Federal Reserve Bank of Philadelphia president Patrick Harker said Friday that the local economy continues to recover, but there’s “no smooth sailing” yet as companies face a challenging labor market with worker shortages making hiring harder and more expensive.
Business conditions improved in 2021 compared with 2020, according to a new Federal Reserve Bank of Philadelphia survey of members of the Chamber of Commerce for Greater Philadelphia. Most respondents also are optimistic that conditions will improve in 2022.
“The economy is improving, yes, but still freighted with risks and constraints,” Harker said in a speech kicking off an online event for members of the Chamber of Commerce.
Sales rose in 2021 over 2020: A full 56% of surveyed Chamber members reported slightly or significantly higher volumes of new orders and 72% reported slightly or significantly higher sales or revenues in 2021 over the year before, Harker said. The robust growth in orders and sales, however, are likely made that much more impressive when compared with 2020, when the pandemic seized up the global economy.
Worker shortages and rising wage and benefits costs are tempering the improving outlook.
Asked about labor supply issues, 56% of surveyed employers had difficulty hiring in the past three months due to lack of qualified applicants, while 29% said candidates turned down offered compensation, added Harker. A vast majority, 92%, expect wage and benefit costs to increase again in 2022.
The chamber’s annual survey, now in its 12th year, was conducted in December, and polled 66 members. Harker, president and CEO of the Philadelphia Fed, presented the results Friday morning at the chamber’s 2022 Annual Economic Outlook event.
Businesses’ remote work policy also factored into hiring. Some 17% of survey participants said job candidates rejected offers because of the “lack of a fully remote option,” Harker noted.
“Keep in mind that these survey results are largely from before omicron became widespread, which has further hampered efforts to keep employees healthy and on the job,” he said.
Remote work a new normal?
Economists said candidates refusing job offers that don’t include remote work is a first in employment data.
“It’s the first time we’ve seen evidence of this new part of work. The number of jobs unfilled is 11 million, a record level,” said Maxine Cuffe, director of global strategy with Haverford Trust. “That data backs up what Harker said about how companies are struggling as the balance of power has shifted to the worker.”
Philly Fed senior outreach economist Ryo Tashiro agreed.
“This could have a long-lasting effect. The pandemic changed the way we work. We at the Fed knew the remote option was having an effect, but this shows it was higher than expected,” said Tashiro, who helped publish the outlook.
Nationally, wages have risen from $28.51 hourly in February 2020 to $31 an hour in December 2021, Tashiro said. “Wages never decreased, even through the pandemic.”
Over 90% of Greater Philadelphia Chamber business leaders surveyed expect the trend to continue in 2022, according to the report.
Steve Nichtberger, cofounder of Caballetta Bio, a Philadelphia-based cell therapy biotech firm, said “talent is so precious and sought after, there are dozens of companies who want to hire my head of ... fill-in-the-blank. Everyone in this industry is highly sought after. We modified compensation because the fight for talent is so tough.”
David Davis, who leads Accenture’s national health and public sector practice out of Philadelphia, said the firm has removed the four-year-degree requirement as part of its hiring process and is adding 500 apprenticeships by 2025.
For Philadelphia International Airport, CEO Chellie Cameron said the hub is “recovering slower than other destinations domestically” such as airports in Texas, Florida, and Idaho, which have exceeded pre-pandemic levels.
“We are still down 30%” in traffic compared to before the pandemic, Cameron said. “That said, we are American Airlines’ transatlantic gateway, and business traffic has recovered to about 45%” of pre-COVID levels.
“We’ve had a better recovery in business travel than other airports. We have a lot of reasons for optimism,” Cameron said, pointing to growth in cargo.
What about Philadelphia as a draw for business? “Fifteen years ago, Philly was an albatross. Today it’s a selling point,” due to lower real estate prices and cost of living, Nichtberger said. “Why would you start a company anywhere else?”