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!
Dec 29, 2008
Dec 18, 2008
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.
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.
Dec 5, 2008
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.
Nov 7, 2008
Labor Market Woes Continue to Compound
The most recent news from the US Department of Labor confirm that the labor market downturn is continuing, if not worsening.
The chart above shows how job loss has accelerated though this year. As of the latest report, over one million jobs have been lost since the start of the year (including downward revised figures for August and September). The national unemployment rate soared to 6.5%, the highest since 1994, with no let-up in lay-offs in sight. If current trends continue, we are headed for the worst labor market since the major recession of the early 80s.
The regional Pacific NW labor markets continue to be in better shape than the national one, but it is uncertain at this point if that will continue, based on recent events (WAMU's collapse, etc.).
To see what employers are currently doing to compensation their remaining employees, ask for a copy of our "special report" (see post below).
Nov 4, 2008
Special Report on Merit and Comp Trends
With all of the craziness and bad news lately in the economy, credit and financial markets, many companies are wondering what other organizations are doing (or planning to do) with merit budgets and related compensation matters for 2009.
Up until now, we at AHRS have been sharing our best predictions as to where things are heading for our clients and blog followers (see the below posts, for instance). Until just recently though, there hasn't been a lot of solid data as to what companies are actually doing.
Last week AHRS compiled brand new data from a few major studies that were just conducted in October, along with some general recommendations on key compensation-related decision points for these difficult times.
The data and recommendations are too lengthy for a blog posting, but if you would like to receive a free copy, please feel free to contact me directly at via at doug@appliedHRstrategies.com and request a copy of our "Special Report."
Up until now, we at AHRS have been sharing our best predictions as to where things are heading for our clients and blog followers (see the below posts, for instance). Until just recently though, there hasn't been a lot of solid data as to what companies are actually doing.
Last week AHRS compiled brand new data from a few major studies that were just conducted in October, along with some general recommendations on key compensation-related decision points for these difficult times.
The data and recommendations are too lengthy for a blog posting, but if you would like to receive a free copy, please feel free to contact me directly at via at doug@appliedHRstrategies.com and request a copy of our "Special Report."
Oct 3, 2008
Prepare for the Worst Labor Market in Many Years
The news on the labor market just continues to get worse, with the 9th straight monthly report of job losses nationwide the U.S. Labor Department reported today.
The Labor Department reported that employers cut 159,000 jobs in September, more than twice as many as in August or July. The September report was the biggest single monthly decline since 2003, when the economy was still in retreat from the 2001 recession (which became a three-year labor market recession).
“The U.S. consumer is in major trouble, with wage and salary income growth evaporating, credit extremely tight or unavailable, home prices continuing to decline, and food and energy costs consuming a large share of household budgets,” said Joshua Shapiro, an economist at MFR, a research firm in New York. “Whatever the government might or might not do to try to bail out the financial system, a consumer-led recession is upon us, and it promises to be a serious one” (as quoted in today's NY Times).
The regional labor market is sinking as well, but not quite as fast, although even that could change quickly, as the Boeing strike continues, the effects of Washington Mutual bust and other major layoffs reported recently work there way through the area. It looks right now like we are headed for the worst labor market in the area since the dismal 2001 - 2003 period.
The few remaining areas of strength (high tech, healthcare, and formerly aerospace), could begin to head south as businesses start to catch the same cold that consumers are already experiencing.
The credit markets are frozen, the housing market the worst in decades, and many area companies struggling, so put on your helmet and "hunker down" for what could be the worst labor market in several years, or worse.
The Labor Department reported that employers cut 159,000 jobs in September, more than twice as many as in August or July. The September report was the biggest single monthly decline since 2003, when the economy was still in retreat from the 2001 recession (which became a three-year labor market recession).
“The U.S. consumer is in major trouble, with wage and salary income growth evaporating, credit extremely tight or unavailable, home prices continuing to decline, and food and energy costs consuming a large share of household budgets,” said Joshua Shapiro, an economist at MFR, a research firm in New York. “Whatever the government might or might not do to try to bail out the financial system, a consumer-led recession is upon us, and it promises to be a serious one” (as quoted in today's NY Times).
The regional labor market is sinking as well, but not quite as fast, although even that could change quickly, as the Boeing strike continues, the effects of Washington Mutual bust and other major layoffs reported recently work there way through the area. It looks right now like we are headed for the worst labor market in the area since the dismal 2001 - 2003 period.
The few remaining areas of strength (high tech, healthcare, and formerly aerospace), could begin to head south as businesses start to catch the same cold that consumers are already experiencing.
The credit markets are frozen, the housing market the worst in decades, and many area companies struggling, so put on your helmet and "hunker down" for what could be the worst labor market in several years, or worse.
