Employees Still Expect Raises This Year
And many are getting them. On average, employers are giving annual merit raises of 3.8 percent and total compensation increases of 4.1 percent in 2023.
Here are today’s highlights:
Home Depot will spend an additional billion dollars on frontline wages this year.
Job postings just hit a two-year low.
With mortgage rates falling, home builders are doing better.
It’s a little like a morgue in a Bed Bath & Beyond store right now.
Employees are still expecting pay raises this year: “The rising cost of living is prompting many employees to push for a hefty pay increase, and recent wage gains across the economy have ratcheted up hopes they’ll get one. But recession worries and higher interest rates have companies boosting efficiency while containing costs, including for labor, corporate bosses and compensation consultants say. Businesses are still handing out substantial pay increases, though less than what they projected last fall, according to a new survey of nearly 1,000 major employers by benefits-advisory firm Mercer. On average, employers are giving annual merit raises of 3.8 percent and total compensation increases of 4.1 percent in 2023—still the highest-reported raises in the survey since the 2008 financial crisis.”
“A majority of U.S. employees say they are confident they’ll get a pay raise this year and, on average, expect one of 6.7 percent, according to a recent survey of 2,000 workers by the research arm of payroll provider ADP. Last year, workers received an average 6.5 percent increase, ADP data show.”READ MORE
Job openings are near a two-year low—but are still well above pre-pandemic levels: “U.S. job openings dropped to their lowest level in nearly two years in March and layoffs rose sharply, in signs that demand for workers is cooling a year after the Federal Reserve began lifting interest rates to combat inflation. Layoffs rose to a seasonally adjusted 1.8 million in March from the prior month, up from a revised 1.6 million in February, the Labor Department said Tuesday. The increase was led by job losses in construction, leisure and hospitality and healthcare industries—sectors that have driven job growth in recent months as tech, finance and other white-collar industries cooled.”
“Job openings have fallen sharply in northern Indiana over the past six months, with employers that had been looking for 10 to 15 workers now seeking just one or two, said Alyssa Chumbley, owner of an Express Employment Professionals recruitment business. Ms. Chumbley’s company focuses on white-collar companies in Chicago as well as steel-manufacturing businesses in northern Indiana.”
“The hiring slowdown reflects cooling overall demand as the economy slows, Ms. Chumbley said. But some roles continue to be hard to fill, such as skilled manufacturing jobs on evening and night shifts at factories.”
“Openings reached their lowest level in March since April 2021 and are down from the record 12 million recorded last March. But they remain well above levels before the pandemic and exceed the 5.8 million unemployed people looking for work in March.” READ MORE
Despite declining sales, Home Depot says it will spend an additional billion dollars on frontline wages this year: “Giving pay raises at the same time sales are slumping seems like an incongruous strategy, but Home Depot executives project that it will actually boost the big-box retailer’s industry-leading position. ‘We plan to continue to capture market share,’ CFO Richard McPhail told analysts during the February earnings call. One reason, he said, is ‘the unique advantage that our orange-blooded associates give us over our competition,’ alluding to Home Depot’s signature color and the term for its frontline employees.”
“While Home Depot made a splash with the billion-dollar pay hike, it comes on the heels of similar moves by other major retailers that also espoused the benefits of investing in a well-paid workforce.”
“Market leaders such as Home Depot, Walmart and Target that have scale should be in better positions than mid-size competitors to invest in their labor force, [Morgan Stanley analyst Simeon] Gutman said. ‘They’re behaving as they should given the tight labor market, showing leadership and not just thinking about a 12-month timeframe. They’re thinking about 12 to 36 months.’” READ MORE
Insider says it’s increasingly clear that the blame for inflation lies largely with corporate America: “Anyone who has reached for a carton of eggs, filled up their tank with gas, or tried to buy pretty much anything has felt the sting of that inflation over the past few years. While many of the problems that helped trigger the upward spiral have abated, prices are still high and getting higher. The data is increasingly pointing to one culprit: corporate profit hoarding. And given the relative impunity big business enjoys, there may not be much relief for Americans' wallets anytime soon.”
“The sudden economic stop-start of the pandemic caused a dramatic mismatch between supply and demand, fueling a once-in-a-generation inflation flare-up. But more than three years since the dislocations began, many of the logistical and labor messes have normalized.”
“Labor-market disruptions were a prime suspect in soaring inflation last year. Economists and the Federal Reserve suggested workers demanding higher wages was the ‘key’ to inflation. But average hourly earnings grew by just 0.3 percent in March, according to the latest Bureau of Labor Statistics data, and currently sit at year-over-year growth of 4.2 percent — well below the nearly 6 percent jump from March 2021 to March 2022.”
“The idea that companies are taking advantage of disruptions to push price increases on consumers has many names — greedflation, excuseflation, price gouging, corporate profiteering — but the gist is the same. Large corporations use the guise of disruptions to raise prices beyond what their costs would suggest is necessary or what economic theory would suggest is prudent, squeezing higher profits out of cash-strapped customers.” READ MORE
Thanks to falling mortgage rates and tight supply, homebuilders are doing better: “Active listings in March stood at roughly half of where they were four years earlier, according to Realtor.com, in part because higher mortgage rates made many homeowners reluctant to sell and give up their current low rates. That low inventory has put home builders in a good spot. Newly built homes made up about one-third of single-family homes for sale in March, according to data from the Commerce Department and the National Association of Realtors. The proportion of newly built homes reached nearly 35 percent in December, a record in data going back to mid-1982 and up from a historical norm of 10 percent to 20 percent.”
