The Complexities of a “Job-Full” Recession

Economies worldwide keep shrinking, but firms keep hiring en masse. What leaders should do.

It’s a development that has leaders wondering if they are seeing things accurately.

The US GDP has shrunk for two consecutive quarters, a development considered by many to define a recession. Yet US payrolls grew by more than half a million in July, and the unemployment rate declined to its pre-pandemic low of 3.5%. Similar situations have played out in Europe and Asia: growth is slowing or reversing, but companies are still on hiring sprees. So what’s painting a more accurate picture—the jobs numbers or the GDP?

The answer may be neither. Pundits are calling this a “job-full” recession, in contrast to the “job-less recovery” of 2009 to 2011, during which the economy, awakening from the Great Recession, grew, even as firms held back on hiring. The situation may not last, but for now, "People don’t know what to do. Their crystal ball is really cloudy," says Doug Charles, Korn Ferry's president of the Americas.

In light of the conflicting data, some firms are reassessing their priorities, Blain says, cutting back on new projects that seem far afield from their traditional business while funding other things they might have curtailed during the pandemic. There’s a list of cost-cutting measures companies will want to take if there’s a recession. “Layoffs start occurring toward the bottom of the list,” says Nathan Blain, Korn Ferry's global lead for optimizing people costs.

The clients of Korn Ferry senior client partner Dan Kaplan are divided into two camps. The private-equity professionals he works with don’t believe the economy is in recession yet, but they think that it soon will be—possibly for a good while. Kaplan’s chief human resources officer clients, on the other hand, think a recession has already started, but that it won’t last long. “It’s shifting week to week,” Kaplan says.

Instead of fixating on the macro indicators, experts say, leaders should pay attention to the statistics coming out of their own organizations. Set aside inverted yield curves, inflation indices, and consumer sentiment surveys and focus instead on company-level metrics such as the number of big sales deals in the pipeline, how quickly—or slowly—vendors are paying, and whether the amount of corporate free cash is increasing or decreasing.

It’s why tech firms that hired tens of thousands of people in late 2021 and early 2022 are, in many cases, initiating hiring freezes or layoffs. Their revenue growth didn’t match their internal projections, so now they’re cutting back.

At the same time, there are other sectors of the economy that have more work to be done than available people to do it. Bars and restaurants, for instance, added 74,000 more workers in July, and healthcare services firms added nearly 97,000 workers.

The macro situation may not even last. There are signs that the job market might be softening; for instance, the number of job openings has declined over the last two months, albeit slowly and from a record high. But companies and consumers are, if not cutting back, at least indicating they are feeling the pinch of inflation. Even people in the job market are beginning to feel a greater sense of urgency to find new positions.

For now, at least, no one really knows.