Summary by Emma Lokar
Economic Trends HR Executives Need to Pay Attention to and Why: Taylor St. Germain, Analyst, ITR Economics
Join me to hear from Taylor St. Germain, Analyst at ITR Economics, to learn about the economic trends HR Executives need to pay attention to and why they are important. Taylor works as an analyst for the Institute of Trend Research, and they hold themselves to a high degree of accuracy. A trend Taylor speaks to is the growing economy. It has been growing quickly, but ITR expects it to slow down. There are large implications to an economic slowdown and shares the factors that compress a business’s margins. Taylor dives into how HR can use these trends to benefit their businesses.
With all these variables affecting the economy St. Germain explains that it is vital for organizations to invest in leadership and make sure that leaders are focused on retaining employees. Taylor elaborates on specific industries these economic trends will affect, and how organizations can have those tough conversations. See above for the full video blog. (If you prefer to read the interview, see the transcript below.)
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Transcript by Rev.com
Cindy Lu: Hi there. This is Cindy Lu of HR Mastermind Groups, and I'm here with Taylor St. Germain of ITR Economics. Today, we're going to talk about what are the economic trends that human resources executives need to pay attention to and why. Taylor, before we get started, I'd love to have the audience get a quick background on you as well as your firm.
Taylor SG: Yeah. Thank you very much, Cindy. My name is Taylor St. Germain, analyst from ITR Economics. ITR Economics stands for the Institute of Trend Research. We've been around for quite some time now. We actually were established in 1948, so we're the longest privately held continuously operating economics firm in the country. We were founded by a man named Chapin Hoskins in 1948. He founded the company, the methodology that we use today, because he was upset nobody saw that Great Depression of the 1930s coming. We've taken that methodology, certainly evolved over the years.
Taylor SG: Our CEO, Brian Beaulieu, has at been at the helm here at ITR for over 30 years now. We've been under the same management for a while. Hold ourselves to a high degree of accuracy. That's our purpose here is to provide accurate forecast and economic information to not only tell the future, be the crystal ball for our clients out there, but also help inform strategic decisions that they face every day.
Cindy Lu: Yeah. Before we jump in, I thought I'd just give my story as to how I became acquainted with ITR. Right before the last great recession, I was in Milwaukee running a firm, a small organization. We maybe had a hundred employees or so, but we were getting ready to double in size and ramping up our resources accordingly for the next year. I remember I was invited to a Vistage conference where Brian spoke. He gave us all the warning signs and told us everything that was coming down the pipe. I remember going back to my board and saying, "Hey, I don't think I can give you these numbers for next year, in the projections."
Cindy Lu: They kept saying, "Sure you can. You can't listen to these economists. You just have to crawl under a rock." Then sure enough, within the next three months, our business dropped like 60% literally in three months. Every day it was laying off new people, all folks that we'd just hired to ramp up the business. It was quite a nightmare. I think if I had known or heard from him perhaps a year before that, we might have adjusted our behaviors, and been able to be much more humane about our hiring and firing.
Taylor SG: Yep.
Cindy Lu: In any case, Taylor, tell us about maybe the top few trends that you recommend that HR professionals pay attention to. There's so much to pay attention to, right?
Taylor SG: Yeah. That's a great segue into the conversation. Right now, and we've heard in the news lately, we have a growing economy. We've been growing at an accelerating pace over the last year. Everyone's been pretty happy from a profitability standpoint. But we expect the economy to start slowing down, and that certainly has implications, especially with the tight labor market that we have out there right now. We're not expecting any major recession as we move through these next five to six quarters, but we do expect to slow down. For our rates of change for the major series, we forecast to head towards that zero line, which can often be scary for businesses out there. There's a lot of things we have to keep in mind.
Taylor SG: There's a lot of things that are out there compressing our margins and certainly labor is one of the those. We're starting to see wages rising. They're at about three and a half, between three and a half and 4% right now. That's something from an HR standpoint, we're going to have to be taking into consideration, making sure we're not going below that average. We should be planning for about a three and a half to 4% increase in our cost of labor over these next 12 months. That's certainly not a trend to ignore, because there's a lot of opportunity out there right now.
