What does a Loosening Job Market Mean for 2025 Budgeting?

Recent labor data reveals that average salary increases, which rose 4.4% in 2024 are only projected to rise by 3.9% (or 1.2% after adjusting for inflation) next year. This is good news for business owners considering 73% of US companies reported this year that their total 2024 payroll expenses (which included salaries, bonuses, benefits, and variable pay) exceeded their total 2023 payroll expenses. This cooling of year-over-year wage growth should ease that burden at least somewhat.

Additionally, in 2023 more than half of U.S companies reported having trouble attracting and retaining talent, but this year that has fallen to around one-third of employers. Helping in the effort to find and keep employees is a decrease in resignations and job hopping compared to last year. At this point, the overall job market seems to have largely stabilized.
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In fact, Federal Reserve Chair Jerome Powell has said, “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.” This evidence tells us there is still a labor supply shortage in some areas, but slower economic growth has made the previously tight job market loosen over the last year.

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​This labor market data contains some key takeaways that will have budget implications across the board, related to:

Wage Increases
Salaries are predicted to be higher in 2025 than they are currently, but not by as much as many business leaders were assuming. Therefore, next year’s budgets likely won’t need as large of a wage increase allotment as expected, especially when adjusted for inflation. This will likely figure heavily into the ongoing discussion that many business owners are having around keeping business activities in house or outsourcing them.

Hiring Incentives
A loosening job market means hiring should be a bit easier next year. As a result, employers may be able to pull back on some of the costly hiring incentives that they had been offering to compete in the tighter hiring market like signing bonuses, increased starting salaries, added PTO, paid perks, retention bonuses, and so forth. This could bring relief for cash strapped small and mid-sized businesses that rely on attracting top talent to drive growth.

However, it’s important to note that these insights are an average across the entire US job market, which means certain industries may be outliers. These “exceptions to the rule” will include industries like accounting. Keep in mind that while the overall job market is cooling, the accountant shortage will likely continue to be a problem for years to come because there simply isn’t the pipeline of talent that there once was, and that’s a problem that won’t be resolved quickly. In these areas, hiring incentives will likely still be used to recruit experienced talent for some time to come.

Personnel Additions
Where companies have been on the fence about adding personnel, next year may be their opportunity to open new positions because a softer job market gives them a greater likelihood of finding someone that’s the right fit for the role. Knowing this early on in the budgeting process for next year can minimize the amount of rebudgeting that will be needed to stay on track. Planning now for opening additional roles next year has the added benefit of providing a longer runway for bringing in new talent, which increases the likelihood of finding the right personnel at the right price.

Retention Strategies
One budget item that should remain unchanged next year is employee training. Do not pull back in this area unless it’s truly necessary. Remember, regardless of what the current job market looks like, it will always be more costly to hire a new employee that it is to retain an existing employee. Investing in employees through structured training initiatives not only improves retention but also serves to upskill them for the company’s overall long-term benefit as well.

When your company needs help with budgeting, reach out to us! We offer top-rated accounting services to businesses looking for US-based outsourced accounting. Find out more today about how our team of experienced consulting accountants can help and why more businesses choose us for their accounting needs!