Mass Layoffs or Hiring Boom? What’s Actually Happening in the Jobs Market
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Mass Layoffs or Hiring Boom? What’s Actually Happening in the Jobs Market

Restaurants, hotels and hospitals are finally staffing up, more than making up for losses in tech and other sectors

By SARAH CHANEY CAMBON
Fri, Feb 10, 2023 10:15amGrey Clock 7 min

Interest rates are rising, inflation is elevated and recession fears linger. Despite all that, employers keep hiring.

The U.S. added 1.1 million jobs over the past three months and ramped up hiring in January. That appears puzzling, given last year’s economic cool down, signs that consumers are pulling back on spending as their savings dwindle, and a stream of corporate layoff announcements, particularly in technology.

Driving the jobs boom are large but often overlooked sectors of the economy. Restaurants, hospitals, nursing homes and child-care centres are finally staffing up as they enter the last stage of the pandemic recovery. Those new jobs are more than offsetting cuts announced by huge employers such as Amazon.com Inc. and Microsoft Corp.

Employers in healthcare, education, leisure and hospitality and other services such as dry cleaning and automotive repair account for about 36% of all private-sector payrolls. Together, those service industries added 1.19 million jobs over the past six months, accounting for 63% of all private-sector job gains during that time, up from 47% in the preceding year and a half.

By comparison, the tech-heavy information sector, which shed jobs for two straight months, makes up 2% of all private-sector jobs.

The hiring spree in everyday services shows that the sectors hardest hit in the pandemic’s first months, when 22 million jobs were lost, are continuing to recover. Those gains may prop up the broader economy enough to avoid a recession.

The sectors driving job growth include hotels, hospitals and restaurants, which laid off workers amid pandemic shutdowns and social distancing in 2020. After demand surged during re openings, they started hiring again. But they struggled to land enough new employees and retain existing ones.

Burned out workers quit, finding ample opportunities elsewhere. Job seekers chose other positions that were less physically demanding or allowed them to work from home. Many Americans remained out of the labor force, some worried about illness, some supported by federal benefits and others opting to retire early.

Now, with the effects of the pandemic diminishing, many executives and business owners in services industries say they are finding it easier to recruit and fill jobs.

Eliot McDonald, director of operations at Layne’s Chicken Fingers, said the Texas-based restaurant chain’s four company-owned locations each received about one job application every two weeks between early 2021 and mid-2022. Many employees worked for just a month before quitting. Without enough hourly workers, Mr. McDonald himself would often run the drive-through, prepare chicken fingers and plate food.

In the second half of last year, he said, more job candidates started applying, which he attributed in part to the lure of higher wages. The company’s average hourly wages have risen to $15, from $11 two years ago. Now, all company-owned stores are fully staffed, and Mr. McDonald no longer is helping with hourly worker shifts.

“Knock on wood, things are running like they were before the pandemic,” he said.

In January alone, restaurants and bars added a seasonally adjusted 99,000 jobs. The healthcare industry grew by 58,000, and retailers added 30,000 jobs as fewer holiday-season workers were let go than in past years.

The recovery from pandemic-driven job losses likely will continue to drive employment growth this year, said Robert Frick, corporate economist with Navy Federal Credit Union in Vienna, Va., pointing to healthcare employers, nursing homes and child-care centres. “These industries absolutely have to hire, and they will keep scouring the labor force, raising wages and using different programs to get people back,” he said.

January’s jobs report showed employers added 517,000 jobs—nearly triple what economists had estimated—and the unemployment rate fell to 3.4%, the lowest in more than 53 years. The stronger-than-expected report prompted some forecasters to re-evaluate their views. Goldman Sachs economists reduced the likelihood that the U.S. will enter a recession in the next 12 months to 25%, from 35%, citing the strength of the labour market.

The jobs report was “certainly strong—stronger than anyone I know expected,” Federal Reserve Chair Jerome Powell said Tuesday. “It kind of shows you why we think [reducing inflation] will be a process that takes a significant period of time.”

Heading into 2023, forecasters expected the economy to slow and the labor market to deteriorate in the face of higher interest rates stemming from the Fed’s campaign to control inflation. The central bank raised its benchmark interest rate by a quarter percentage point earlier this month, to a range of 4.5% to 4.75%, a level last reached in 2007.

In December, Fed officials projected that the unemployment rate would rise to 4.6% by the end of this year. Economists surveyed by The Wall Street Journal in January put the probability of a recession in the next 12 months at 61%. They expected U.S. payrolls to decline by 7,000 a month on average this year. It remains possible that a combination of rising interest rates, persistent inflation and slowing consumer spending could tip the U.S. into recession.

