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Celebrate! Job Opportunities Bright for the Class of 2005

Outlook for New Grads - Salaries, Sectors, Economic Factors and more

By Philip Gardner, Director, Michigan State University Collegiate Employment Research Institute

Let's party!  It may not be1999, but there is cause to celebrate this year's predictions for the college labor market. After several dismal years, 2004-05 will witness the first growth in job opportunities for new college graduates since 2000. Employers appear confident about their hiring intentions and are interested in a wide range of majors and degree levels. Beware, however. The party could be crashed by some goblins prowling the edges of the celebration.

Employers Confident

As employers geared up their recruiting programs in the early fall, their snapshot of the college labor hovered between fair and good with 51% stating the market was good --- a marked shift from the poor rating reported each of the previous three years. When employers were asked to report on their own industrial sector, their confidence slipped some, but 42% still felt their markets would be good this year. Those recruiting in the Southeast states felt that this region's labor market would be the strongest across the country with the weakest regions being in the heart of the manufacturing belt throughout the Great Lakes and Upper Plains.

Economic sectors showing strength this year included retail, wholesale, transportation (not including airlines), health services, lodging and entertainment, and real estate. The important professional services sector, which hires a large number of college graduates, reported more confidence. Only representatives from information services, administrative services, and public health felt less optimistic about labor conditions for 2005.

Employers for construction and financial services (including insurance) were optimistic about the economy but reported that hiring conditions were tight. This situation was not unexpected as the housing boom has moderated, as well as the refinancing frenzy that has led to less demand for labor in these sectors.

While employers might be optimistic about the labor market for college graduates, the proof is in the seriousness of their intentions to actually hire. For 2005, 47% of the respondents reported that they will definitely hire new college graduates. This is an 11% increase over two years ago. The number still uncertain about their hiring fell by a similar amount to only 22% this year. Another 26% have made preliminary hiring targets for 2004-05 that include new college graduates.

The sectors most eager to hire include transportation (83% definitely hiring), real estate (70% definitely hiring), and educational services (64% -- does not include K-12 education). The bright segment within the manufacturing sector can be found among chemicals, petroleum and plastics companies.

Employers who recruit internationally or throughout the entire U.S. expressed the strongest intentions to hire this year. Nearly 60% of these employers were committed to definitely hiring new college graduates in 2004-05. Regionally based employers also intend to hire but only about 45% to 50%, depending on the region of the U.S., had definite commitments at the time the survey was completed.

The Pie Increases

Before we report the magnitude of the expansion of employment opportunities, let's see what direction employers are leaning in their hiring. Half (50%) reported that they would increase their hiring over last year's level – a sharp rise over last year's 39%. When refigured by degree level, increased hiring will prevail for associate's, bachelor's and most master's degree graduates. The only degree where those increasing equate to those decreasing is among employers seeking MBA graduates.

The best twist on these figures appears when we look closely at those who will be definitely hiring – nearly 60% of the employers in this category will increase hiring above last year's level. Even among those with preliminary targets, 51% expect to increase hiring.

Hiring for college graduates this year is expected to expand by approximately 20%. The magnitude of this increase points to the first true expansion in opportunities since January 2001. Last year we expected an 8% to 10% increase in opportunities. We are still reconfiguring responses from this year's survey, but our intuition and anecdotal evidence suggest that the market probably did not expand that much during 2003-04. Unfortunately, the MBA market, which is still out of equilibrium (large supply of new MBAs and low demand on the employer side), will only witness a modest expansion of 7%; too small to absorb the number of unemployed or underemployed MBAs in the workforce and those expected to graduate this year.

Several factors seem to be pushing this expansion. Employers simply, out of necessity, have to hire. Many companies have done little hiring in four years and are experiencing gaps in their workforce (which imperils tacit institutional knowledge, for example), burnt out workers who have been working long days and weeks to cover all the assignments, and pending retirements. Even though some corporate decision-makers may not want to hire, they simply have to. Sectors, such as manufacturing where the economic outlook is still weak, will increase bachelor hiring 20%.