Taylor SG: It is an employee's market, not an employer's market right now. Those retention, hiring, training strategies are incredibly important. If we don't pay our employees what they're expecting, they certainly have the opportunity to go find that salary elsewhere. A 17% increase in job openings currently compared to the same time last year. Some pretty high numbers out there. A lot of opportunities for this generation, especially the millennials to go find those jobs and salaries they want.
Cindy Lu: Yeah, that's great. So, a 17% increase in job opportunities. How does that break down? Do you have those numbers by any chance?
Taylor SG: Yeah. Overall job openings in the US is up 17% from last year. We're accelerating in our employment and our pace of employment growth. Then we also have a rising quit rate. You sort of throw all those things together. There are people quitting their jobs more often because they can, because of those job openings out there. I know the millennials often get a little criticism because they're considered the job-hopping generation. If you have a labor market as great as we do right now, you would be a job-hopping generation too, regardless of where you fit in here because there's just that much opportunity out there right now.
Cindy Lu: Right. Really focusing on leadership and making sure that leaders are focused on retaining people.
Taylor SG: Absolutely.
Cindy Lu: They have a lot of choices right now. From a sector perspective, is there more or less in certain groups, like technology versus manufacturing? Where are you seeing the big bumps?
Taylor SG: The big discrepancy, and we just some jobs data actually yesterday, the new jobs number just came out. You'll see, and the news is criticizing, that the job numbers missed a lot of economists' estimates. It came in much lower. We saw some construction job... We still saw some openings, but it wasn't to the level that everyone was expecting. That sort of mitigated the area. Same type of thing with manufacturing. The real divergence between the trends was looking at small businesses compared to these large Fortune 500 corporations.
Taylor SG: We saw the large businesses adding a lot of jobs over this most recent month, but it was actually the small businesses that sort of offset that trend because we had a lot of layoffs when we break down to the brick and mortar level. There's a lot of different reasons behind that. Of course, we have rising input costs due to tariffs. We're trying to find ways to keep our margins and remain profitable. That's much more of a struggle for some of the smaller businesses out there compared to the large corporations.
Cindy Lu: Yeah, interesting. I'm seeing obviously a real struggle with technology skills, and any skill that has to do with digital transformation, so that companies don't get Uber-ized or they don't turn into the next Blockbuster. I'm definitely seeing some of those kinds of trends. You think the smaller businesses are struggling more, and you're saying that large businesses are actually adding jobs, which is interesting.
Taylor SG: Yeah, the large businesses have a lot of levers they can pull to make sure they're being profitable and maintaining those margins, passing along price increases to customers. There's a lot more levers that those large businesses can pull. We've actually seen just overall optimism among these small businesses declining since late 2017. We look at a small business optimism index as a leading indicator for CapEx activity and where we're headed as an economy. That rate of change has been declining for over 12 months now. That optimism among the small businesses continues to be more pessimistic than optimistic.
Cindy Lu: That's interesting. Gosh, I'd love to dig into that a little bit more. You were saying the tariffs, what are some of the other reasons?
Taylor SG: Yeah, tariffs certainly, we're starting to see that wage inflation that we hadn't seen really for the first half of this decade. Wages were around 2% after '08-'09 happened. We haven't made it back up to that above 4% level that we reached before the great recession, but they are rising now. That's certainly compressing the margins out there. There's just a lot of uncertainty, especially with the tariffs and trade. You see a lot of businesses that have been sort of in this wait and see pattern rather than investing in the business, because there's just so much uncertainty out there.
Cindy Lu: Right. Yeah, I know that for small businesses they really struggle with hiring, because they maybe lack the employment brand that the larger companies have. If you're a larger company right now, it seems like maybe they're taking advantage of this and really trying to beef up on the staff. Are we at the right end of the business cycles to be ramping up on staff?
Taylor SG: That's a great point. The majority of the businesses that we work with in the construction and manufacturing sector, you're seeing them transition to slowing growth trends. That's telling us we might want to start to pause a little on the hiring. Really the time to be hiring is when we're about to ascend on that accelerating growth trend, and that's really 2018. That's where we were in 2018. As we move to the back side of the business cycle, we call it Phase C: Slowing Growth, that's our cautionary phase, especially when you're looking at an area like hiring. If some of your markets are headed for a period of contraction later this year, there are some markets that we expect to see in a recession, then we're going to want to dial back on hiring.