“‘The builders aren’t the only game in town, but they’re more the only game in town than they have been in a very long time,’ said Carl Reichardt, a home-building analyst at BTIG.”
“Buyers are also more comfortable now that mortgage rates have come down from the 20-year highs they hit in the fall, when average rates topped 7 percent, executives said. The average rate for a 30-year fixed mortgage was 6.43 percent in the week ended April 27, according to Freddie Mac.” READ MORE
SELLING THE BUSINESS
A growing number of aging owners are confronting the emotional decision to sell: “The youngest of the baby boomers, most often defined as those born between the years 1946 and 1964, turn 60 next year. About 10,000 baby boomers turn 65 every day in the U.S., according to AARP. Many entrepreneurs are driven people. They are hard-chargers, and many of their routines and their relationships revolve around their work. Work, especially for an owner, could be a big part of their identity. Their business isn't just a job; it's personal. ‘The emotional part of it is very big. They have not had a boss forever,’ said Pat McClain, co-founder and co-CEO of Allworth Financial in Folsom. The retirement planning firm has completed 28 acquisitions in five years, many from business owners choosing to retire.”
“There are three types of sellers, McClain said. The first is the owner who is maxed out on their comfortable risk of reinvestment into the business. They sell to be able to grow their business into a larger organization.”
“Another kind of seller is the owner who is looking to exit in two to five years, and they want a succession plan of some kind. The third type of seller is an owner burned out on running the business, McClain said.”
“Family businesses can be especially hard to sell, especially if they are intergenerational. Sometimes one of the kids expects to run the business, and that might not be the best choice for owners who have multiple children or for estate planning purposes.” READ MORE
Nordstrom has joined the big city exodus, leaving San Francisco: “The Seattle-based retailer, citing dwindling foot traffic, will not renew leases for its store in Westfield Mall and a Nordstrom Rack across the street, according to an email sent to staff from chief stores officer Jamie Nordstrom and shared with The Washington Post. The Westfield store will be open until the end of August, and the Rack location will close July 1. ‘Decisions like this are never easy, and this one has been especially difficult,’ Nordstrom wrote. ‘But as many of you know, the dynamics of the downtown San Francisco market have changed dramatically over the past several years, impacting customer foot traffic to our stores and our ability to operate successfully.’”
“In a statement to The Post, Westfield attributed the closure to ‘the deteriorating situation in downtown San Francisco’ and blamed the departure of businesses on ‘unsafe conditions for customers, retailers, and employees, coupled with the fact that these significant issues are preventing an economic recovery of the area.’”
“Whole Foods announced in April it was shutting down its year-old flagship store downtown ‘for the time being’ to ‘ensure the safety of our Team Members,’ the company told The Post. Retailers Anthropologie and Office Depot are also exiting the area.” READ MORE
This is what the inside of a Bed Bath & Beyond looks like right now: “A week had passed since Bed Bath & Beyond filed for bankruptcy protection — a surprisingly emotional week, but we’ll get to that in a moment — and on a cold, wet Sunday, the mood in the Somerville [Massachusetts] store was grim, the energy level, hung over. Merchandise was sparse, customers, too. And the place was a mess. On the floor, right when you walked in, by way of greeting, or perhaps warning, lay two cigarette butts. The towels, once famously displayed in a tour-de-force of orderliness, lay crumpled everywhere. Over in bedding, a box of Swiss Miss Keurig cups had washed up next to a 400-thread count twin sheet set. An open can of zero-sugar ginger ale stood abandoned nearby.”
“Somewhere in the vastness a baby wailed, and who could blame it? ‘It’s not exactly a morgue,’ said Andrew Rosenstock, a therapeutic and structural bodyworker, who came hoping for a better price on a bread knife. ‘But everyone is like a zombie. No one is looking at each other."
“On Sunday, as I left the store, I wanted to check on the cigarette butts, figuring they’d probably been cleaned up by an employee. I didn’t see them immediately, and I felt almost relieved — the store hadn’t completely lost its dignity. But then I spotted them slightly further inside, probably kicked along by the few customers who had wandered in, and, out of respect, I looked away.” READ MORE
THE 21 HATS PODCAST
Bonus Episode: Not Sold on ESOPs? There’s a New Alternative: This week, two special guests who have built highly successful companies talk about what they ultimately plan to do with those companies. Ari Weinzweig is co-founder of Zingerman’s Community of Businesses, a collection of mostly food-related companies that are an iconic part of Ann Arbor, Michigan. Brad Herrmann is co-founder of Text-Em-All, a software firm based near Dallas that helps organizations deliver personalized, informational, and emergency messages by text and by phone. Both Zingerman’s and Text-Em-All consider themselves purpose-driven. Both practice open-book management. And so, not surprisingly, the founders of both companies took a hard look at selling to an employee stock ownership plan, or ESOP, in the hope that the cultures they’ve created might live on.
But both companies, independently, soured on the notion of creating an ESOP, one after spending more than $200,000 and coming within a week of closing the deal. And now, both have settled on a little known alternative, what’s called a perpetual purpose trust. So far, only a handful of companies have tried to create a purpose trust for this particular purpose, but Zingerman’s and Text-Em-All are taking the leap. As both Ari and Brad acknowledge, they’re kind of figuring it out as they go.
You can subscribe to the 21 Hats Podcast wherever you get podcasts.
Thanks for reading, everyone. — Loren