Sep 25, 2008
Healthcare Cost Inflation Receding?
The Kaiser Family Foundation, who conducts one of the largest annual surveys of healthcare costs, released its latest study this week. It said that health insurance premiums increased "just" 5 percent in 2008 (very low by healthcare inflation standards). The 5 percent increase was comparable but somewhat lower than 2007's increase.
Despite the lower levels of healthcare inflation (after several successive years double-digit percentage increases), premiums have still more than doubled over the past decade. Overall, premiums for family coverage are now up to $12,680 and premiums for single coverage increased to $4,704. Employers pay, on average, about three-quarters of that cost according to the Kaiser study.
The annual cost of family health coverage has more than doubled since 1999, and employees are paying an average of $3,354 toward it in 2008. While employee co-insurance and co-pays continue to increase, employees are also are concurrently dealing with rising deductibles. About 18% are facing deductibles of at least $1,000, up from 12% in 2007.
The Kaiser study noted that rising health costs are most troubling for those employees working at companies with fewer than 200 employees, who have been less able to absorb the cost increases and have had to pass on a greater share of the cost burden to their employees.
The shift toward high-deductible insurance was most dramatic for workers in small businesses, where more than one in three covered workers must pay at least $1,000 out-of-pocket before their plan will start to pay a share of their health care bills. Generally, the more liability consumers assume for their health expenses, the less insurers charge for premiums, which probably is the biggest reason premiums are rising less quickly. Often, high-deductible plans are coupled with health savings accounts (HSAs). Consumers that enroll in such plans can set aside money on a pretax basis and then use the savings to help pay for some of their medical expenses.
"We may be seeing the tip of the iceberg of a trend towards less comprehensive, skimpier health insurance coverage for many working people," said Drew Altman, president and CEO of the Kaiser Family Foundation. Altman said the Kaiser survey shows more companies opting for health saving accounts. But a bigger trend was the movement toward high-deductible plans with no savings component.
So, while the rate of premium increases are going down, much of the slowdown in rate increases may be attributed to increased deductibles and/or reduced coverage levels, not necessarily to a slowdown in the core rate of healthcare inflation.
That said, there have been recent reports of a slowdown in demand for some health services including a small drop in prescriptions filled last quarter, preventative and elective procedures being delayed, etc. It will be interesting to see if healthcare costs follow the same laws of supply and demand that most other goods and services do. If they do, we could expect to see a slowdown in cost increase at the consumer level, not just a slowdown in premium increases via reduced coverage.
Despite the lower levels of healthcare inflation (after several successive years double-digit percentage increases), premiums have still more than doubled over the past decade. Overall, premiums for family coverage are now up to $12,680 and premiums for single coverage increased to $4,704. Employers pay, on average, about three-quarters of that cost according to the Kaiser study.
The annual cost of family health coverage has more than doubled since 1999, and employees are paying an average of $3,354 toward it in 2008. While employee co-insurance and co-pays continue to increase, employees are also are concurrently dealing with rising deductibles. About 18% are facing deductibles of at least $1,000, up from 12% in 2007.
The Kaiser study noted that rising health costs are most troubling for those employees working at companies with fewer than 200 employees, who have been less able to absorb the cost increases and have had to pass on a greater share of the cost burden to their employees.
The shift toward high-deductible insurance was most dramatic for workers in small businesses, where more than one in three covered workers must pay at least $1,000 out-of-pocket before their plan will start to pay a share of their health care bills. Generally, the more liability consumers assume for their health expenses, the less insurers charge for premiums, which probably is the biggest reason premiums are rising less quickly. Often, high-deductible plans are coupled with health savings accounts (HSAs). Consumers that enroll in such plans can set aside money on a pretax basis and then use the savings to help pay for some of their medical expenses.
"We may be seeing the tip of the iceberg of a trend towards less comprehensive, skimpier health insurance coverage for many working people," said Drew Altman, president and CEO of the Kaiser Family Foundation. Altman said the Kaiser survey shows more companies opting for health saving accounts. But a bigger trend was the movement toward high-deductible plans with no savings component.
So, while the rate of premium increases are going down, much of the slowdown in rate increases may be attributed to increased deductibles and/or reduced coverage levels, not necessarily to a slowdown in the core rate of healthcare inflation.
That said, there have been recent reports of a slowdown in demand for some health services including a small drop in prescriptions filled last quarter, preventative and elective procedures being delayed, etc. It will be interesting to see if healthcare costs follow the same laws of supply and demand that most other goods and services do. If they do, we could expect to see a slowdown in cost increase at the consumer level, not just a slowdown in premium increases via reduced coverage.
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