A strong labor market is proving both a blessing and a curse for US corporations.
More people at work means more spending on things such as apartments or waste disposal and companies have welcomed the trend on recent earnings calls, but a shrinking pool of employees means that the providers of those goods and services have to pay ever-higher wages or cope with staff shortages, and increased turnover as they struggle to meet the rising demand.
That is one of the drawbacks of a jobs boom that keeps surprising analysts. The US last month added 304,000 workers to payrolls — easily topping forecasts, even amid a partial shutdown of the federal government and with unemployment already close to a five-decade low.
Here is how some US companies summed up the benefits and challenges of a solid US labor market in fourth-quarter earnings calls this week:
AvalonBay Communities Inc
The apartment landlord is a near-perfect example of seeing both sides of the coin. There is growing demand for rentals, but it is getting harder to find construction workers for new developments.
“The healthy labor market and accelerating wages are boosting confidence, spending and household formation,” chief financial officer Kevin O’Shea said. “Furthermore, demographics and housing affordability should continue to support the apartment market on the demand side.”
However, later on the same call, chief operating officer Sean Breslin said: “Our expectation is that the tight labor market will again result in some construction delays.”
Chipotle Mexican Grill Inc
The burrito chain said that higher menu prices and sales gains are “expected to largely offset ongoing wage inflation in the 4 to 5 percent range.”
“Our restaurant teams did a nice job of scheduling and managing labor in the quarter,” chief financial officer John Hartung said.
However, looking ahead, “the biggest challenge is going to be labor inflation,” he said.
Republic Services Inc
The US’ second-largest waste hauler also had an optimistic view of demand, while acknowledging the challenge of retaining workers.
“When there’s population growth, and there’s job growth and there’s wage growth, that’s good for waste generation, right?” chief executive Donald Slager said. “So as long as we see this same kind of housing start number and consumer sentiment, spending is good, we think that’s enough for us to continue to grow.”
Asked about personnel, he said that labor costs would rise a little more than 2.5 percent this year and “we do have pockets where we’ve got some labor shortage just because maybe there’s local economic issues.”
Employee turnover is “up a little bit with the growing economy if that’s to be expected,” and the company is trying to improve the work environment by investing in facilities, such as locker rooms and training rooms, Slager said.
One of the US’ largest food service providers, Aramark said that it has been able to pass along to customers the rising costs from food and wages, which add up to inflation “in the mid-3 percent range.”
“About one-third of that gets passed through right away and then the other two-thirds of our contract types, we have the ability to price through that inflation, which is something that we’ve been very successful at doing over the last 18 months or so as we’ve seen inflation creep up,” chief executive officer Eric Foss said.
Beazer Homes USA Inc
One homebuilder talked about how it is trying to avoid passing along higher labor costs to customers.
The company has reduced the number of available floor plans in each development, meaning that workers are building the same models more frequently, chief executive officer Allan Merrill said.
“That really is one of the keys to driving lower production costs,” he said.
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