June 2019 Federal Reserve Board's Beige Book

DISCLAIMER: Below are excerpts from the Federal Reserve Board's Beige Book published on June 5, 2019. It "... was prepared at the Federal Reserve Bank of Minneapolis based on information collected on or before May 24, 2019. This document summarizes comments received from contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials."

The excepts were chosen for their relevancy to the recruitment, staffing, employment services, and IT services sectors. The inclusion or exclusion of any sections or wording, the inclusion of each District's service areas (note that sections of some states are divided and end up in more than Fed District), as well as emphasizing certain sections with special typefaces (e.g. bold-faced) was done solely at the discretion of steinbergemploymentresearch.com. The full report can be found at the Federal Reserve Board.

First District  --  Boston (CT, MA, ME, NH, RI & VT)  return to District list

Most First District business contacts said that activity continued to expand at a modest to moderate pace in recent weeks; by contrast, more than half of responding manufacturers cited sales declines from a year earlier. ... Labor markets remained tight, but hiring difficulties were not said to be constraining operations (except for staffing firms). ...  most manufacturers downgraded their outlooks.

Employment and Wages

Contacted First District firms cited little hiring and continued upward pressure on wages. ... Most manufacturing contacts reported small changes in hiring. Respondents in the staffing industry mentioned low unemployment rates, local labor force demography, and limited applicant supply as "challenging" factors; within the limited applicant pool, they noted many underqualified applicants. Regarding wages, staffing contacts said that clients accepted higher bill rates to see qualified candidates who demanded higher pay rates.

Manufacturing and Related Services

Reports from manufacturing contacts continued to be mixed. Of the nine contacted firms, five reported lower sales, one reported no change and only three reported higher sales versus the same period a year ago. Three negatives mentioned most often were China, tariffs, and the semiconductor cycle; the three are related but distinct issues according to contacts. For example, Chinese cellphone manufacturers are big consumers of semiconductors so trade actions against them (as with Huawei, for example) are a big negative for semiconductor-related firms. At the same time, semiconductor firms cited a flat period in the industry's business cycle. Another area of weakness is autos; a firm supplying capital equipment to the auto industry said investment was depressed because uncertainty about trade policy has delayed new model launches. Two contacts supplying Boeing said that the problems with the 737 MAX did not have a material effect on their business.

Responding manufacturers reported no revisions to capital expenditure plans. Among other things, contacts said they still needed to invest in automation. Although most contacts were still positive about the near term, many had negatively revised their outlooks.

Staffing Services

Two of five responding First District staffing firms struggled to find year-over-year revenue growth in the first quarter, with others reporting performance similar to 2018's first quarter; all reported revenues higher than in the fourth quarter. Demand from clients remained steady across industries, but the tight labor market constrained placements. Many firms cited transparency and educating clients about labor force composition as business strategies to avoid pushback and maintain profits.

Several respondents reported an increase in the length of temporary contracts and less demand for direct hires; they conjecture these changes reflect their clients' uncertain expectations stemming from the threat of a trade war with China. Most contacts noted that their outlook on the economy was guardedly optimistic.

Second District  --  New York (CT, NJ & NY)  return to District list

Economic growth in the Second District picked up to a moderate pace in the latest reporting period. The labor market has remained very tight, while wage growth has been largely subdued. ... Manufacturing activity grew at an increasingly brisk pace, as did activity in some service sectors; however, growth in the distribution industries slowed somewhat. ...

Employment and Wages

The labor market has remained very tight across the District, as employment agencies report persistent difficulties finding workers — particularly those with IT skills. Businesses continued to characterize employment as flat to up slightly. Firms in wholesale trade, transportation, real estate & construction, and leisure & hospitality reported increased staffing levels. In contrast, businesses contacts in the retail trade, professional & business services, information, and leisure & hospitality sectors noted little change in employment. A New York City employment agency reported particularly brisk demand for human resource workers.

Despite persistently tight labor markets, wage growth has been fairly subdued, though highly skilled workers have seen larger hikes. Large IT firms have reportedly been luring top employees from smaller tech firms by offering generous benefits and salary hikes. A number of businesses in New York State have noted ongoing challenges from the recent minimum wage increase; some reported that they are investing more in automation.

