Hiring is surging—and so are staffing costs

The U.S. workforce added 467,000 workers to the payrolls in January, according to the Feb. 4 jobs report released by the Bureau of Labor Statistics. The findings quashed expectations that companies would slow hiring in January due to the Omicron variant. But how is hiring hitting the bottom line?

An interesting case study is Starbucks which recently reported financial results for its 13-week fiscal first quarter ending Jan. 2. “We hired an increasing number of new partners into our business this past quarter, which rapidly increased our training costs well above historic levels,” Starbucks President and CEO Kevin Johnson said on the earnings call. He didn’t confirm on the call the number of hires in the quarter. But Starbucks boasts more than 200,000 employees worldwide. 

“When the Omicron surge began, inflationary costs and staffing shortages were amplified, well in excess of our expectations,” Johnson said. This was driven by “three primary factors: high inflation, COVID-related pay, and training and onboarding of new partners impacted our profitability to approximately the same degree, even while customer demand remained strong,” he said.

“Q1 consolidated operating margin contracted 30 basis points from the prior year to 15.1%, due primarily to significant investments in store partner wages and benefits, as well as inflation, partially offset by sales leverage and pricing in North America,” Starbucks EVP and CFO Rachel Ruggeri said on the call. In October, Starbucks announced a pay raise for its U.S. baristas. Hourly wages will average nearly $17, with new range of $15-$23 for baristas by summer 2022. Meanwhile, the company was also affected by turnover. 

Taking a look at the transportation and warehousing sector, which added 54,200 jobs in January, some airline companies reported accelerated costs related to pay bumps. “To be more competitive on the hiring front, in particular for ground operations, we are raising starting wage rates from $15 per hour to $17 per hour, which is estimated to be a $20 to $25 million total impact to this year,” Southwest Airlines EVP and CFO Tammy Romo said on the company’s recent earnings call.

An analyst on the call asked if Southwest is focusing on areas other than group operations when it comes to hiring. “The overall adjustments to capacity is really all groups,” Southwest CEO Gary Kelly responded. “We need pilots. We need flight attendants. We need ramp staffing. And you need the appropriate amount of buffer in all of those areas until we sort of see our way past COVID and understand what more normalized staffing, more normalized behaviors, more normalized sick leave looks like.” 

At the other end of the spectrum, the construction industry was in the red for January, losing 5,000 jobs. However, overall the industry has recovered slightly more than 1 million (91%) of the jobs lost during earlier stages of the pandemic, according to a report by Associated Builders and Contractors (ABC) released on Feb. 4.

As the U.S. employment-cost index increases, lots of employees are getting raises. But whether workers make real gains and companies can recover from rising costs all comes down to what happens to inflation this year.

See you tomorrow.

Sheryl Estrada
sheryl.estrada@fortune.com

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Big deal

The State of Internal Mobility and Employee Retention Report, released on Feb. 3 by Lever, a tech company offering talent acquisition software, takes a look at what attracts and retains workers, and it can differ by generation. Baby boomers (56%) and Gen X employees (50%) surveyed were motivated the most by a salary bonus compared to 40% of millennials and 38% of Gen Z employees surveyed. Meanwhile, good PTO and flexible work options motivate millennials more than the other generations. Among Lever's clients include the teams at Netflix, Spotify, and KPMG, according to the company. The findings are based on a survey of 1,200 full-time, employed adults in the U.S. across industries.

Courtesy of Lever

Going deeper

Fortune recently released the 2022 list of the World’s Most Admired Companies. Apple, Amazon, and Microsoft rank first, second, and third, respectively, for the third year in a row. The list is based on our poll of some 3,700 corporate executives, directors, and analysts. 

Leaderboard

Craig Conti will be leaving his position of EVP and CFO at Century Aluminum Company (Nasdaq: CENX), effective March 1. Conti is departing to be closer to family and pursue other opportunities. He joined the company in July 2018. Following Conti’s departure, Michelle Harrison, SVP of finance and treasurer, will assume the responsibilities of principal financial officer while the company conducts a search, both internally and externally, for a successor.

Mark Guinan, EVP and CFO Quest Diagnostics (NYSE: DGX), a provider of diagnostic information services, has announced his intention to retire in 2022. Guinan served eight and a half years in the role. A process to identify Quest's new CFO has begun, according to the company. Guinan will participate in the selection process and will remain in his role through the transition.

Overheard

“One thing we’re definitely seeing is employers and employees adjusting and living with the pandemic.”

—U.S. Labor Secretary Marty Walsh on the January jobs report, as told to Yahoo Finance Live.