Interest rates, inflation, unemployment and layoffs all affect your CW program’s performance. Here are a few ideas on what to look out for and how your program might be impacted.
Interest rates. Interest rate hikes mean contraction for industries sensitive to them. Interest rates are a double-edged sword: They are used to cool inflation but also can lead to higher unemployment. In some way, your business is probably sensitive to interest rates; in fact, many businesses are — including financial services, banks, insurance and construction. Higher interest rates can affect your company’s overhead costs and demand for workers.
The Federal Reserve, which uses interest rates to curb inflation, recently announced a decision to keep them at their current level. Time will tell if the Fed will continue this strategy, as classic supply and demand seem to be driving the current economy and inflation has not subsided quite yet. It’s prudent to keep an eye on interest rates and how they can affect your company and your CW program.
Inflation. Inflation creates higher prices and increases upward pressure on pay — and we all know inflation is high right now. Workers are looking for higher compensation, and for hard-to-find talent, that could be a deal breaker. The inflation rate was 4.0% in May 2023, compared to a whopping 8.6% in May 2022. The Federal Open Market Committee had forecast inflation to drop even more over the last two years with little success yet. Inflation affects your program with higher bill rates, costs in general and increased turnover when talent leaves for higher pay.
Employment. Unemployment has plummeted since its early pandemic high, sinking to 3.7% in May 2023 from 14.7% in April 2020, according to the US Bureau of Labor Statistics. The May labor force participation rate for people ages 25 to 54 was the highest since January 2007 and has now returned to its pre-pandemic level. However, talent is still tough to find (and keep) for many companies. Unemployment creates opportunities for upskilling and drives use of contingent workers when it is low.
Rising interest rates have not affected employment the way the Fed originally forecast, but now we are beginning to see the predicted effect with recent layoffs. Is this a result of some overzealous hiring and talent hoarding during the pandemic and macroeconomic shifts? The jury is still out, but we are seeing an uptick in layoffs from major brands.
Layoffs. About 136,000 employees were laid off in the first three months of 2023 — led by massive headcount reductions at Amazon, Google, Meta and Microsoft, according to Forbes — more than the previous two fiscal quarters combined. Rising interest rates will typically affect segments of the economy that are more sensitive to interest rates and can curtail activity — and employment — in the interest-sensitive portions of the economy. This is one of the factors that can drive layoffs. Layoffs (and inflation) can also lower demand in the discretionary consumer and business spending categories, which may affect consumer spending habits. On the other hand, layoffs can create more opportunities for contingent workers as companies look to fill spots temporarily. They also create an environment of uncertainty, which can help keep talent on board longer, and provide new pools of workers to the marketplace.
It’s wise to monitor interest rates, inflation, unemployment and layoffs to prepare for how they might impact your CW program. Keep an eye on interest rates and how they can affect your company and industry. Be aware that inflation can impact your program with higher bill rates, general costs and increased turnover. Benefit from low unemployment by creating opportunities for upskilling and get creative with your supplier partners. When layoffs hit, be prepared to refine your program or take advantage of the talent that may become available. And remember: The only constant is change when it comes to managing a CW program.