While the Fed lowering interest rates is good news for staffing firms, any modifications in monetary policy take time to affect the labor market. This latest cut represents a light at the end of a tunnel for an industry that has been struggling throughout 2024.
The question of whether the Fed would cut by a quarter or a half percentage point was finally answered last week, marking an end to the historic 30-month tightening cycle with an initial cut of 50 basis points. The decision heralds a shift in priority back toward maximizing employment, as the Fed states it has enough confidence that inflation is moving towards its target of 2% to justify the decrease in interest rates.
This cut will help to stabilize the labor market, which has been experiencing an extended period of cooling, on top of an upwards creeping unemployment rate and several downward revisions to jobs created in recent months. Lower interest rates bolster both national consumption and investment which can lead to more labor demand.
In addition, there are still more rate cuts to be announced this year. Back in June the Fed predicted that the 2024 year-end rate would sit at 5.1%, but now that number is expected to be even lower at 4.4%, and likewise for the year-end rates for 2025 and 2026. While this is good news for staffing companies, any modifications in monetary policy take time to affect the labor market. However, this latest cut by the Fed represents a light at the end of a tunnel for an industry that has been struggling throughout 2024.
Taken together, recent forecasts point to slower fourth quarter this year than in 2023 from a retail standpoint. However, with several interest rate cuts on the horizon, and a larger than expected cut in September, the economy may surprise to the upside overall.
Historically, the fourth quarter tends to be the strongest for the staffing industry each year. In fact, since 1992 average weekly temporary and contract employment has been highest in the fourth quarter in all but six years—2000–2002, 2008, 2020, and 2023—according to the ASA Staffing Employment and Sales Survey. Since 2023 and now 2024 have been particularly challenging years for the economy, all eyes are on what may lie ahead in the fourth quarter of 2024.
One major source of labor demand in the fourth quarter is seasonal hiring to support increased consumer activity during the winter holiday season. However, several recent forecasts suggest 2024 might be a slower year. Challenger, Gray & Christmas Inc., which tracks hiring and layoff announcements, projected fourth quarter retail hiring will slow in 2024 compared to prior years. The firm expects retailers to add 520,000 jobs which is more than the 509,300 added in the fourth quarter of 2022, but lower than any other year since 2009. To date, they have tracked 334,850 planned hires announced for the 2024 season.
Separately, Deloitte has released their forecast for holiday retail sales growth. While they see November and December retail sales growing compared to 2023, they project it will be at the slowest pace since 2018—3.3%.
Taken together, recent forecasts point to slower fourth quarter this year than in 2023 from a retail standpoint. Staffing companies will need to monitor whether pending interest rate cuts will be able to breathe life into a dormant labor market.
