RESOURCE GROUP
Quarterly Barometer Q3 2023
Q3 2023 Quarterly Barometer: A Midyear Outlook
In this, our second Quarterly Barometer, we have once again curated the most important and trusted data shaping the labor and job market and packaged it for our clients, candidates and followers. We received a ton of great feedback from our inaugural Barometer, and we are committed to improving it with each issue. As a reminder, we are not economists, hedgefund managers, or fortune tellers, but we are deeply curious and have spent the past 20 years living and breathing talent and the many forces that impact Finance and Accounting. This commentary is presented as our opinion and is meant to add to the ongoing conversation related to the economy, labor market and the interesting twists and turns of our current landscape. We have aggregated data from numerous reputable sources and presented them here. We have pulled together the most important statistics in one spot so that we have a 360° view of the factors affecting the job market, and more specifically, the Southern California Finance and Accounting sector.
As before, we will discuss what we are personally seeing in the market and will share interesting insights on the data or interpretations. We
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would also love to hear your take on the current labor and job landscape. This is an ongoing conversation, so feel free to email me (Jhannigan@ allianceresourcegroup.com) your thoughts and recommendations for making the Barometer even more valuable. I want to stress that an accurate view of the labor market is crucial for decision-making at all levels of an organization. We continue to hear nonstop chatter about the job market, inflation and the possibilities of a recession. There are plenty of predictions and sentiment studies, but our finance backgrounds always point us to the data. It’s imperative that you have accurate information to make smart hiring and compensation decisions, plan any workforce reductions or expansions, and develop effective retention strategies. Without the right data, you can’t do any of those things with confidence. I also want to stress that the data points related to unemployment, labor participation, and other charts in the Quarterly Barometer cover all types of jobs. Within the Accounting and Finance sector, the market is even tighter. And that is not going away anytime soon. In this Barometer, you’ll find a snapshot of what happened in Q2 from a data-driven perspective with some additional commentary. We’ll also include a look ahead at what we think are the most important considerations for Southern California leaders for the remainder of 2023.
I hope you find it informative, actionable, and relevant to the decisions you are making.
Jennifer Hannigan Founder and CEO Alliance Resource Group
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Key Findings Media and economists can talk about a slowing economy, but employment and the job market need to be evaluated on their own terms. • Unemployment rates remain at historic lows, even with the Federal Reserve raising interest rates to cool inflation and no longer predicting a recession. This raises hope of a soft landing. • Nonfarm employment growth remains robust, and people continue to return to the job market as evidenced by the labor force participation rates seen in this report. • Surprising virtually everyone, inflation rates have dramatically dropped to 3% over the past 12 months. Just as this report was being pulled together, the Fed raised interest rates by 25 basis points. Many experts predict this will be the last adjustment for a while. Overall, this is very promising — inflation is down in conjunction with a cooling but still very robust labor market. • The trailing 12-month wage growth exceeds the inflation rate for the first time since early 2021. All things being equal, we would expect this to relieve some of the upward pressure on wages as we move into the second half of the year. • The sentiment regarding a pending and almost inevitable recession has shifted to a more positive view that we might escape a deep recession and may even experience a soft landing.
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• Return to Office (RTO) policies are becoming bolder with the pressure to return to the office building momentum. Fully remote work is becoming somewhat scarce except in some very specific types of roles. Throughout Southern California, employers are expecting their employees physically back in the office in at least a hybrid capacity. • In Southern California, the competition for Accounting and Finance talent is still very strong. If you are an employer, retention absolutely should be your top priority. Make sure you are reviewing compensation, benefits and culture before your best team members exit for more appealing opportunities.
Most experts now agree that a 2023 recession seems unlikely. With this new forecast, leadership teams may want to recalibrate their plans, greenlight projects that had been put on hold, and reassess headcount and hiring needs.
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ARG Insights Unemployment
As of June 2023, the national unemployment rate was 3.6% — essentially the same as the March numbers we presented last quarter. Los Angeles came in at 4.8% and Orange County landed at a rock-bottom 3.2% ( see charts on page 11). These unemployment rates remain historically low even after the Fed aggressively raised interest rates to tame inflation. As noted in our last Quarterly Barometer, the job market continues to be incredibly hot. The Accounting and Finance sector remains even tighter. We have seen the talent supply in Southern California dwindle for various reasons, including people leaving the industry in pursuit of other careers, out-of- state relocations, and fewer college graduates entering the field. The demand for Accounting and Finance professionals continues to outpace the supply. Job Growth, Labor Force Participation, and Job Openings According to data from the Bureau of Labor Statistics (BLS), total nonfarm payroll employment increased by another 209,000 in June. Nonfarm employment has grown by an average of 278,000 per month over the first 6 months of 2023 — lower than the average of 399,000 per month we saw in 2022, but still quite robust. Furthermore, the job market remains above pre-pandemic norms. To put this in perspective: Between 2010 and 2019, the economy added an average of 183,000 jobs per month. So, the job market may have slowed a bit, but it is still incredibly strong — far outpacing anything we’ve seen in recent history. The labor force participation rate from March to June 2023 remained steady at 62.7% despite job growth nearing the pre-pandemic era high of 63.3% (see chart on page 13).