Several sectors are beginning to actually expand opportunities. For the first time, we captured knowledge-based companies that provide information management services (collection, analysis, synthesis, and evaluation) to other companies. Many of these consulting firms that are internationally based or hire throughout the U.S. are growing as the U.S. economy continues to globalize.

Who's Hiring: Size and Sector

The characteristics behind this expansion support the strength of the hiring outlook. Company size, always an important determinant of hiring levels, reveals that small employers are again hiring those one or two people they need to meet increased business. Last year, you may recall, saw an exodus from the college labor market by small employers, as they simply did not have to tap into new graduates with the available surplus of educated workers at their disposal. This year small employers appear more eager to hire.

Large employers are also actively seeking new employees. The cohort of employers with more than 4,500 employees expects to increase opportunities by 19% at all degree levels. Hiring among the largest companies appears to be driven by preparations for retirements among the front end of the boomer generation and the simple need to fill holes in their workforce.

Companies were sorted using their North American Industrial Classification code into sixteen economic categories. Fifteen sectors reported sufficient hiring numbers to make yearly comparisons. Fourteen of these sectors reported hiring increases for 2004-05. Only the public sector, specifically state agencies, showed a decline in hiring. Unlike the previous two years, the federal government would not be hiring in numbers large enough to offset the state and local contraction in hiring.

Leaders among the fourteen sectors that are hiring bachelor's graduates include health services, entertainment and lodging (includes restaurants), transportation, and educational services companies. Since the survey did not include K-12 schools what kind of education jobs are available?  Employers in this group are seeking tutors, English as a second language instructors, reading mentors, and a range of other services now being offered outside the traditional K-12 school system.

Modest increases in hiring are reported by the retail, finance, and professional services sectors. It is worth repeating that the gains in professional services sector, the sector that contains accounting, marketing, consulting (engineering, business, and science), public relations, and similar business services, are welcomed because so many college graduates fine employment in this sector.

Probably the biggest surprise was the 20% percent increase in hiring in the manufacturing sector. Throughout the fall, various reports from the manufacturing sector presented a uniformly fairly bleak picture for hiring. However, nearly all industries, with the exception of food and beverage production and metal fabrication, are hiring. Respondents contribute this to simple necessity.  Having done very little hiring over the past three years, these companies need to bring in new personnel to fill in emerging gaps in their workforce stemming from attrition and retirements.

What's Hot!

Sales and marketing positions are in demand this year. In addition to marketing and general business majors, majors that develop strong interpersonal skills and teamwork – key attributes in sales positions – are hot!  This includes communications majors as well as many social science and humanities majors.

Computer science and IT related majors will see an increase in opportunities for the first time since the collapse of the dot.com sector. The information services sector is still facing hard time with over capacity in the telecommunications sector and limited growth in on-line businesses. However, employers across the other economic sectors are seeking computer savvy people to help upgrade hardware and software and to assist in maintaining the information databases, essential to the global economy.

Even though growth in opportunities for engineers will be modest this year with a growth of between 8% and 15%, this expansion will be the best engineers have experienced in three years. As electronic manufactures begin to rebound, hiring is expected be up for electrical engineers. Mechanical and industrial engineers face a mixed bag of opportunities depending on the manufacturing sector, but pressure from retirements and necessary replacements bodes well for these graduates. Chemical engineers appear to have the best labor market among technical graduates with hiring activity in petrochemical, plastic, and pharmaceutical companies.

Hiring strategies

Employers with college programs will be active on campus this year. Graduating seniors and MBAs should see more campus interviews and a larger employer turnout at career fairs. Employers continue to rely on on-line job listing services, both national and regional services, to identify qualified candidates.

