Factory Hiring Expected to Continue Despite Recovery's Hiccup

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Following yesterday's gloomy reports on jobs and manufacturing, the optimism that was slowly building within the U.S. labor market dissipated faster than a raindrop on a hot sidewalk.

Payroll processing firm ADP reported that private employers added a mere 38,000 jobs last month, the smallest increase since September, while the Institute for Supply Management said its measure of manufacturing activity fell to a 19-month low in May, driven down by slower employment growth and fewer new factory orders.

But even as talk of a stalled economic recovery continues to reverberate, predictions of less hiring in the manufacturing sector, at least, may be premature, a new report released Thursday suggests.

The latest survey of hiring managers indicates that manufacturers will continue to hire in June, even as hiring within the service sector is expected to drop moderately.

More than half of manufacturers (54 percent) plan to hire this month, while 7.2 percent expect to cut jobs, according to the monthly Leading Indicators of National Employment, published by the Society for Human Resource Management.

Within the service sector, less than half (45 percent) of employers plan to hire this month, compared to 58 percent in June 2010. Meanwhile, the number of employers planning to cut jobs rose to nearly 9 percent, up from 7 percent a year ago.

"Though companies are still adding jobs, the rate of improvement compared to the same time last year has leveled off in the past few months," SHRM forecaster Jennifer Schramm said in statement releasing the findings. "While year-over-year comparisons are still showing a positive increase from June 2010 in manufacturing, we haven't seen the same in services."

The growing number of U.S. factory jobs has been driven in part by sharply higher wages in key exporting nations such as China and higher shipping costs caused by increased fuel costs, which have combined to make importing goods less profitable, Schramm noted in an email.

Those factors -- combined with better economic conditions overall -- may account for the modest improvement in hiring among manufacturers this month, she said, adding that it's important to note that the SHRM index measures the percentage of employers that say they are hiring, not the actual number of workers.

"So while more manufacturers in the index may be saying they are hiring each month, it doesn't necessarily mean they are hiring in droves," she says.

Despite the slowdown in hiring, the SHRM report also showed that hiring managers in both manufacturing and the service sector have reported increased difficulty in finding qualified applicants to fill key positions.

The difficulty in finding desirable talent is likely the source of another finding of the report: a rise in the amount paid to newly hired employees.

Among manufacturers, about 8 percent of companies reported higher pay packages for new hires -- a near 5 percentage point jump from a year ago. Similarly, 8 percent of service sector employers said that they were having to pay new hires more, an improvement of more than 6 percentage points from a year ago.

SHRM's report seemingly would provide some evidence to remain upbeat about job prospects -- at least within the manufacturing sector. Economists and investors on Wall Street, however, are likely to keep any enthusiasm in check, pending the latest snapshot of overall U.S. employment, which is due from the Labor Department on Friday morning.