Have Workers Decided Money Matters Less Than It Used to?
A familiar message cemented itself even more deeply in the latest round of Federal Reserve Bank of Atlanta conversations with business executives across the Southeast—problems with the "S word": supply.
From retailers to home builders, firms continue to face difficulties and delays in securing parts and materials because of well-documented supply chain disruptions domestically and abroad brought on by the coronavirus pandemic. Businesses also are struggling with a dearth of another vital ingredient—people. Interviews and data show that employers have far more job openings than candidates willing to fill them.
That observation is among the findings from the latest round of grassroots economic intelligence gathered by the Federal Reserve Bank of Atlanta's Regional Economic Information Network (REIN) staff. REIN executives continually canvass business decision makers across industries and firm sizes in the Southeast. The information they gather informs Atlanta Fed president Raphael Bostic's preparation for each meeting of the central bank's policy-setting Federal Open Market Committee.
The latest soundings from the six-state region reveal that the coronavirus pandemic still exerts a strong influence on business conditions. Notably, many contacts feel supply disruptions could last longer than they anticipated just a couple of months ago.
Conditions are also affecting demand. In particular, booming demand for goods and, increasingly, services domestically is being offset by slackening demand in many overseas markets suffering from surging virus cases.
Are workers' priorities evolving?
Meanwhile, businesspeople keep reporting trouble filling job openings, with some concluding that the balance of power between workers and employers could be tilting subtly toward workers. A new reality may be dawning in which employees and potential employees can be more selective about jobs and working arrangements.
This dynamic poses a conundrum for employers, and so some are taking novel steps to lure new workers. One big transportation company even reduced its threshold requirement for new hires from a high school diploma to simply demonstrating the ability to read and write—and that's for a job with pay starting at around $90,000 a year, according to the company. Meanwhile, the Atlanta Fed's interviews are detecting increasing evidence of companies hiring workers away from rival firms.
But a conundrum for employers means opportunity for prospective workers.
In fact, as firms dangle bonuses for simply showing up, some workers appear to be reevaluating their career priorities, according to feedback from Atlanta Fed business contacts. As firms begin planning to return to traditional onsite work arrangements, many executives find workers unwilling to surrender the flexibility and perks of working remotely, even if it means forgoing some money.
An executive at one large transportation firm even described a "values shift," as employees and prospective hires prize flexibility in location and schedules over salary. And a REIN contact at an apparel manufacturer has noticed more people leaving the company to pursue careers for a passion rather than a bigger paycheck.
More broadly, numerous REIN contacts said many employees are unwilling to resume traditional work arrangements after working at home for months. A manager of one consulting firm said turnover doubled after the company announced plans to require corporate staff back in the office at least three days a week. "Remote work is as powerful a currency as salary right now" in attracting and retaining employees, said one executive.
Salary has not lost its appeal, to be sure. For instance, in the Federal Reserve Bank of New York's Survey of Consumer Expectations, the average reservation wage—the minimum annual pay people say they will accept to take a job—reached $71,403 in the latest reading, from March 2021. That figure is up nearly $10,000 in a single year.
But the proliferation of working from home is upending the traditional dynamics of mostly local competition for labor. An executive noted that in exit interviews, many people are leaving for more pay but also the ability to work from home, in some cases for firms located in other markets where salaries tend to be higher. That executive's firm, consequently, is rethinking its salary models and its edict that all workers return to the office.
Uneven virus picture equals an uneven business impact
Meanwhile, the ubiquitous supply chain kinks persist. Many of the problems businesses are experiencing in securing raw materials and finished products continue to stem from rising numbers of COVID cases at home and, perhaps especially, abroad. Companies that sell products or procure materials from overseas are seeing virus outbreaks crimp demand and supply. For instance, a furniture retailer reported production issues in factories in China and Vietnam because of rising virus cases among workers there. The company's leaders also said outbreaks prevent them from sending quality-control staff into factories for routine checks, further delaying production.
COVID's impact doesn't stop there. Once goods are produced, transporting them to the United States is complicated by a scarcity of shipping containers. Then there are often too few people at U.S. ports to unload ships and, finally, too few truckers to drive products around the country. The furniture retailer, like many REIN sources, thinks the freight complications could last well into 2022.
The effects of these lingering supply problems are not falling equally across firms. Larger companies appear to have an advantage mainly because of deeper pockets. Many firms are simply trying to procure enough stock to meet immediate demand, where goods are available, but some bigger companies are paying a premium or exercising market power to hoard excess inventory as a hedge against future shortages.
A retail chain, for example, is tapping 10 percent of its 2022 budget to place orders for next year, the firm told REIN staff. The chain's leaders figure that with supply chain disruptions in Asia likely to last until at least the first quarter of 2022, they need a minimum six-month lead time to secure adequate inventories for their stores. Meanwhile, to circumvent some of the delays in supply lines—from scarce ocean shipping containers to shortages of domestic truck drivers—a clothing maker is spending more than ever on air freight.
Supply chain snarls and resulting scrambles to secure inventory have been prevalent for months, of course. But many Atlanta Fed contacts now think the disruptions could last months longer than they had expected, perhaps until the second half of 2022.
Some shipping industry contacts foresee a difficult holiday season in 2021. Some contacts pointed to early summer surcharge announcements by major shippers as an early sign of those firms trying to manage anticipated high volumes between now and the end of the holiday shipping season.
Uptick in COVID cases not expected to dampen consumer demand
While COVID case numbers increase across the United States, fueled by the delta variant, the health impacts remain highly localized. That is the case within the United States and across borders. For instance, a large appliance maker described swelling demand in the United States but declining sales in most of its overseas markets.
Domestically, most contacts think even spikes in COVID cases will neither sap consumer demand nor spur shutdowns, at least in the Southeast. Moreover, Fed chair Jerome Powell in his most recent news conference said coming virus waves are unlikely to have the crippling economic effects of the earliest surges in the spring of 2020.
In fact, some firms describe booming business. At one sporting goods retail chain, executives report that sales are running 70 percent above prepandemic levels. Although revenue is unlikely to keep rising, neither do the company's executives expect sales to fall. They figure demand for their gear will exceed supply at least until the end of this year, in part because of the enhanced monthly federal child tax credit payments. Part of the White House pandemic response, the payments total $250 to $300 per child for most families.
Anything that supports consumer spending is important to the macroeconomy, as it accounts for roughly two-thirds of U.S. annual gross domestic product (see the chart).
Some retailers figure customers will keep shopping freely through this year, with some speculating that a worsening virus picture could actually be spurring spending, as consumers stockpile certain goods and generally spend more on goods and less on services like dining out that involve personal interaction.
By Charles Davidson, staff writer for Economy Matters,
Sarah Arteaga, REIN director in the Atlanta Fed's Jacksonville Branch