Q3 workforce activity dips initially for a seasonal summer slowdown, though improvements throughout the quarter suggest a steady Q4.
Table of Contents
- Key Findings
- Data Sources & Methodology
- Top Trends in Q3 ‘23
- Decrease in Shifts Worked
- Slower Decline in Labor Participation Rate in the Overall Economy
- Continued Strength in Healthcare Sector
- Dip and Recovery in Public Sector
- Slowdown in Retail and Hospitality
- Workforce Activity for Small Companies Uneven
- Shift Recovery Strength for Nearly All Companies
- Manufacturing Sector Sees Better Shift Growth
- What to Expect in Q4 2023
Following the surprising strength in workforce activity in Q2, Q3’s labor rates started off slightly slower, though late-quarter improvements left the period steady overall.
The slowing decline in the labor participation rate this year compared to last has been an overarching theme throughout the past few periods. Q3 continued this trend, finally hitting an inflection point at the end of the period to represent not just a slower decline, but a growing labor participation rate compared to the same period in ‘22.
Though a large majority of sectors and company sizes experienced improvements in workforce activity as the quarter progressed, shift growth declined overall for the period. As you will see in the data below, shift growth and workforce activity for small businesses continue to lag behind the performance of larger companies. Since small companies make up the majority of businesses in the country, this could account for the shift work decline in Q3.
Overall, much of the data from Q3 shows a continuation of trends seen so far in 2023 or regular slowdowns for the summer season. Going into a busy Q4, the Q3 workforce activity levels signal stability for the labor market, especially amid ongoing recession uncertainty.
- September 2023 is the first month indicating a growing labor participation rate since March 2022
- Continued strength for companies of nearly all sizes, except small companies
- Workforce activity growth in the healthcare sector outpaces all others
- Slowdown in the retail and hospitality sector going into the Q4 holiday season
Data Sources & Methodology
We assessed their monthly workforce activity reports from July through September of 2023 to uncover ongoing trends in workforce activity in Q3 that HR and finance executives should be aware of:
- UKG Workforce Activity Report – July 2023
- UKG Workforce Activity Report – August 2023
- UKG Workforce Activity Report – September 2023
Throughout this report, all metrics reported are derived directly from the above reports.
In these reports and as we present our own findings, you should be aware of a few key terms to better understand the data:
- Workforce Activity: a comprehensive term describing the current state of labor and employment outlook in the United States, based on factors like the number of shifts worked by employees and pay statements
- UKG Workforce Recovery Index: a rolling 12-month scale created by UKG that measures the level of workforce activity relative to the same month one year ago
- The index tracks workforce activity levels of 4.2 million employees across more than 35,000 businesses across the United States
- The index offers directional insight into the anticipated changes in the labor participation rate (e.g. if the index is <100% then the labor participation rate is shrinking compared to last year’s levels, it if is >100% it is growing)
- Shifts Worked: a total that is derived from aggregated employee time and attendance data, this metric reflects the number of times that employees “clock in” and “clock out” via a time tracking system at the beginning and end of each shift
- Shift Recovery: reflects month-over-month shift growth for a company or industry, as measured by time punches
Top Workforce Trends in Q3 ‘23
Shifts worked declined for the period overall, though many sectors, regions, and company sizes saw continued improvements over the Q3.
Continued lagging metrics for smaller companies appear to weigh on the overall shift work growth for the economy, as you will see in further detail below.
Another bright spot for Q3 was an inflection point for labor participation rate growth, which occurred in September. As you continue reading below, we’ll discuss the top trends we observed in US workforce activity during Q3.
1. Decrease in Shifts Worked
Workforce activity dipped in July for the first time this year since April 2023, showing a bit of a slowdown following a surprisingly strong Q2. August workforce activity was down slightly from July, though September workforce activity rebounded to positive growth.
Though the quarter ended on a positive note, there was still an overall decline in shifts worked for Q3. The slight decline in August 2023 is also similar to the decline that was seen in August 2022, signaling a normal pattern to end off the summer season.