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With national unemployment at 3.6% and a total Civilian Labor Force of 167 million workers (see chart on page 13), you might logically infer that approximately 6 million workers are looking for work or are in transition. But according to the U.S. Bureau of Labor Statistics, there are an estimated 9.8 million job openings (see chart on page 12). Consistent with our comments in last quarter’s Barometer, there simply aren’t enough workers to fill the number of open jobs in the United States, and we know the gap is even wider for professional-level roles and roles that require a specific knowledge set or skill. Inflation Rate and Growth of Wages From the second quarter of 2021 through this quarter, the inflation rate has outpaced the growth of wages. Understandably, it has been challenging for companies and hiring managers to wrap their heads around the increase in compensation costs associated with talent and labor. But as the chart on page 14 shows, trailing 12-month wage increases have now exceeded inflation rates. Absent other outside circumstances, this should relieve some of the upward wage pressure on employers moving forward due to the inflationary trends. As of June 2023, the trailing 12-month change in the Consumer Price Index (inflation rate) is down substantially to 3%. This was the smallest 12-month increase since the period ending March 2021. As this rate approaches the Federal Reserve’s target inflation rate of 2%, markets are hopeful that the Fed will pause further tightening. Talk of Recession The threat of a recession has received a lot of media attention over the past year. But with inflation appearing to come under control and unemployment still near record lows, there is a lot of hope (and media speculation) that we may be headed for a soft landing — a return to acceptable inflation without a large rise in unemployment. It is true that the yield curve remains inverted (see chart on page 15), which is a leading predictor of recession in the
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coming 12 months. And, yes, there have been some notable layoffs recently. But as we have noted in the past, Accounting and Finance departments rarely find themselves overstaffed, and they are rarely among the first departments to be hit with cuts. This combined with the obvious supply and demand challenge for professional talent gives us comfort that the Accounting and Finance talent market will drive right through any mild recession that may come. Return to Office The pandemic opened the opportunity of alternate working arrangements for employees that had not been common before we were forced from the traditional work environment for most workers. Work-from-home, remote work and hybrid work are all now common terms related to shifting the location and flexibility of how work is done. The pandemic forced companies to experiment with these alternate work arrangements, and many began to see surprising benefits for both the employees and the employer. Many companies, including ARG, were pleasantly surprised at how productive work-from-home could be. While the initial arrangements were positive for employees and employers found ways to make it work, there were certainly drawbacks. The realities of fully remote work, for most careers, crashed into issues like professional development, mentoring, company culture, and good old-fashioned face time. In the Accounting and Finance sector, we are seeing fewer and fewer fully remote roles and expect this trend to continue. Companies including Disney, Amazon, Google, Meta and Lyft have recently publicly announced return-to-office policies. These range from 100% in- office to remote by exception-only and preset hybrid work arrangements with a mandatory number of days per week in the office.
For many companies, the pendulum has shifted back to in-office work.
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What Does This Mean for SoCal Leaders?
Adjust or Make Contingency Hiring and Budgeting Plans At the start of the year, many companies made their annual operating plans with a pending recession in mind. At the mid-year point, a serious recession seems unlikely. Business leaders should reevaluate their plans considering the new economic outlook and either make midyear corrections or have contingency plans in place if the original plans no longer support success. These adjustments include hiring, wage levels, special initiatives, and alternative work arrangements such as remote or hybrid work if they factor into operating plans. Retention Needs to Be a Top Priority Regardless of what happens with inflation and the economy, the labor market is not going to cool off and the competition for top talent will remain hot. Retention is your best strategy for success. As always, clear and open communication is key to keeping your top players engaged. Keep the team apprised of changes in the organization. Let them know how the company is doing, what midyear adjustments are being made and how any changes will impact them. You should always be focused on keeping your best talent. Do not ease up on your retention strategies. It’s not the time to take away company lunches, annual parties, or any other perks you offer to elevate company morale and promote engagement.