Manufacturing and Distribution

The manufacturing and distribution sectors have been mixed. Manufacturers reported a significant pickup in activity in recent weeks, while transportation firms noted a pause in activity. Wholesale distributors reported steady, moderate growth.

Looking ahead, wholesale distributors have remained fairly optimistic, and contacts in the manufacturing and transportation industries expressed renewed optimism about the near-term outlook. Some businesses expressed ongoing concern about trade uncertainty, tariffs, and the increase in New York State's minimum wage.

Services

Service-sector businesses overall reported some improvement in the latest reporting period. Contacts in the information and finance sectors noted a pickup in activity, while those in business & professional services reported steady, moderate growth. However, contacts in the education & health service sector indicated that activity was flat.

Leisure & hospitality firms reported a pickup in business in April and early May. ...

Third District  --  Philadelphia (DE, PA & NJ)  return to District list

On balance, aggregate Third District business activity strengthened further to a modest pace of growth during the current Beige Book period. Growth was characterized as slight in the prior period. Growth of manufacturing, nonauto retail sales, and tourism picked up to a modest pace, while homebuilding held steady and auto sales appeared to have fallen slightly. Contacts noted that tariffs continued to prompt concerns, induce uncertainty, and delay business investment. The labor market tightened further and continued to constrain employment growth and spur moderate wage increases. ...

Employment and Wages

Employment growth continued at a modest pace during the current Beige Book period. About one-fourth of all firms reported an increase in staff. This was a bit higher than last period for manufacturers, but lower than the previous period for nonmanufacturing firms. On balance, average work hours appeared to be flat to down across firms.

Most staffing firms noted that orders were flat to down through the first quarter and into the second. Some firms were beginning to see a pickup as the second quarter progressed. One firm suggested that uncertainty had prompted firms to delay hiring. Several firms, however, noted that finding workers remains difficult as the labor market continues to tighten and that this has continued to constrain their ability to expand.

Wage growth continued at a moderate pace, with reports of wage and benefit cost increases clustered around 3 percent. However, some firms noted that wage pressures had eased recently and that turnover rates had improved. The share of nonmanufacturing contacts who reported increases in wage and benefit costs edged back down to near 40 percent.

Manufacturing

On balance, manufacturers resumed modest growth in activity after noting a slight increase in the prior period. Shipments and unfilled orders are running a bit above long-term nonrecession averages; however, new orders are at typical levels.

The makers of lumber products, chemicals, fabricated metal products, and industrial machinery tended to note gains in new orders and shipments, while primary metal producers reported little change.

Tariffs remained a key concern for many manufacturers. Contacts noted that much of the impact from the initial 10 percent tariffs was absorbed along the supply chain before reaching the consumer. However, they expect much more of the impact from the 25 percent tariffs to be passed through to the consumer. ...

Nonfinancial Services

Fourth District  --  Cleveland (KY, OH, PA & WV)  return to District list

The Fourth District's economy grew modestly with some improvement to business demand. Professional and business services was the fastest-growing sector during the period as increased confidence motivated clients to spend on new projects. Financial services reported growth, especially for construction and real estate lending. ... Manufacturing activity in the District declined slightly because of slowing global demand. Employment grew modestly, driven by the service sector. Wages rose moderately overall, but they rose faster for white-collar industries than blue-collar industries. Prices decelerated to a modest pace. Manufacturers cited an easing of materials costs pressures, retailers absorbed cost increases, and competition held down professional and business services prices.

Employment and Wages

District employment increased modestly, with much of the gains concentrated in services. Professional and business services and banks added workers at a healthy clip thanks to growing demand. A couple of contacts in these sectors noted that automation had reduced the need for workers in some functions but that they had increased hiring for more analytical roles. ... Changes to manufactures' staffing levels were mixed. One industrial equipment manufacturer remarked that the firm was more cautious in hiring in order to prepare for future business conditions. ...

Wages rose moderately as employers encountered tight job markets. Although wages rose in all industries, they rose faster in white-collar industries than in blue-collar industries. Professional and business services firms reported difficulty finding qualified workers and found that competitors were luring away workers by offering higher salaries. One technology contact reported that he had given raises to employees who had been with the firm less than a year in an effort to retain them. ... A few manufacturers raised wages for retention, citing tight labor markets, but fewer raised wages than had in the prior two periods.