Taylor SG: We certainly don't want to be increasing our costs as a company when many of our markets will be moving towards that recession. That turns into a profitability nightmare for us. It's important to identify where your markets are headed, because many of them will slow down significantly this year. That suggests we focus on those A and B players in our company, and make sure we're retaining them. We certainly don't want them going to find work elsewhere. The next decade, we expect to generally be up, leading up to our great depression of course. We want to keep those A and B players, and maybe look at evaluating some of those C players to understand what the business needs, and to make sure that we're right-sized for the level of activity that's coming our way.
Cindy Lu: Well, hopefully as a professional we're always looking at those C players.
Taylor SG: Yes.
Cindy Lu: It's easy to get complacent when there's more business coming in than there is talent to supply the work, right?
Taylor SG: Yeah, and you know, it's a tough conversation. One of our phrases is, "Lose the losers." That's most often business segments and products and things that aren't profitable. But you have to look at the employees in a time where we're starting to really slow down in the economy now too. Then looking for things just from an HR perspective. There's always something we shouldn't be doing. That's one of our management objectives as well. We call it the basset hound in the business. Everyone likes it, but it's not really providing much value. Look for basset hounds, lose the losers, and make sure that you're thinking profitability and cash and preserving margins over these next five to six quarters.
Cindy Lu: Yeah, that's a funny analogy there. Hopefully we don't have dog lovers that tune in. If I'm the chief HR officer, or I'm the head of workforce planning, paying attention to these external trends as well as what we're just hearing from the business is critical, because it could be that the business isn't paying attention to the economy, right?
Taylor SG: Exactly. One thing we often get caught in, and this will certainly have an effect on HR, is we often tend to straight-line budget. We study business cycles here at ITR. To avoid straight-line budgeting, because this Phase C trend, this trend where we're slowing down but still growing is the most important to identify. A lot of businesses who weren't working with us before, '08-'09, didn't identify that Phase C. Before you know it, they straight-line budget and then all of a sudden a recession hits.
Taylor SG: Well, if they would've identified that slowing growth trend, they would have started to take some of these steps that we're talking about right now to prepare for what's coming. It's very important that we identify this slowing growth trend, some of these external factors out there, because that's just going to have downside on our expectations for the year. We certainly don't want to straight-line from 2018. That's going to get us in trouble, because that's just not the reality of the situation. It's very important as an HR perspective that we understand the trends where our market's headed.
Cindy Lu: Right. Yeah. It was interesting because in our last downturn, all my departments, all the departments had their own budgets. I'm like, when we're ahead of budget or at plan, it's your budget. When we're behind plan because of external conditions, it's my budget.
Taylor SG: Right, of course.
Cindy Lu: You have to micromanage, but sometimes it's needed.
Taylor SG: Absolutely.
Cindy Lu: Yeah. As recruiters or internal talent acquisition folks are out interviewing, and you're trying to attract talent, are there any leading indicators they can watch out for that tell them what's going on in the marketplace as well?
Taylor SG: Yeah, sure. We actually have a monthly trend report that comes out with a lot of leading indicator evidence in it. We actually forecast private sector employment over the next three years. We certainly have that information out there, give you an idea of when we're slowing, accelerating, if there's any recessions coming our way. That's something that we do regularly forecast, and that we report on monthly. Those trends are certainly out there for not only the CEOs and the C-suite executives, but also just when you boil down to some of the division and business unit levels, that information's certainly out there.
Cindy Lu: Yeah, that data is becoming a very important topic in HR, not just backwards looking data but also predictive data. HR executives are really looking at all sorts of data from external sources now, as well as internal, to make predictions about what's going to happen. I can imagine for us, if we had been paying attention before the recession, we probably would have seen a lot more talent come available, because some of the companies were probably more leading than we were. If we were paying attention to that, we would have known that suddenly there was all this talent becoming available. At the time, we thought it was great, because we were like, okay, we're going to double in size next year.
Taylor SG: Sure. Yeah. I think you bring up a great point too, which is talent is often cheaper or more expensive given where you are in the business cycle too, which is why it's also important to pay attention to those external factors. For example, in '08-'09, if you were prepared for '08-'09, and built up your cash, you most often were able to go out and find employees for a much lower level than back in 2006 just because so many people weren't prepared for the recession. That's the other critical part of our job here at ITR, is identify these recessions. Even though we use the word recession, that can be a very profitable phase of the business cycle, and a great phase for hiring and finding that talent, but you have to be prepared and have the cash ready to go for that.
