What Employment Indicators Can Signal About the Economy

Every business uses a range of micro- and macroeconomic indicators to monitor business conditions. Gartner finds, however, that not many businesses systematically use people-related indicators to sense change ahead. Evidence suggests that this is a wasted opportunity.

The more data that is involved from combined sources, the more precise the conclusions. Making decisions based on inaccurate data can lead to ad hoc cost-cutting measures that don’t help organizations effectively prepare for a potential downturn. Thus, HR functions should help strengthen the accuracy of data-based decisions by contributing people-data-related insights.

“ Common indicators, such as levels of employment or employee engagement, are often lagging”

“Based on our analysis of various people-related data before the 2007-08 financial crisis, we found that three early-warning indicators from HR could help enterprises predict and prepare for a downturn,” says Gartner Senior Principal Analyst Josie Xing.

Those three — part-time employment for economic reasons, job postings for specific industries and job types, and employee quit rates — together offer a little-used early-warning dashboard that enables HR functions to contribute to enterprisewide strategic decision making, says Xing.

Common indicators, such as levels of employment or employee engagement, are often lagging, or not correlated to the event of a business decline.

Learn more:What Employees Think About Cost Optimization

Part-time employment rises before a downturn

While employees work part-time for a wide variety of reasons, a significant number would prefer full-time employment, but are working part-time because of economic reasons, such as their organizations’ cost-cutting efforts.

Gartner analyzed the U.S. employment status of those working part-time for economic reasons from 2001 to 2018. The number of involuntary part-time workers was 50% more in mid-2009 (when the economy started to recover) than in late 2006 (before the recession emerged), but this number started to increase while the economy was still growing in 2007.

Because part-time U.S. workers aren’t typically entitled to full employee benefits such as health insurance and paid time off, an increase in employers’ use of such workers suggests that they are hesitant to commit to investing fully in employees when they believe an economic downturn is on its way. Once the labor market is in better health, many part-time workers are likely to shift back into full-time work.

New job openings decline as the outlook weakens

Fluctuations in the number of new job openings across specific industries and job levels provide signals to recruiters and job seekers about current economic performance, so we reviewed historical data on U.S. job openings for changes in the labor market during the last financial crisis.

Gartner research of historical data on job openings showed a consistent increase and a peak in the number, followed by a slump in 2007 before the crisis emerged. This decrease only stopped in 2009 when the economy began to recover.

Data from Gartner TalentNeuron™ from the last financial crisis also showed:

• Some industry sectors, such as manufacturing or retail, face a relatively early downturn in job postings due to the slowdown in consumer spending. Most often, these industry sectors are also the first to recover post-recession as the economy rebounds.
• The earliest signs of job posting declines are likely to emerge in semiskilled or unskilled jobs, then skilled occupations. For example, job postings might decline for entry-level software developers and programmers first in high-tech industries.
• Entry-level job postings tend to drop prior to a downturn as organizations halt graduate hiring. Instead, the internship or apprentice program is likely to grow as organizations seek low-cost students who do not increase corporate head count.

Read more:Gartner Quarterly Update on Global Workforce Trends

Fewer people quit their jobs when uncertainty looms

When the economy shows sustainable growth, median tenure and the proportion of long-tenure workers drops as more job opportunities emerge for new entrants to the workforce or people looking to change roles. Tracking the organizational quit rate therefore provides a good measure of labor’s confidence in the economy and labor market.

The U.S. quit rate peaked in 2006 and began the decline in mid-2009 when the economy started to recover. However, the first changes in the quit rate emerged in 2006 after three years of steady growth preceding the last financial crisis — suggesting that the quit rate is a good indicator of an economic downturn when it follows a consistent increase and peak.

To leverage the insights from people-related indicators, align with stakeholders from finance, strategy and other critical functions to define how HR measures can fit in with existing enterprise measures. Continuously monitor changes in the HR indicators by analyzing data industrywide or across the entire labor market, if possible.