Is the economy tanking and should I be hiring?

Read the news recently? Headlines are painting a tough economic picture. Nobody wants to say the "r" word, or what it might mean for the job market.  

But with rising interest rates and uncertainty on government policy, we thought it was time for a fact check. Even during an economic downturn, strategic hiring offers a competitive advantage.  

What are the key indicators saying?  

According to the Advisory Group BDO, there are three key indicators to keep an eye on during an economic downturn, especially if you're looking to hire.  

The BDO Employment Index  

For the last 3 months, the index has trended downward. In September the EI recorded its weakest reading since 2014, when recovery from the global financial crisis stalled. Why? Businesses across industries are struggling to maintain staffing levels amidst higher borrowing costs, elevated wage growth, and weaker customer demand.  

The Output Index  

The OI has declined for a third consecutive month below the 95-point threshold, to 91.87. This threshold separates expansion from contraction. In particular, the manufacturing sector is experiencing a drop in output due to commodity prices affecting production levels. 

The BDO Inflation Index 

In September, the Inflation Index saw a slight uptick, ending 10 consecutive months of decline. Consumer price inflation is expected to decelerate, with key consumption categories such as food, transport, and energy believed to have passed their peaks. 

Honourable Mention: UK Business Confidence  

Confidence slipped for the second time in the past three months, driven by the drop in output across manufacturing and services, higher borrowing costs, and uncertainty over government policy.  

It's not looking great, but there is hope as inflation begins to course-correct. Head into 2024 with a well-rounded understanding of how economic downturns impact hiring, delivery, and longevity.  

Why does unemployment rise during a recession?  

During economic turmoil, demand for innovation decreases as stability becomes the focus. This pushes organisations to consider reducing their workforce.  

The negative multiplier effect means this spirals, as less money is spent, consumer demand lowers, and organisations continue to lean out in line with reduced demand.  

The US Federal Reserve describes unemployment as a rocket that rises swiftly during a recession, and then falls gently as a feather during recovery. With strategic hiring, you could be in a position to ride the feather's descent, ready to make the most of economic recovery.  

What can we learn from history?  

In past economic downturns, forward-thinking companies came out best on the other side - but it wasn't all gung-ho full steam ahead recruitment... 

Apple transformed during the dot-com crash of the early 2000s, launching the iconic iPod with the return of Steve Jobs, and Tim Cook, inspired by Apple's resilience, emphasised investing during downturns. 

Netflix, founded in the years leading up to the dot-com bubble, survived economic hardship in 2000, declining a $50 million buyout offer from Blockbuster, to become a pioneer in streaming on-demand video. 

Facing the Great Recession in 2001, Mailchimp pivoted from serving large corporate clients to adding a freemium business model, rapidly expanding its user base from 85,000 to 450,000 within a year. 

Recognise, though, that during economic downturns, it's vital to balance hiring with financial realities. Harvard Business Review noted that successful companies employ a "progressive focus," selectively cutting back while maintaining a strategic vision. They retain key staff while also tapping into the talent pool of those seeking stability, achieving a nuanced approach to recession-era hiring. 

Hiring during a recession: strategy, not growth  

To hire amidst an economic downturn takes guts and a budget. Not everyone has the luxury of both. So, how can you get through this dip and emerge on the other side, competitive and ready to make the most of economic recovery?  

Reevaluate Roles: Prioritise roles that directly impact your technology team's efficiency and productivity, aligning them with adjusted business forecasts in anticipation of potential economic challenges. Pair this with a skills matrix audit of your existing staff, to understand gaps in knowledge and potential delivery blockers.  

Rejig Resourcing: 12 months ago, your project delivery likely relied heavily on permanent staff and 3rd party consultants. As permanent teams shrink, consider looking into contract resource as a way to get closer to achieving delivery of your projects. Demand for technology contract roles is high right now, and there is a much wider talent pool due to redundancies pushing salaried workers into the freelance or contract market.   

Audit Hiring Channels: Analyse the effectiveness of your hiring channels to understand which platforms yield the best talent. As margins rise across job boards and within advertising, consider doubling down on your most effective hiring channel, and making the most of your recruitment agency's referral network. 

Optimise your Talent Pipeline: As the volume of available talent increases, so too will the administrative burden required to equitably sift through candidates. Outsourcing this to an expert recruitment agency with the capacity and ability to hone a large database of candidates will help you find the right people, faster.  

Focus on IT Projects: Use downtime to focus on project-based work that bolsters your team's capabilities and preparedness for the future. Consider, on balance, the benefits of investing in professional development for your staff to offer a competitive edge. 

Boost Employee Retention and Culture: The last thing you want to be dealing with during an economic downturn is attrition, or worse - employees hanging around but not particularly engaged. Take this opportunity to dig into your culture and values, and find what unites the team.  

 Too Long, Didn't Read: What to Take Home  

• During uncertain economic times, smart hiring can give a competitive advantage.  

• Several signs, like the BDO Employment Index, point to challenges in staffing, but history shows us that some companies thrived during downturns.  

• To make the most of hiring during economic uncertainty, IT leaders can focus on essential roles, consider temporary staff, review where they find new hires, build a pool of potential candidates, invest in team projects, and improve company culture and staff retention.  

• This strategic approach helps weather the storm and prepare for future success.