Dive Brief:

• U.S. companies plan to raise salaries 3.9% next year, pulling back from a median increase of 4.1% this year as resignations and employee turnover subside, Willis Towers Watson found in a survey.
• The proportion of U.S. companies that reported trouble attracting and retaining talent plunged 19 percentage points this year to 38% from 57% in 2023, WTW said. That year, employers faced an unusually tight labor market and provided a 4.5% median pay raise.
• The current decline in demand for labor “stems from the slower growth we are experiencing in the U.S. — the supply of labor actually remains the same, meaning we are still experiencing worker shortage and weaker labor force participation,” Lori Wisper, a WTW managing director, said Tuesday in an email response to questions. “This means that if demand were to tick up at any point in the near future, organizations would experience a tight labor market once again.”

Dive Insight:

The U.S. labor market has loosened in recent months, adjusting from a pandemic period of unusually high resignations, job hopping and wage gains.

While price pressures have eased this year, “the labor market likewise has seen substantial rebalancing and nominal wage growth moderating as a result — even while keeping up with inflation,” Federal Reserve Governor Adriana Kugler said Tuesday in a speech.

While employers added 206,000 jobs in June, downward revisions to the hiring numbers during April and May put the three-month average job growth at 177,000, just below the 178,000 monthly average from 2017 until 2019, according to Moody’s Analytics.

“The labor market, again, has moved into better and better balance to the point where I think you can now say it's essentially no tighter than it was in 2019 before the pandemic,” Federal Reserve Chair Jerome Powell said Monday. “Remember that the labor market of 2019 was a very strong labor market — so we're back to that place.”

The ratio of available workers to open jobs has improved in recent months and the quits rate, or the number of workers who left their jobs as a percent of total employment, has fallen to within the top of the range that preceded the pandemic.

Also, the jobless rate rose last month to 4.1% from 4% in May and from as low as 3.4% in April 2023, according to the Labor Department.

“The labor market is now slowing and coming back into better balance,” San Francisco Fed President Mary Daly said Monday.

Policymakers aim to ensure that, as they seek to curb inflation to the central bank’s 2% target, they avoid causing a slowdown and an upsurge in unemployment, she said.

With inflation cooling, the central bank has begun to focus more on sustaining a healthy job market, hewing to its congressional mandate to ensure both maximum employment and price stability, Powell, Kugler and Daly said.

“If economic conditions continue to evolve in this favorable manner with more rapid disinflation, as evidenced in the inflation data of the past three months, and employment softening but remaining resilient as seen in the past few jobs reports, I anticipate that it will be appropriate to begin easing monetary policy later this year,” Kugler said.

While slowing inflation has eased pressure on employers to raise pay, 73% of companies reported that in 2024 total payroll expenses exceeded their outlay last year, WTW said. Such expenses include salaries, bonuses, benefits and variable pay.

Inflation cuts both ways when companies make plans for pay, WTW said.

Companies that trimmed salary budgets this year cited price pressures and challenges in limiting costs and achieving financial goals, WTW said. Survey respondents that increased salaries pointed to inflation and the tight labor market.

“Salary increases being driven primarily by the supply and demand of labor would suggest that salary budgets would remain fairly stable in the coming years,” hovering from “the high 3% range or even low 4%,” Wisper said.

CFOs “should understand that as demand stabilizes, they need to still budget for relatively higher salary increases in the years to come — higher than the prior decade of 3% or less — because worker shortage is still with us and will be for some time,” Wisper said. “This is a fact most executives don’t understand.”

WTW received 32,000 responses from executives worldwide, with 1,888 U.S. organizations responding. Its three-month survey ended in June.