But the most recent labor data is consistent with a jobs market coming back into balance after pandemic disruptions, rather than one that is wobbling into a sharp downturn. Wage growth is strong, but slowing, with hourly wages in lower-paying service jobs advancing more rapidly than the private-sector average. Layoffs, outside of a few sectors, remain historically low.

Restaurant chain Chipotle Mexican Grill Inc. is now above pre pandemic staffing levels, with turnover rates down. National hospital company HCA Healthcare Inc., which struggled with nursing shortages during the pandemic, is increasing hiring. The nation’s largest private employer, Walmart Inc., is raising wages for U.S. workers to at least $14 an hour, from $12, closing the gap with rivals that pay more.

Business owners, executives and economists say there are several reasons more workers are searching for jobs: bigger pay checks and benefits, diminishing fear of getting sick, and financial worries amid high inflation. The result is that employers, including small-business owners, are finding it easier to fill jobs.

With Covid-19 cases down, fewer workers are concerned about getting or spreading Covid than in the previous two winters when the virus surged. That might be boosting searches for jobs that require close personal contact, such as restaurant server, cafeteria worker and hairdresser. Job seekers also are less likely to be sick with or caring for someone sick with Covid, according to the U.S. Census Bureau.

Hiring in the healthcare services sector, including by hospitals, outpatient centres and nursing homes, has provided a boost to overall jobs numbers because the sector accounts for 16% of all private-sector payrolls.

Healthcare payrolls have grown at a robust pace in recent months as more candidates step forward to meet demand. Job applications for healthcare positions on recruiting platform iCIMS rose 7% from January 2022 through December, while they declined in industries such as manufacturing, finance and technology.

The Houston Methodist hospital system, which employs about 30,000, is finding it easier to fill clinical jobs such as in nursing, said Chief Executive Marc L. Boom. “It is less challenging to hire than it was a year ago,” he said. “We had a significant shortage of staff, in particular registered nurses, radiology technicians and many other clinical, patient-facing roles. But fortunately it’s gotten better.” The hospital made 7,560 external hires in 2022, up from 7,096 in 2021.

As hiring gets easier, the hospital system has stepped back from offering signing bonuses, including $10,000 bonuses for emergency-room nurses who could do evening shifts and for certified respiratory care technicians. The company also is relying less on temporary-staffing agencies than it did in 2020 and 2021.

Still, the system has about 3,000 open jobs to fill, which Dr. Boom said is high.

Hospitals employ many doctors, nurses and specialised technicians, who often earn high salaries. Other corners of the healthcare industry, where pay is lower, are still searching for workers.

Nursing homes are starting to add workers, but have struggled to staff up after shedding employees earlier in the pandemic. Staffers have quit—and stayed away—because of the pay, burnout and fear of Covid. Enhanced unemployment benefits and competing job opportunities also played a role. Nursing homes aren’t expected to return to pre pandemic staffing levels until 2027, according to a January long-term-care jobs report produced by the American Health Care Association and the National Center for Assisted Living.

Covid-19 drove women out of the workforce at higher rates than men early in the pandemic. Factors including access to child care, virtual schooling, a lack of attractive jobs and health concerns impeded the recovery of female labor-force participation.

More women are flowing back into the labor force, which could help service-sector employers fill positions that traditionally have been held by women. Labor-force participation for women in their prime working years of 25 to 54 returned to pre pandemic levels in January.

Employment in leisure and hospitality, which fell sharply early in the pandemic when restaurants, bars and hotels shut down, also is bouncing back, although it hasn’t yet reached pre pandemic levels.

Since restaurants and hotels haven’t staffed up too much, they could avoid the fate of many tech companies that are laying off workers after over hiring earlier in the pandemic, said Betsey Stevenson, an economist at the University of Michigan who was an economic adviser to President Barack Obama.

Restaurateur Itai Ben Eli, chief executive of Sof Hospitality, which runs Doris Metropolitan steakhouses in Houston and New Orleans and Israeli restaurant Hamsa and Badolina Bakery & Cafe in Houston, said it has become much easier to hire in the past three to four months.

“It’s nothing compared to about 18 months or 24 months ago, when it was almost impossible to hire people,” he said. “We’re definitely seeing a renaissance in terms of people…coming back to the industry.”

He has noticed more applicants for positions such as manager, chef and sous chef, positions that once took him months to fill. Now he is filling them more quickly, without dangling signing bonuses of $1,000 to be paid out after three months.

