Employee Job Market Softening?

A series of economic changes could cool off a robust job market and hopes for bigger raises.

It’s been two years where companies couldn’t hire enough workers. But there may be signs that those times may be ending—faster than expected.

In recent days, several investment banks have been warning that the continuing U.S.-China tariff war may be finally taking too heavy of a toll on the economy. That comes on the heels on other less-than-cheerful economic news about that may well dampen corporate confidence in a once-robust job market. “Confidence is a big thing here,” say Ben Frost, a Solution Architect in Korn Ferry’s product business. “If people aren’t confident and think there’ll be a recession, they’ll start exhibiting recession behaviors.”

In the case of the tariffs, analysts are growing increasingly concerned that higher costs will slow consumer demand and reduce capital spending. Meanwhile, in the past week or so alone, leaders have learned that U.S. manufacturing growth is at its lowest level in three years; construction spending is flat; and the economy added only 78,000 jobs in May, well below the average 175,000 since 2016 and far below analyst expectations.

To be sure, many analysts are still not worried about any major slow down and some of the latest figures can get adjusted. For his part, Scott Macfarlane, vice president of client development at Korn Ferry, says he’s not hitting the panic button. “The job numbers, like a number of other things, can be an indicator of what’s going on in the economy,” says Macfarlane. “But a month change doesn’t make a trend. The job numbers are still relatively positive.”

Still, one rippling effect may hit one sensitive areas: raises. For the most part, most employees are already not seeing much in this area: recent Korn Ferry research has shown that, after adjusting for inflation, real salary growth in the United States will be less than 1% this year. “Even if there’s a stutter in the economy, there’s less money in the pot for pay increase,” says Frost.

Though not popular, recession-minded behaviors like pay freezes can help companies pull through tougher times faster. Organizations use tampered hiring, pay freezes, and other risk-mitigating measures as ways to offset the projected blow to their bottom line. On the other end of the spectrum, employees may start to stay put at their jobs, foregoing new opportunities and potentially better pay for stability and security.

But for now, Macfarlane says that while leaders are asking more questions about the economic cycle and the trade war’s long-term impact, organizations are still investing heavily in new technologies and infrastructures, as well as “the acquisition of talent to support that work,” albeit with more discipline, he adds.