A Hot Jobs Market Both Giveth and Taketh Away

A strong labor market is proving both a blessing and a curse for Corporate America.

More people at work means more spending on things like apartments or waste disposal, and companies have welcomed that on recent earnings calls. But a shrinking pool of employees means 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’s one of the drawbacks of a jobs boom that keeps surprising analysts. The United States added 304,000 workers to payrolls in January—easily topping forecasts, even amid a partial shutdown of the federal government and with unemployment already close to a five-decade low.

Here’s how some U.S. companies summed up the benefits and challenges of a solid U.S. labor market in fourth-quarter earnings calls last week:

AvalonBay Communities Inc.

The apartment landlord is a near-perfect example of seeing both sides of the coin. There’s growing demand for rentals, but it’s getting harder to find construction workers for new developments.

“The healthy labor market and accelerating wages are boosting confidence, spending, and household formation,” CFO Kevin O’Shea said. “Furthermore, demographics and housing affordability should continue to support the apartment market on the demand side.”

Later on the same call, though, COO Sean Breslin said that “our expectation is that the tight labor market will again result in some construction delays.”

Republic Services Inc.

The second-largest U.S. 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?” CEO 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 labor costs will rise a little more than 2.5 percent in 2019, 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 like locker rooms and training rooms, Slager said.

Chipotle Mexican Grill Inc.

The burrito chain says higher menu prices and sales gains are “expected to largely offset ongoing wage inflation in the 4 to 5 percent range,” according to CFO John Hartung.

“Our restaurant teams did a nice job of scheduling and managing labor in the quarter,” Hartung said. Looking ahead, “the biggest challenge is going to be labor inflation.”

Aramark

One of the nation’s largest food-service providers, Aramark says it’s 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 a 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,” CEO Eric Foss said.

Beazer Homes USA Inc.

One homebuilder talked about how it’s trying to avoid passing along higher labor costs to customers. Beazer CEO Allan Merrill said the company has reduced the number of available floor plans in each development, meaning workers are building the same models more frequently.

“That really is one of the keys to driving lower production costs,” he said.

From: Bloomberg

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