One steakhouse recently aiming to hire a sous chef, Mr. Ben Eli said, had “too many great candidates, which is a situation that I don’t remember in the past five years happening.”

“We had a tough call deciding who’s going to get the position,” he said. “I wish I had more positions available.”



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Nike Reverses Course as Innovation Stalls and Rivals Gain Ground

Shoe giant stumbled as CEO John Donahoe pulled away from retailers and relied on old hits. Now it says it’s refocusing on cutting-edge footwear for athletes.

By INTI PACHECO
Tue, Apr 23, 2024 10 min

In late February, Nike boss John Donahoe led a virtual all-hands meeting where he delivered a message to his staff: The company wasn’t performing at its best and he held himself accountable.

Two weeks earlier, Nike had announced it would lay off more than 1,600 employees .

Now, as the CEO spoke at the meeting, critical comments started to fill the chat window on the Zoom call while more than 20,000 employees watched.

“Accountability: I do not think that word means what you think it means,” an employee wrote. “If this is cost cutting, how about a CEO salary cut?” another wrote. Soon a cascade of laughing emojis filled the screen.

Some colleagues warned others that their posts weren’t anonymous and the chat might be monitored. The attacks went on for several minutes. “I hope Phil is watching and reading this,” an employee wrote, referencing the retired Nike co-founder Phil Knight .

The virtual protest illustrated the depths of the dissatisfaction within the sneaker giant and concern for its strategy. “How did we actually get here?” wrote one product manager.

Since the pandemic, Nike has lost ground in its critical running category while it focused on pumping out old hits and preparing for an e-commerce revolution that never came. The moves, current and former employees say, have eroded a culture of innovation and edginess that made Nike one of the world’s best-known brands.

Donahoe had told The Wall Street Journal in 2020 that his No. 1 priority when taking over the company was “don’t screw it up.” Four years later, the company is unwinding key elements of the CEO’s strategy that have backfired as a growing number of upstarts nip at its heels.

Among the reversals: As Covid raged and more shopping moved online, Nike cut ties with longtime retail partners such as DSW and Urban Outfitters and tried selling more merchandise directly to consumers. It is now asking some of those stores for help clearing out its overstuffed shelves and warehouses.

“I would say we got some things right and some things wrong,” Donahoe said Thursday, in an interview at Nike’s Beaverton, Ore., headquarters.

Losing its roots

The strategic missteps have animated a debate inside the company about its identity. In its zeal to boost digital sales, some current and former employees say, Nike veered from its roots as a maker of cutting-edge footwear for serious athletes. It has opened itself to competition from newcomers such as On and Hoka, which have borrowed from the playbook that fuelled Nike’s rise—including focusing on sport over lifestyle, and taking risks on innovation.

Nike’s once torrid growth has stalled . Sales for the quarter ended Feb. 29 were flat compared with a year earlier, and shares in the company have declined 24% over the past year, compared with a 19% gain in the S&P 500.

Donahoe in the interview acknowledged the brand lost its “sharp edge” in sports and needed to boost its “disruptive innovation pipeline.” The CEO said the brand’s marketing got fragmented and that with people going back to bricks-and-mortar stores, it was clear Nike needed to invest in its retail partners.

Nike executives said in interviews that the company became too cautious after the pandemic and overly reliant on older products that were reliable sellers. They said the company has made significant changes in recent months to refocus it on putting out cutting-edge footwear.

“We were serving consumers what they know and love,” said John Hoke , Nike’s recently named chief innovation officer. “The job is to of course do that but also to show them something new, take them someplace new.”

Donahoe said Nike is going through a period of adversity and layoffs that has created uncertainty, but that the company will get through it. “Our employees have been through a lot,” he said. “Nike is actually at its best, like a great sports team, when our backs are against the wall.”

Knight, who is chairman emeritus of the board and the company’s largest shareholder, said in a statement that Donahoe has his “unwavering support.”

Donahoe said employees’ responses to the all-hands meeting reflected one of Nike’s biggest strengths: how much its staff cares about the company. “We welcome and encourage that,” Donahoe said.

Shift into digital

Donahoe took over Nike just before the pandemic, at a delicate time. Though he inherited a market leader and one of the world’s best-known brands, Nike was seeking a refresh after it dealt with complaints about its workplace culture that led to a management shake-up .

The Evanston, Ill., native had been CEO of eBay , where he doubled the e-commerce platform’s revenue during a seven-year stint that ended in 2015. After a sabbatical—during which he says he had a life-altering experience at a 10-day Buddhist silent meditation retreat—Donahoe went on to run cloud-computing company ServiceNow .