Manufacturing

Manufacturing activity declined slightly. Contacts attributed slowing demand to weakness in global markets, especially in demand for light vehicles and related parts. Many contacts are concerned that the increased tariffs on goods traded with China will further exacerbate softening manufacturing activity in China, leading to less demand for American products from Chinese manufacturers. Others noted that weakness has also emerged in some European markets. Some contacts reported that they are holding off on capital expenditures in the short term. Despite uncertainty about trade negotiations and slowing global growth, backlogs remain stable, and manufacturers were relatively upbeat. Many noted that there is usually an uptick in activity during the summer months.

Fifth District  --  Richmond (MD, NC, SC, VA & WV)  return to District list

Overall, the Fifth District economy grew at a modest pace since our previous Beige Book report. Manufacturers reported a slight decline in shipments and new orders. ... Tourism remained strong across the Fifth District; however, in some cases, labor shortages led to cutbacks. Retailers gave mixed accounts with some mention of excess inventory and paying higher prices for tariffed products. Reports from nonfinancial services firms were also mixed. Health care and construction-related firms saw healthy growth, but some professional and legal services saw slower growth due to more cautious business spending and labor constraints. ...  Labor markets remained tight and wages rose modestly, overall. ...

Fifth District manufacturers reported slightly slowing growth since our last report, as shipments and orders fell. A Maryland manufacturer reported cutting staff because of slowing business and high expenses. Manufacturing contacts continued to express concerns about the effects of trade policy. Meanwhile, some contacts attributed the fall in new orders to retailers wanting to reduce inventories. However, an elevator manufacturer reported strong business, with a backlog extending into 2020, and was able to charge higher prices.

Non-Financial Services

Since our previous Beige Book, reports from nonfinancial services firms were mixed. Services related to construction, such as engineering and architecture, saw increased demand and a growing backlog of work. Also, health care providers reported higher volumes and increased access due to employment growth. However, some professional and legal services firms reported a slowdown in activity, due to more cautious business spending and difficulties finding workers. ...

Sixth District  --  Atlanta (AL, FL, GA, LA, MS & TN)  return to District list

Sixth District business contacts reported that economic activity continued at a modest pace from April through mid-May. The outlook among contacts remains optimistic as most firms expect modest growth to continue over the next three to six months. District firms continued to report labor market tightness. Although overall wage growth remained moderate, pressure was noted among low-skill, trucking, construction, technology, and medical positions. ... Manufacturing purchasing managers cited increases in new orders and production. ...

Employment and Wages

Similar to the previous report, many District firms added to headcounts; however, a number of business contacts expressed that labor market tightness was slowing the pace of hiring and constraining growth. Employers continued to invest in training programs to upskill new and existing employees. Some contacts added that funding for training and skills development was impacting starting salary budgets. Firms also continued to push for productivity and efficiency enhancements, typically through automation and technology investment, in an effort to reduce the need to add workers or augment the lack of available talent. Further, some business contacts reported adjusting employment standards, e.g., implementing remedial training and relaxing attendance policies, in order to attract and retain workers.

Annual wage increases, on average, remained between 3-4 percent, though many contacts expressed that labor costs were accelerating when full compensation costs, including healthcare, bonuses, and other incentives, were factored in. Wage pressures remained most acute among low-skill, trucking, construction, technology, and medical positions. As a way to avoid the higher cost of hiring new talent, some firms noted directing more wage dollars towards retention efforts.

District manufacturing contacts reported a moderate rise in overall business activity since the last reporting period. Most firms indicated that new orders and production levels increased, while also reporting a modest decline in finished inventory levels. Contacts suggested that supply delivery times were essentially unchanged since the previous report. Expectations for future production levels fell slightly from the previous report, with just under half of contacts expecting higher production levels over the next six months.

Seventh District  --  Chicago (IA, IL, IN, MI & WI)  return to District list

Economic activity in the Seventh District increased slightly on balance in April and early May, though contacts expected growth to pick up to a modest pace over the next 12 months. Employment increased modestly; consumer spending, business spending, and construction and real estate increased slightly; and manufacturing was little changed. Wages and prices rose modestly, and lending picked up slightly. ...