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Reassess Accounting and Finance Staff Levels With a recession less likely, it may be a good time to evaluate your current Accounting and Finance team and structure. If you were planning to make cuts, think again. The Accounting and Finance talent supply is especially scarce in Southern California, and that imbalance will take a while to level off. Greenlighting projects that had been put on hold? You might need to add to your Accounting and Finance teams. If you’re not ready to add headcount, consider interim consultants to fill the gap. Bottom Line C-suite executives must have the right data and information on the labor market and talent supply before making critical headcount decisions. “rebalancing” of the job market. Enough time has passed since the days of “The Great Resignation” that many top players may be reconsidering moves they made based on big signing bonuses and those promised flexible work arrangements may now be shelved. This is a great time for companies that value talent to begin to hire superstars who might not have been available previously or who made impulse jumps during the hottest days of the War for Talent. As you reassess your needs for 2023 and beyond, we’d love to help you build a best-in-class team. A Great Opportunity to Hire Talent As the remainder of 2023 unfolds, we will continue to see a
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18 Unemployment Rate in Orange County: Percent, Monthly, Not Seasonally Adjusted
Unemployment Rate in Orange County, CA, Percent, Monthly, Not Seasonally Adjusted
10 16% 14% 12% 10% 12 14 16
0 8% 6% 4% 2% 0% 2 4 6 8
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The Unemployment Rate is the unemployed percent of the Civilian Labor Force. Total Unemployed Persons / Civilian Labor Force Source: U.S. Bureau of Labor Statistics.
Unemployment Rate in Los Angeles County: Percent, Monthly, Not Seasonally Adjusted Unemployment Rate in Los Angeles County, CA, Percent, Monthly, Not Seasonally Adjusted
20% 18% 16% 14% 12% 10% 10.0 12.0 14.0 16.0 18.0 20.0
8% 6% 4% 2% 0% 0.0 2.0 4.0 6.0 8.0
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The Unemployment Rate is the unemployed percent of the Civilian Labor Force. Total Unemployed Persons / Civilian Labor Force Source: U.S. Bureau of Labor Statistics.
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20-Year Historical National Unemployment
20%
15%
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5%
0%
The Unemployment Rate is the unemployed percent of the Civilian Labor Force. Total Unemployed Persons / Civilian Labor Force Source: U.S. Bureau of Labor Statistics.
Job Openings: All Classes
Job Openings All Classes
14M 12M 10M 10000 12000 14000
8M 6M 4M 2M 0 0 2000 4000 6000 8000
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Job Openings are national and are calculated by the U.S. Bureau of Labor Statistics. Source: U.S. Bureau of Labor Statistics.
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Civilian Labor Force Participation Rate for California: Percent, Monthly, Seasonally Adjusted Labor Force Participation Rate for California, Percent, Monthly, Seasonally Adjusted
64% 63% 62% 61% 60% 59% 58% 57% 57.0 58.0 59.0 60.0 61.0 62.0 63.0 64.0
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The Civilian Labor Force refers to employed or unemployed individuals aged 16 and older, who are not active-duty military personnel, institutionalized individuals, agricultural workers, and federal government employees. Retirees, handicapped and discouraged workers are also not part of the Civilian Labor Force. Source: U.S. Bureau of Labor Statistics.
National Civilian Labor Force Level: Monthly, Seasonally Adjusted CLF16OV Civilian Labor Force Level, Thousands of Persons, Monthly, Seasonally Adjusted
168M 166M 164M 162M 160M 158M 156M 154M 152M 150M 150000 152000 154000 156000 158000 160000 162000 164000 166000 168000
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The Civilian Labor Force refers to employed or unemployed individuals aged 16 and older, who are not active-duty military personnel, institutionalized individuals, agricultural workers, and federal government employees. Retirees, handicapped and discouraged workers are also not part of the Civilian Labor Force. Source: U.S. Bureau of Labor Statistics.
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Difference Between the Inflation Rate and Growth of Wages in the United States from 2020 to 2023
Difference between the inflation rate and growth of wages in the United States from 2020 to 2023
0 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0% 1 2 3 4 5 6 7 8 9 10
5.6%
3%
Wages Inflation
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Comparison between the trailing 12-month average Inflation Rate and the corresponding Growth of Wages. Source: U.S. Bureau of Labor Statistics.