When he took the helm of Nike in early 2020, his marching orders from Mark Parker , his predecessor and current executive chairman, and Knight were clear. He was to turn the world’s biggest shoe maker into a tech company more directly connected to consumers through its own apps, which in turn collect valuable data from shoppers.

Parker said when he stepped down that Donahoe was the right candidate to lead Nike’s digital transformation.

Donahoe was just the fourth CEO in the company’s more than 50-year history. The only other outsider to get the job said he was ousted in 2006 after a short stint because he focused too much on the numbers .

Donahoe started out with a 100-day global listening tour that was cut short after a month when the pandemic hit.

Covid lockdowns fuelled a surge in online shopping. Digital channels accounted for 30% of Nike’s sales in May 2020, about three years ahead of schedule.

Donahoe saw it as an acceleration of an inevitable shift and adjusted Nike’s plans accordingly. A few months in, he redoubled the company’s bet that it could make more money by selling products directly to consumers through its stores and digital channels. He said he believed digital sales would reach 50% of the business, and Nike should transform faster to define the marketplace of the future. It was time to act.

By late 2020, Nike dropped about a third of its sales partners and sold less merchandise to clients such as Foot Locker , DSW and Macy’s . There had been a plan to phase out wholesale clients since 2017, but with digital sales growing quickly, Donahoe said there was a need for urgency.

Executives were divided over whether Nike’s own stores, which include both factory outlets and specialty shops selling higher-priced new releases, could fill the sales void left by the retailers the company was cutting out.

In meetings, finance chief Matt Friend and Nike president Heidi O’Neill supported the aggressive exit from retail that Donahoe was pushing, while others favored a slower transition, people familiar with the matter said.

Some executives felt the specialty stores in particular worked better as marketing tools and that cutting off so many retailers so fast would backfire, the people said. Donahoe and his allies prevailed.

Nike teams were tasked to come up with a new global supply-chain process. Selling directly to consumers increased the company’s liabilities, including by shifting storage and shipping costs from wholesalers to Nike. The company would also absorb the losses from discounts if the merchandise didn’t sell quickly and inventory piled up.

One of the casualties of Donahoe’s 2020 transformation was a multibillion-dollar operation dedicated to developing footwear sold for under $100. The company deprioritised more-affordable footwear that usually sold to the sales partners that Nike was leaving behind. The move left Nike skewed toward higher-priced shoes.

The first evidence of cracks in Nike’s new approach appeared early last year when Foot Locker Chief Executive Mary Dillon said during an earnings call the brand had reversed course and was sending the retailer a wider assortment of Nike products. By the summer, Macy’s and DSW were saying the same thing.

The message was clear: Nike needed help selling merchandise.

Nike veterans said cutting off wholesale clients was one of the biggest mistakes the company has ever made. After digital sales hit the 30% of the total mark early in the pandemic, they dropped back, and haven’t reached that level since—let alone the 50% target Donahoe had foreseen.

Donahoe said in the interview the goal at the time was to lean more on specific partners, such as Dick’s Sporting Goods and JD Sports , which he considers to be more aligned with Nike, rather than make a dramatic shift in strategy. Nike deprioritised making lower-priced shoes because of supply-chain disruptions during the pandemic, but it is now making more of those products, he said.

“I don’t see it as a reversal of the strategy,” Donahoe said of the return to more retail chains. “I see it as an adjustment.”

Rising competition

Competitors have been using the sneaker giant’s playbook at its expense. Smaller brands like On, Hoka and New Balance have captured significant pieces of the market for both hard-core and everyday runners—and their popularity is spreading to the mainstream.

Often quoting Knight, the Nike co-founder, former employees said the principle always was to first capture the market for hard-core athletes with innovative performance gear, and the casual consumer would follow.

In early February, Hoka owner Deckers Outdoor tapped Nike alums to take over both the parent company and the shoe brand. Hoka had $1.4 billion in sales for the year through March 2023, compared with about $352 million three years earlier.

Hoka didn’t respond to requests for comment.

“When you’re the biggest, there’s always going to be people coming after you,” Donahoe said. Competitors give Nike an incentive to try to understand what consumers want and to figure out how to come up with something bold and different, he said.

Nike still dwarfs its competition . During Donahoe’s tenure, Nike sales have grown 31% to $51 billion in 2023. That is more than double the results of Adidas, its closest competitor by far. New Balance reported sales reached $6.5 billion last year, and upstart On almost hit the $2 billion mark.