Cindy Lu: Yeah. Do you guys have any case studies? You don't have to name the client, but of people who really took advantage of that or companies that took advantage of that?
Taylor SG: Absolutely. Actually, funny enough, we still receive a card every year from one of our clients, because we helped them so much in '08-'09. His was actually CapEx and people. It wasn't just people. He got machinery for actually 10% of what the original cost was. I mean, like mind blowing numbers when you talk about '08-'09, because of how bad it was. Because he was prepared, built up his cash, he was able to take advantage of it. It's still profitable and operating for him today, so he couldn't be happier.
Cindy L.: Yeah. That's awesome. That's a great story. I remember after 9/11, although that was a little bit of a blip, not necessarily predictable, but I had a client back then who had just started his business, had just raised money to ramp up. He got some amazing talent at that time. People who are laid off that normally wouldn't have been ever in the job market, and he was able to get them. It was an amazing growth story for him, because he was able to snatch up some talent at that timeframe.
Taylor SG: Yeah, absolutely. We have clients in a similar position. Some of our clients have in their C-suite level now, Wall Street executives from '08-'09 that ended up losing their jobs. They were able to pick them up very quickly. There are these day traders and just brilliant people that are now running a manufacturing company, because they were able to take advantage of some of that.
Cindy Lu: That's great. Well, Taylor, we had you in to speak to our HR Mastermind group in a private chat, and it was one of the best attended sessions. And got a lot of great feedback on the depth and the details that you provided on your webinar. I know you provide this for companies on a customized basis, is that right?
Taylor SG: Yeah, that's correct. When I'm not presenting, traveling the US, I'm actually a consultant for 30 different construction, manufacturing, and tech companies all around the United States, all the way from Fortune 100 to trade associations, small businesses. We're across the entire spectrum here. Yeah, not only do we forecast these markets, and sort of let everyone know what's coming from a market perspective. We also forecast company data internally as well and find leading indicators for their business so we can not only predict their markets, but what will happen for them internally. Provide another perspective for them to use for internal forecasting.
Cindy Lu: Boy, I really wish I would have met your founders, or your CEO well before the time that I heard him speak. That would have been amazing to have that opportunity to be better prepared going into the last recession. I know this audience that watches our blogs are from all across the country, but I understand that ITR is going to be launching an office in Dallas, Texas here?
Taylor SG: Yes, very excited. We have an office in Manchester, New Hampshire, currently. That's where we're based out of. I'm forever flying across the country to California and Texas. We wanted to have a presence closer to some of our clients out in that direction. They're sending myself and a few others here down to Dallas, Texas. We're actually opening the office up just next week. Coming right for us, and we're very excited. We want to be able to understand some of the trends that are impacting our southern and western clients every day that we might not understand up here in Manchester. We want to sort of indulge in their lifestyles, get to understand what affects their businesses every day. Then be able to provide a presentation or an onsite visit, whatever they may need in a short period of time and closer on location. We're very excited for the move to Dallas, and hopefully that means a couple other areas in the future for us as well.
Cindy Lu: That's great. Can we provide your contact information in the show notes so that folks can get in touch with you guys?
Taylor SG: Absolutely.
Cindy Lu: Okay.
Taylor SG: Without a doubt. Please reach out. If there's just something you're curious about in the news, you're curious about how we can help you with all the data we have here at ITR, please feel free to reach out. I have a great regional manager that'll be with me in Texas, and we're happy to help you wherever we can.
Cindy Lu: Great. Well, welcome to Texas. It certainly is Disneyland for business people.
Taylor SG: Thank you. We're excited.
Cindy Lu: It will be very welcoming, great for you. Well, Taylor, thank you so much today for some highlights. I feel like I could talk to you for hours, just learning more about what's to come. We really appreciate you taking the time this morning.
Taylor SG: Yeah, thank you again for having me. I appreciate it, and hopefully I'll see you soon.
Cindy Lu: Okay, thanks, Taylor.
Taylor SG: Thank you.
Contact Information Referenced in Video:
Jason Hawkes, Regional Manager, Dallas Office
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