Employment increased modestly over the reporting period and contacts expected a similar-sized increase over the next 12 months. Hiring continued to be focused on professional and technical, sales, and production workers, though there was a noticeable decline in the number of contacts hiring professional and technical workers. As they have for some time, contacts indicated that the labor market was tight and that they had difficulty filling positions at all skill levels. Some contacts in the construction industry indicated they are increasingly hesitant to provide quotes for projects because of difficulty in finding workers. A staffing firm reported little change in billable hours, though there was a decline in demand from the auto industry. Wage growth remained modest overall. Contacts were most likely to report wage increases for professional and technical, administrative, and production workers. There was a noticeable decline in the number of firms reporting wage increases for management occupations. Many firms reported increased benefits costs.

Manufacturing production was little changed in April and early May. Demand for steel was flat, with little change across major sectors. Demand for heavy trucks was flat, though activity continued at a strong level. Auto production was unchanged as well, but also remained at a solid level. Specialty metals manufacturers reported little change in demand, as a pickup in demand from the aerospace and defense sectors was offset by less demand from the auto industry. Order books for heavy machinery manufacturers decreased slightly, with reports of lower demand from the agriculture sector. Manufacturers of building materials reported little change in demand overall, though a contact in Iowa reported a decline due to weather-related delays in construction projects.

Economic conditions have been unchanged since our previous report. Firms continue to report that difficulties finding employees is the main constraint on growth. Wages continue to increase moderately, with relatively stronger growth for low-wage and entry-level positions. ... On net, a slightly greater share of contacts expect conditions during the remainder of 2019 to be better or somewhat better than the same period in 2018.

Employment and Wages

Employment has grown slightly since our previous reporting period. On net, 10 percent of contacts reported that employment was higher or slightly higher than a year ago. Reports of labor market tightness persisted across several industries, including, but not limited to, transportation, construction, and healthcare. Furthermore, multiple manufacturing contacts reported that the shortage of qualified workers has worsened, and a contact in St. Louis reported that many employees left the firm before completing their first week in their new job. However, several contacts in Louisville reported employment gains in skilled trades, in part due to successes in recruiting recent high-school graduates.

Wages have increased moderately since our previous report. On net, 36 percent of contacts reported that wages were higher or slightly higher than a year ago. Firms reported that increased competition for workers continued to put upward pressure on wages. In St. Louis, contacts reported that larger firms were offering higher pay to attract workers, particularly for entry-level positions, but that small businesses were struggling to raise wages at the same rate.

Manufacturing

Manufacturing activity has been mixed since our previous report. Several firms across a variety of industries reported new capital expenditure and facility expansion plans, while several manufacturers announced plans to close. Contacts in the corrugated packaging industry reported slow growth attributed to the current trade dispute with China. In a recent survey, contacts reported weakening manufacturing conditions: On net, a slight majority of contacts reported that production and capacity utilization were lower in the second quarter relative to one year ago, while new orders remained at the same level. This follows a trend from our previous reports of weaker activity but is the first reported decline. However, contacts are slightly optimistic about the next quarter, with net majorities expecting growth increases in production, orders, and capacity utilization. Other survey-based manufacturing indexes indicate that activity in Arkansas and Missouri continued to expand from March to April. New orders and production also increased in both states.

Nonfinancial Services

Activity in the nonfinancial services sector has improved slightly since our previous report. On net, 19 percent of survey respondents reported higher sales since the same time last year, and 28 percent expect this growth to continue into the third quarter. However, over half of contacts noted that sales midway through the second quarter have fallen short of expectations. ...

Ninth District  --  Minneapolis (MI, MN, MT, ND, SD & WI)  return to District list

The Ninth District economy grew slightly overall since the last report. Employment grew modestly, while wage pressures rose moderately and price pressures were modest. The District economy saw growth in consumer spending and manufacturing. ....

Tenth District economic activity continued to expand slightly in April and early May, and contacts generally expected the pace of growth to accelerate moving forward. ... Employment and employee hours rose slightly across most sectors, and additional gains were expected in the months ahead. Wages continued to rise at a modest pace since the previous survey period. ...

Employment and Wages

Overall District employment and employee hours rose slightly since the previous survey period, and gains were broad-based across sectors. Contacts in the retail trade, wholesale trade, transportation, professional and high-tech services, real estate, tourism and hotels, and restaurant sectors reported steady-to-increasing levels of employment, while respondents in the auto sales and health services sectors noted a decline. All reporting sectors noted steady-to-rising employee hours, with the exception of health services. Additional gains were expected in both employment and employee hours moving into the summer months.