Two hiring practices continue to rank as the most effective in hiring the best employees. Employers depend on their internship programs for nearly 50 % of their yearly hires. In fact more than 75% of all their new hires will have work-related experience before being hired this year. However, referrals from current employees, especially among small companies, top the strategies employers like to use. Networking continues to be an essential job seeking strategy for graduating students who are encouraged to develop a strong network of contacts through family, friends, and alumni to find their first job.

Salaries

Most employers (55% of those responding) will be holding salary ranges to the same level as last year. The 44% who will be increasing salaries will only be giving modest increases of 3% to 5%. Business majors, especially accounting, finance, and marketing, may see slightly higher increases over last year. The variation in salary is primarily due to difference in cost of living across the country.

Expected Salary Ranges in 2004 – 2005 for Selected Degree Levels

Expected Salary Ranges for Specific BA/BS Majors for 2004-2005

Guess Who's Coming to Dinner?

A number of factors can influence the shape of the job market – whether it expands or contracts. This year employers expect to expand opportunities; however, some of them reported caution. Potential party crashers are outside just waiting to burst inside. Beware of these gremlins that could mess-up the party.

• Interest rates. The Federal Reserve has slowly been raising the prime rate to insure that inflation does not accelerate and to return loan rates to more realistic levels (historical). U.S. consumers are being to see higher interest on credit cards, mortgages, and car loans but so far, their consumption habits have not changed significantly. We can expect interest rates to rise slowly over the next year. However, if inflation begins to pick up steam, interest rates will move up much quicker, slowing the consumer side of the economy. Where interest rate increases are particularly troubling are in China where inflationary pressure is already evident. If China-raises rates of inflation cannot be controlled, the global economy will be shocked with higher costs of doing business. While we don't expect national and global interest rates to impact this year's job market, we are concerned about problems next year.

• Energy.  Fortunately the U.S. had a mild early winter reducing the demand for heating oil, a demand that, in turn, alleviated pressure on gasoline prices. Also the world economy, especially in Asian countries, has cooled, lessening the demand for oil. Higher gasoline and oil prices could impact the holiday retail outlook. If world oil supply is interrupted and prices again go above $2.00 per gallon of gasoline, the consumer component of the economy could contract, slowing the growth of jobs. Again, we don't expect energy to be a strong factor in this year's market.

• Retirements. Boomers will retire, but the question is when?  The leading edge is now entering the early retirement stage, but few are opting out at this time. Many are concerned about health-care coverage as many companies realign their retirement packages to reflect the higher and higher costs of medical treatment. Instead of leaving sooner, boomers are working additional years or at least until they qualify for Medicare benefits. These delays are plugging up the labor market. Boomers will retire, but they may not do so with the explosive bang we have anticipated.

• Health care. Health care is the single most significant factor shaping employment based on responses by employers to this survey. Double-digit increases in health-care costs dampen hiring regardless of the need to expand employment opportunities. This year's increase will influence job formation as we expect fewer full-time and more part-time positions and limitations on health-care coverage for new employees.

• Productivity. The only game in town for employers is improving productivity. Current tax policy favors productivity asset improvement over labor generation. Productivity reflects fewer workers producing more through technological processes (improved efficiencies). Productivity can also interact with outsourcing (global labor markets) to impinge on job formation in the U.S. Some sectors of the U.S. economy will continue to lose jobs to these dual factors.

In conclusion

As we anticipate the college labor market for 2004-2005, employers indicate they will be out seeking new college graduates. Even the caution flags mentioned above seem to have only a minimal impact on the labor market shaping up for this year. We can expect a strong need for technologists from computers to health care. Students graduating in computer-science disciplines finally have something to smile about. In fact, this year's labor market has opportunities for everyone!

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Dr. Philip Gardner is director of Collegiate Employment Research Institute at Michigan State University in East Lansing, Michigan. This article originally ran in our sister publication, THE BLACK COLLEGIAN Online, which also publishes career advice, and internship and job opportunity information for diverse students.