2009 Compensation & Labor Market Predictions

Whew, that a year we just had! Good riddance to 2008!!

To call 2008 an "off" year would be a gross understatement. To hope for a strong recovery in 2009 though, might be called a gross "delusion."

Not that we at Applied HR Strategies (AHRS) don't expect things to improve somewhat; we do, but we're realists too - we expect things to get worse before they level out, and then eventually to slowly get better.

Now that we've blown off a little steam, let's get down to our general predictions for 2009:

2009 Compensation & Economic Predictions:

Merit Pay Budgets: Upper 3% range to 4% in 2008. Down to 3% +/-, depending on industry and circumstances. Some industries will be well below 3%. Comment: if budgets are updated from here, the vast majority will be downward.

Salary Structure Adjustments: Upper 2% to 3%+ range in 2008; 2.5% or so, but with a downward bias in 2009. Same comments as for merit budgets.

Unemployment rates for 2008 (current) and 2009 (projected):
2008: U.S.: 6.7%, WA: 6.4%, Seattle area: 5.4% (November ’08 data)
2009: U.S.: 7% - 9%, WA: 7% - 8.5%, Seattle area: 6% - 7.5%. Comment: nowhere to go but down, at least for the first several months of 2009.

Consumer Spending: Slow growth in early ’08; down mostly in second half. 2009: down early ’09; mixed to down in mid-2009; mixed in late 2009 (but still weak). Comment: flat with 2008 would be a “great” year, based on current trends.

Business Profits: Not bad in early 2008; horrible later in the year. 2009: a bad year all-around. A rebound in late 2009 would be a welcome blessing. Profits and bonuses will be down overall, barring an unexpectedly positive turnaround.

Happy New Year!! Let's hope 2009 will be better than expected!

Revised Pay Budgets Slashed

In the past two weeks a couple of major studies of what companies are doing with regard to their 2009 pay budgets are revealing concerning how quickly and deeply business conditions and the labor market have deteriorated.

In a study just completed by Hewitt Associates, merit budgets for 2009 have dropped to only 3%, compared to 3.6% to 3.8% from the same study done in the summer of 2008. And when companies with frozen and/or cut pay rates are taken into account, Hewitt expects overall pay levels to only increase only 2.5% next year (if you're lucky enough not to be laid off before then).

According to the the Hewitt study, 50% of employers have already reduced their pay spending plans for 2009 and 25% say they are considering cuts and/or further reductions. (Just today, FedEx announced a 5% pay cuts for all salaried staff and 7.5% to 10% cuts for executives).

In the just published Culpepper December 2008 Pay Practices & Policies Survey (www.culpepper.com), 35% of participating companies have already reduced their salary increase budgets, another 12% have or plan to freeze salaries, and another 31% are undecided which course they will take in regard to recent economic and business developments. Only 23% of participating companies anticipate making no changes to their salary increase plans.

The Culpepper study is geared more towards technology and life science companies, while the Hewitt Associates study is more cross-industry and skewed towards larger firms.

In the Culpepper study, the average base salary increase for 2009 is budgeted at 3.08% and the average budgeted pay structure increase for next year is only 2.08%. Both of these data points are down significantly from earlier projections for 2009.

In the current environment it is likely that further reductions will take place, even though the 2009 projections are already the lowest pay increase budgets in at least 15 years.

Happy Holidays?

Today, the US Dept. of Labor reported a loss of over a half million (533,000) jobs in November alone, bringing 2008 job losses to over 1.7 million. The report was even worse than feared by many economists, putting further pressure on the the economy, retailers, and most of all, American families.

The images above pretty much show it all. In 2007, job growth was fairly healthy, but job growth was declining as the year went on. By January 2008, we were in slightly negative territory, and you can see what's happened since then. The downward trajectory of job loss continues to surge, virtually assuring the unemployment rate will continue to grow from here as we turn towards 2009.

The reported November job loss was the 11th straight monthly decline, and worst single monthly job loss since 1974. The U.S. unemployment rate shot up to 6.7% (from 6.5%), and many economists are predicting the unemployment rate reaching 7.5% to 9.0% before we "top" out sometime later in 2009.

Layoffs are soaring nationwide, and even in our hometown of Seattle, which until recently was fairing better than than the nation as a whole, the bad news is starting to really pile up here too. To track lay-offs in the Puget Sound region, click here.

There is really no way to put a positive "spin" on the most recent data. It's bad, and it's only going to get worse, for a while at least...

Until then, "hunker down," spend some quality time with your family and friends, and keep a tight grip on your wallets. Your "peeps" (me and my spouse's slang for our family and best friends) are far more important than money anyways, so enjoy the holiday season with your peeps. Maybe with less "stuff," but most of us already have plenty of that already.