A majority of contacts continued to report labor shortages for low- and medium-skill workers, including sales representatives, truck drivers, construction workers, and hourly retail and restaurant positions. A few respondents also noted shortages in high-skill occupations such as physicians, pilots, accountants, and IT professionals. Wage growth continued to rise modestly since the previous survey period, and wages were expected to increase at a faster pace moving forward.

Manufacturing and Other Business Activity

Manufacturing activity continued to expand modestly, and business contacts in the wholesale trade, transportation, and professional and high-tech sectors reported modestly higher sales. Factory production rose at both durable and nondurable goods plants, with stronger growth in food, plastics, and metal manufacturing. Production, shipments, and new orders in the manufacturing sector were mostly flat, but increases were expected in the coming months. In addition, manufacturing contacts anticipated modest increases in capital spending in the next few months. ...

Moderate expansion continued in the Eleventh District economy, although there were scattered signs of deceleration later in the reporting period. Growth in the manufacturing, nonfinancial services, and retail sectors was solid in April but softened in early May. ... Employment rose moderately, despite being constrained by a tight labor market. Wage growth remained elevated, while price growth was mixed. Outlooks were generally less positive than during the prior reporting period, with tariff and trade negotiations driving up uncertainty.

Employment and Wages

Manufacturing

Expansion in the manufacturing sector continued at a moderate pace in April, with growth led by durable goods. Machinery manufacturing in particular posted notable strength after some weakness earlier this year. While output growth in nondurables eased slightly, chemical manufacturing remained a bright spot with accelerating production. Gulf Coast refinery operating rates remained healthy in April as gasoline margins improved and the summer outlook firmed.

Reports of early May activity showed a downshift in growth to a more modest pace. Outlooks worsened slightly and uncertainty increased, with trade negotiations and tariffs, the political climate, and labor constraints weighing on business sentiment.

Nonfinancial Services

Growth in nonfinancial services activity continued at a moderate pace in April but slowed somewhat in May. Several contacts said the recent weakness was due to tariffs, and a few mentioned sluggish activity in the oil and gas sector dampening their business. ... Staffing services companies continued to report year-over-year demand increases, with strength broad based across geographies and industries.

Service-sector outlooks were less optimistic, with numerous mentions of uncertainty surrounding trade policy. Specifically, several contacts indicated a downshift in demand growth if there is a not a resolution to the trade dispute with China, although a few were optimistic that an agreement would be reached and benefit the U.S. long term.

Economic activity in the Twelfth District continued to expand at a moderate pace during the reporting period of April through mid-May. Conditions in the labor market remained tight, hiring activity remained generally stable, and wage growth was moderate. ...

Employment and Wages

Conditions in the labor market remained tight, with persistent worker shortages reported across various skill levels and industries. Hiring activity remained generally stable over the reporting period. Contacts continued to report elevated competition for workers, difficulty in filling vacancies including entry-level positions, and a shrinking pool of qualified applicants. Many contacts across the District noted that hiring and retaining information technology professionals has been particularly challenging. Contacts in the food services and banking sectors reported an increase in hiring connected to the opening of new locations. Contacts in other sectors, including electronics, manufacturing, utilities, public agencies, and nonprofit organizations, noted that hiring remained generally flat. A quick service restaurant chain in the Pacific Northwest noted that employment levels remained unchanged. A contact in Hawaii reported that following recent increased numbers of lawyers and technological alternatives, hiring in the legal practices sector has softened.

Wage growth continued to rise moderately over the reporting period. Across the District, upward compensation pressures persisted due to brisk competition for workers and higher minimum wages in California and soon in Oregon. Contacts particularly noted increasing entry-level wages for both low- and high-skilled workers. A few contacts also reported offering more comprehensive benefit packages in order to attract and retain workers.

Manufacturing

Conditions in the manufacturing sector improved modestly. Contacts in the metal manufacturing sector reported that raw materials were readily available and that capacity utilization remains elevated relative to historical averages. One steelmaker in the Pacific Northwest reported strong domestic demand backed by order backlogs and reduced competition from abroad, though another noted a tick down in all new orders. ...

© 2019, Bruce Steinberg.  All rights reserved.

last updated July 16, 2019