Here is a breakdown of the workforce activity data for the quarter:
- July: -0.7%
- August: -0.8%
- September: +0.1%
Q2 had a positive shift work growth of +0.4% but was followed by a tighter Q3 which saw a decrease of -0.5% overall. This shows that there were fewer shifts worked across the economy throughout the quarter.
The decrease in shifts worked in July sparked some concern; however, more stable activity towards the end of the quarter leaves experts feeling optimistic for the time being as recessionary fears still linger.
2. Slower Decline in Labor Participation Rate in the Overall Economy
Continuing on the strength of Q2, Q3 ‘23 data signaled a slower decline in the labor participation rate compared to the previous year.
Industry experts focus on the labor participation rate to measure the portion of the population over the age of 15 that is actively working or looking for work. This metric includes people who are unemployed, but are still seeking out employment. But, it excludes unemployed individuals who have stopped looking for work.
Thus, slower declines in the labor participation rate may not necessarily signal that more people have found jobs. But, it may show that more people who have previously given up looking for work or left the labor market are re-entering and seeking out jobs again.
The UKG Workforce Recovery Index is a directional indicator of the changes in labor participation in the United States. The year-over-year improvement shown in Q3 is what indicates a slower decline in the labor participation rate than a year ago, as seen below.
- Q3 ‘22: 96.9%
- Q3 ‘23: 99.4%
The index has shown both year-over-year and quarter-over-quarter improvements, with the index in Q2 ‘23 at 98.3%.
We have yet to see an inflection point with the index >100 for an entire quarter this year, and the help from the holiday rush in Q4 could be the key component to seeing this occur.
Aside from the year-over-year and quarter-over-quarter improvements, the index gradually improved throughout Q3 and finally reached an inflection point in September, as shown in the monthly data below.
- July: 98.4%
- August: 99.2%
- September: 100.6%
September 2023 is the first month with an index >100 since March 2022. On a monthly basis, this signals a total rebound and growth in the labor participation rate. Hitting this inflection point at the end of Q3 is a meaningful milestone, and could be signaling a strong rest of the year for labor participation.
3. Continued Strength in Healthcare Sector
The strength in workforce activity for the healthcare sector in Q2 has continued throughout Q3, outpacing all other sectors.
While the sector showed a meaningful rebound in workforce activity during the second quarter, we can now see that this strength was not transitory, as seen in the overall improvements to the UKG Workforce Recovery Index for the sector again throughout Q3:
- July: 109.2%
- August: 102.3%
- September: 118.8%
Though there was a slight slowdown in growth in August, September showed meaningful improvements, indicating greater workforce activity overall in Q3 ‘23 compared to Q3 ‘22.
From the above data, we can see that workforce activity levels have improved both quarter-over-quarter and year-over-year, showing remarkable labor market strength across the sector.
4. Dip and Recovery in Public Sector
The public sector saw a rebound in workforce activity mid-Q2, though activity shrank and then rebounded again at the end of Q3 to better levels than in 2022.
As a reminder, the public sector refers to public government roles as well as employment in public K-12 education and public higher education. This could help explain why workforce activity for the sector dropped during the summer months.
Here is the data for the UKG Workforce Recovery Index for the sector throughout the third quarter:
- July: 92.6%
- August: 97.2%
- September: 108.6%
Again, index values >100 indicate year-over-year growth in workforce activity. From this, we can gather that July and August ‘23 workforce activity levels shrunk from the same months in 2022, though rebounded in September 2023 quite a bit, likely as the school year got into full swing.
5. Slowdown in Retail and Hospitality
Workforce activity in retail and hospitality has had slowing growth for the fourth consecutive month. By the end of Q3, workforce activity for the sector actually showed a decline from last year’s levels in September ‘22.
Not all sectors saw resounding strength throughout the quarter like healthcare. However, the continued slowdown in workforce activity in retail and hospitality could signal an overall cooling throughout the sector while others remain stable or growing.