The race to hit revenue targets came at a cost for Nike. Executives turned to the brand’s lucrative franchises, including Air Jordan and Dunk, and ramped up the releases. The strategy diluted the exclusivity prized by die-hard Nike sneaker shoppers.

Donahoe said in the interview that Nike ramped up production to meet demand on its SNKRS app, which fans use to buy the latest limited releases. In early 2021, Nike was meeting less than 5% of the demand for some releases on the app and consumers were frustrated, Donahoe said, adding the goal is to meet something closer to 20% of demand for the exclusive styles.

Now, sneaker resellers say they have seen release after release of Nike’s limited-edition kicks that don’t sell out on the SNKRS app, and that in the secondary market—a space that the brand closely monitors —prices are tanking.

Nike executives in March said they would pull back on franchise releases.

Donahoe said “franchise management has always been something Nike has done.”

Nike’s digital sales, a figure that includes direct and partner e-commerce sales, declined for the quarter ended Feb. 29. Friend, the finance chief, told analysts in March that Nike expects total sales to decline at least until the end of this year.

Struggle for innovation

The pursuit of sales growth from limited-edition sneaker releases led Nike to neglect its running category, long considered the core product of the company, former employees said.

This month in Paris, Nike unveiled its new product line for the Olympics, including running shoes with a new cushioning system that uses the company’s Air technology.

In interviews at the event, executives said the company had become somewhat risk-averse during the pandemic, when working remotely stifled creativity. Martin Lotti, chief design officer, said the company had spent too much time looking to its past.

“If you drive a car just by looking in the rear view mirror, that’s not a good thing,” Lotti said. “The bigger opportunity is the windshield.”

Current and former Nike executives believe the future of the company is in its app ecosystem , like the Nike Training and Running Club or its SNKRS app, and the data it can harness from them to help design and sell products. Inside the company, leaders have long tried to draw comparisons to Apple when talking about Nike’s innovation and design culture.

The sneaker giant has been acquiring smaller data analytics startups for at least a decade. Two years ago, it also bet on the NFT craze .

One of Nike’s biggest tech investments is a multibillion-dollar process to migrate multiple software programs into one single system. The new platform, known as S/4HANA, is still not operational and is three years behind schedule. The software is designed to help day-to-day operations, such as procurement and inventory management, and speed up digital sales.

As part of its accelerated focus on digital sales, Nike hired about 3,500 people to join what the company calls its global technology group, which includes consumer insights and data analytics. Executives at the time said they were investing in “demand sensing,” “insight gathering” and a new inventory system.

Former Nike employees with knowledge of the consumer insights strategy said executives misinterpreted the data in ways that overestimated demand for retro franchises.

During February’s round of layoffs executives trimmed layers of management across the company’s insights and analytics teams. A large technology innovation team, tasked with developing software to implement Apple’s new Vision Pro augmented reality system in day-to-day design tasks, and a separate artificial intelligence team were also eliminated.

Executives at Nike say it is entering a “supercycle” of innovation and that the new Air line of products enhances athlete performance.

At the Olympics preview event this month, the company took over the historic Palais Brongniart in central Paris with a three-day event to unveil its new Air line. Guests wandered through a museum-like, conveyor-belt installation highlighting Nike’s product evolutions and research and development programs. Athletes including runners Sha’Carri Richardson and Eliud Kipchoge modeled the new gear. Retired tennis great Serena Williams narrated the company’s lavish introduction video before appearing on stage.

Outside, 30-foot orange statues of Nike-sponsored athletes including LeBron James, Kylian Mbappé and Victor Wembanyama stood guard.

Donahoe’s relationship with Knight goes back to the early 1990s, when he was a Bain consultant on Nike projects. He joined the Nike board in 2014 and is one of the directors of an entity Knight created called Swoosh LLC, which holds roughly $22 billion worth of Nike shares and controls a majority of Nike’s board seats. Donahoe calls Knight his “greatest hero in business.”

The current CEO said he meets with his predecessor, Parker, every week.

Donahoe said that he and Parker share an approach to management he calls “servant leadership” that was embodied by some of his sports heroes, including basketball coaches Phil Jackson, John Thompson, Mike Krzyzewski and Tara VanDerveer.

“It’s never been about me. It’s about your players. And are you doing everything you can to allow your players to make the adjustments to win? And when you have a win it’s about the players and when you have a loss you say it’s on me, right?,” he said. “And that’s what I’ve always tried to embody, including during this period of time.”

This week, Donahoe is facing another test: the company is notifying several hundred more workers whose jobs are being cut.

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Lifestyle
Where single women are buying property in Australia — and why their purchase power matters
By Bronwyn Allen 05/04/2024
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