan to hire for replacement positions.

Conclusion

There are indications that the extremely hot Fifth District labor market may be cooling somewhat. Nonetheless, few firms report much easing in their ability to find or retain workers with the desired skill sets. In fact, for some firms, hiring and retaining mid- and high-skilled workers has become more difficult. In addition, few firms have any intention to reduce their workforce or employee hours. Most firms plan to hire for either new or replacement positions over the next several months.