The third quarter 2016 overall Workforce Index reported a score of 72.3, a decrease from 75.9 in the second quarter. This represents the ninth consecutive quarter the overall index has posted a reading over 70, signifying the growing pressures of a tightening labor market. This insight comes from the TDn2K™ Workforce Index produced by People Report™.

Highlights from the Q3 Workforce Index

During the second quarter of this year, the foodservice industry added 41,600 jobs, which is the lowest quarterly total in four years. Comparatively, the overall economy added 442,000 jobs last quarter, breaking a five year record for lowest total. The overall economy also expanded at a 1.1 percent rate in the first quarter of 2016, a 0.3 percent slowdown from the previous quarter.

Joel Naroff, TDn2K Economist and President of Naroff Economic Advisors, recently reported on the economic conditions of the country in TDn2K’s Q3 Restaurant Industry Update webinar. He explained that although job growth did indeed slow throughout April and May of 2016, overall job gains still remained moderately strong and indicates the economy is not headed into a recession – yet.

This is both good news and bad news for the restaurant industry. Due to the recently declining sales and traffic restaurants have been experiencing, there has been a great deal of concern that a recession is in the forecast for the second half of the year. Although Naroff does not foresee this immediately, that also means that labor market pressures will not be letting up anytime soon.

“Relief is on the way if the economy shifts,” suggests Michael Harms, Executive Director of Operations at TDn2K. “Labor pressures are a reaction to the current market conditions.” This leaves operators with little to look forward to. Workforce challenges will only begin to abate as the economy weakens, leaving restaurants with less staffing pressures but dismal sales and traffic.

Challenges in limited service

Limited service restaurants in particular are struggling to remain staffed at their desired levels. Quick service posted an overall index of 81.6 for the third quarter, which is 2.6 points higher from the previous quarter and the highest of all dining segments. The quick service turnover index also increased 4.3 points from last quarter to 66.2 for the third quarter. Additionally, the fast casual/family dining segment reported a 17.6 point increase in its vacancies index and 9.4 increase in its recruiting index, putting both indices at over 80 points and suggesting rapidly growing pressures.

Last quarter, quick service reported a recruiting index of 100, which is the highest possible value and the highest ever recorded by the Workforce Index. This quarter, the recruiting index dropped 20.8 points to a value of 79.2, which offers some relief for operators in the quick service segment yet still portends significant difficulties in finding quality employees.

Workforce Index

Recruiting and retention difficulties continue

For the third quarter, 61 percent of companies reported an increase in hourly recruiting difficulty and 58 percent reported an increase in management recruiting difficulty during the second quarter. This is comparable to a recent People Report survey, in which 75 percent of restaurant operators claimed that recruiting is the biggest challenge they are currently facing in their companies. Turnover also remains a serious problem – 55 percent of companies experienced rising turnover rates at the hourly level in the second quarter. According to the recently published Regional Turnover and Compensation Report, restaurants in the southwest region of the country experienced the highest turnover levels year-over-year.

“TDn2K’s analysis has long documented the linkage between turnover, compensation and operating results. Based on this, there is little question that recent restaurant performance is at least in part attributable to issues of staffing, training and execution,” says Bob Rycroft, Managing Director at TDn2K.

Read more information on this quarter’s Workforce Index results here.

Also, check out some of our past blogs for more details on the labor pressures facing the industry:

New Overtime Regulations Are Here – See How Restaurants Are Responding

Strategies to Offset Minimum Wage Hikes

Does Turnover in the Service Sector Scare the Hell Out of You?

The Workforce Index is a quarterly barometer of market pressures on the employment based on a survey of participants in the foodservice industry. Each quarter, People Report measures labor pressures based on five different components: employment levels, recruiting difficulty, job vacancies, employment expectations and turnover. The components are measured on a scale of 0 to 100, with values over 50 representing an increase in pressure and below 50 representing a decrease in pressure.