20,500 20,000 19,500 19,000 18,500 18,000 17,500 17,000 16,500 16,000 15,500 Real Gross Domestic Product 15.5 16 16.5 17 17.5 18 18.5 19 19.5 20 20.5
Real Gross Domestic Product
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Real Gross Domestic Product is the inflation adjusted value of the goods and services produced by labor and property located in the United States U.S. Bureau of Economic Analysis Units: Billions of Chained 2012 Dollars, Seasonally Adjusted Annual Rate
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Federal Funds Effective Rate
Federal Funds Effective Rate 6% 5% 4% 3% 2% 1% 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 0.00 1.00 2.00 3.00 4.00 5.00 6.00
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Source: Board of Governors of the Federal Reserve System (US)
10-Year Treasury Constant Maturity Minus 3-Month Treasury Yields
10-Year Treasury Constant Maturity Minus 3-Month Treasury Constant Maturity
2.5% 2.0% 1.5% 1.0% .5% 0% -.5% -1.0% -1.5% -2.0%
2.50
2.00
1.50
1.00
0.50
0.00
-0.50
-1.00
-1.50
-2.00
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This chart represents the 10-year Treasury yields (interest rates) minus the 3-month Treasury yields. Source: Federal Reserve Bank of St. Louis
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Terms and Definitions Civilian Labor Force The Civilian Labor Force refers to employed or unemployed individuals aged 16 and older, who are not active-duty military personnel, institutionalized individuals, agricultural workers, and federal government employees. Retirees, handicapped and discouraged workers are also not part of the Civilian Labor Force. Employed Persons Employed Persons are all persons who (a) did any work as paid employees, worked in their own business or profession or on their own farm, or worked 15 hours or more as unpaid workers in an enterprise operated by a member of their family, or (b) were not working but who had jobs from which they were temporarily absent because of vacation, illness, bad weather, childcare problems, maternity or paternity leave, labor-management dispute, job training, or other family or personal reasons, whether or not they were paid for the time off or were seeking other jobs. Each employed person is counted only once, even if he or she holds more than one job. Unemployed Persons Unemployed Persons are all persons who had no employment, were available for work, except for temporary illness, and had made specific efforts to find employment sometime during the previous 4-week period. Persons who were waiting to be recalled to a job from which they had been laid off need not have been looking for work to be classified as unemployed. Job Openings Job Openings are defined by the U.S. Bureau of Labor Statistics as all positions that are open on the last business day of the reference month. The job opening must actually exist, must start within 30 days, and the employer is actively recruiting workers from outside the establishment to fill the role.
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Seasonal Adjustment Seasonal Adjustment is a statistical technique that attempts to measure and remove the influences of predictable seasonal patterns to reveal how employment and unemployment changes from month to month. Over the course of a year, the size of the labor force, the levels of employment and unemployment, and other measures of labor market activity undergo fluctuations due to seasonal events including changes in weather, harvests, major holidays, and school schedules. Because these seasonal events follow a more or less regular pattern each year, their influence on statistical trends can be eliminated by seasonally adjusting the statistics from month to month. These seasonal adjustments make it easier to observe the cyclical, underlying trend, and Civilian Labor Force Participation Rate is an estimate of an economy’s active workforce. The formula is the number of people ages 16 and older who are employed or actively seeking employment, divided by the total non-institutionalized, civilian working-age population. Consumer Price Index (CPI) The Consumer Price Index (CPI) measures the change in prices paid by consumers for goods and services. The CPI reflects spending patterns for each of two population groups: all urban consumers and urban wage earners and clerical workers. The data we generally present is known as CPI-U, the Consumer Price Index for All Urban Consumers. The all urban consumer group represents over 90 percent of the total U.S. population. It is based on the expenditures of almost all residents of urban or metropolitan areas, including professionals, the self-employed, the poor, the unemployed, and retired people, as well as urban wage earners and clerical workers. Not included in the CPI are the spending patterns of people living in rural non-metropolitan areas, farming families, people in the Armed Forces, and those in institutions, such as prisons and mental hospitals. other nonseasonal movements in the series. Civilian Labor Force Participation Rate
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Federal Funds Rate The Federal Funds Rate is the interest rate at which depository institutions trade federal funds (balances held at Federal Reserve Banks) with each other overnight. When a depository institution has surplus balances in its reserve account, it lends to other banks in need of larger balances. In simpler terms, a bank with excess cash, which is often referred to as liquidity, will lend to another bank that needs to quickly raise liquidity. The rate that the borrowing institution pays to the lending institution is determined between the two banks; the weighted average rate for all of these types of negotiations is called the effective Federal Funds Rate. The effective Federal Funds Rate is essentially determined by the market but is influenced by the Federal Reserve through open market operations to reach the Federal Funds Rate target. Inflation Rate Inflation Rate is calculated as the change in Consumer Price Index over time presented as a percentage change. Growth of Wages Growth of Wages is the change in wages represented as a percentage as calculated by the U.S. Bureau of Labor Statistics. Real Gross Domestic Product (GDP) Real Gross Domestic product (GDP) is an inflation-adjusted measure that reflects the value of all goods and services produced by an economy in a given year. Put simply, real GDP measures the total economic output of a country and is adjusted for changes in price. Yield Curve A Yield Curve is a line that plots yields (interest rates) of bonds having equal credit quality but differing maturity dates. The slope of the Yield Curve gives an idea of future interest rate changes and economic activity. There are three main shapes of Yield Curves: normal (upward sloping curves), inverted (downward sloping curves), and flat. While normal curves generally point to economic expansion, downward sloping (inverted) curves often predict economic recession in the coming 12 months.
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What We’re Reading New York Times: Global Economy Shows Signs of Resilience Despite Lingering Threats ABC News: Cooler landing in June could help the Fed achieve the elusive soft landing
CFO.com: CFO 2023: Midyear Outlook
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