Here is what the UKG Workforce Recovery Index looked like for the retail and hospitality sector throughout the third quarter of 2023:
- July: 101.3%
- August: 101%
- September: 99.9%
Growth in workforce activity for the sector was already slowing at the start of the quarter, though by September, we see 2023 levels shrinking from those in September ‘22 with an index value <100.
The Q4 holiday season generally has a positive impact on workforce activity in the sector. But in the meantime, we can use the index data to determine that there may be a shrinking labor participation rate across retail and hospitality.
6. Workforce Activity for Small Companies Uneven
In Q2, one of the persistent weak areas in workforce activity was small companies with less than 100 employees. In Q3, this remains unchanged.
Q3 data for small companies showed slower declines overall compared to Q2. However, as we reported last quarter, they still have not hit an inflection point during this recovery period.
The UKG Workforce Recovery Index for companies with less than 100 employees was still below 100, indicating lower labor participation rates in Q3 ‘23 compared to Q3 ‘22.
- July: 96%
- August: 99.2%
- September: 95.8%
The third quarter started relatively unchanged from the end of Q2, with some improvements shown mid-quarter nearing an inflection point, which dropped down again in September to end the period.
Even though there was a quarter-over-quarter improvement for smaller companies, the data still shows lower levels than Q3 ‘22, signaling a slower recovery than larger companies.
7. Shift Recovery Strength for Nearly All Companies
Similar to what we saw in Q2, shift recovery data remained strong or improved across Q3 for nearly all companies except those with less than 500 employees.
Shift recovery for large companies with >2,500 employees has strengthened throughout the entire year, and Q3 is no different.
Here is some of the supporting shift recovery data for each month in Q3 by company size:
The above data represents month-over-month shift growth as measured by time punches, with each sized company ending the quarter with positive growth, minus the smaller companies.
This trend continues on what we’ve seen so far this year. The ongoing strength of larger companies may shed light on what is still to come for smaller companies that are having a slower recovery.
8. Manufacturing Sector Sees Better Shift Growth
There was a decline in shift growth for the manufacturing sector to start off Q3, though this improved throughout the quarter and ended on a high note. This follows a similar pattern to what we saw for the sector in Q2, which also ended the period with positive shift recovery despite early quarter contractions.
Here is the Q3 shift recovery data for the manufacturing sector:
- July: -0.9%
- August: -0.6%
- September: +0.9%
The above data shows the sector ended Q2 with positive month-over-month shift growth, even after an apparent slowdown in July and August.
Following muted growth over the summer, the shifts worked in the manufacturing sector are growing as we head into the rest of 2023. Q4 tends to be a busy time of year for most sectors, which should be no different for manufacturing as the sector builds off the momentum seen at the end of Q3.
What to Expect in Q4 2023
Many areas of the US economy saw both quarter-over-quarter and year-over-year improvements in workforce activity in Q3, despite early quarter slowdowns. Ongoing labor strikes appear to have had minimal impact, and the momentum going into Q4 for much of the economy signals stability for the labor market amid continued talk of a looming recession.
During the last quarter of 2023, HR and finance executives can watch out for the following trends to inform their hiring and workforce planning within their organizations:
- Holiday season strength: Q4 is a busy season for many sectors of the economy with the holidays approaching, which should support continued positive shift recovery across the US economy to end off the year. Specifically, the retail and hospitality sector could benefit the most following a slowdown in Q3.
- Rebound in workforce activity levels for small companies: We are still waiting for shift recovery and workforce activity levels for small companies to mirror that of larger companies. The holiday season could make it possible for this inflection point to occur before 2023 ends, which would have positive ripple effects throughout the entire economy.
- Growth in labor participation rate: The UKG Workforce Recovery Index finally reached an inflection point in September, though we have yet to see an entire quarter with an index >100 this year. The Q4 holiday push could make this possible, signaling a growing labor participation rate compared to Q4 ‘22.