March 2019 Federal Reserve Board's Beige Book

DISCLAIMER: Below are excerpts from the Federal Reserve Board's Beige Book published on March 6, 2019. It "... was prepared at the Federal Reserve Bank of Kansas City based on information collected on or before February 25, 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

Reports from business contacts in the First District indicate that activity was somewhat mixed since the last report. Retailers reported moderate increases in sales, and restaurant sales were also up. Manufacturers’ results, by contrast, were varied, with half of this round’s respondents citing declines in sales or revenue or a marked slowdown in the pace of growth. Staffing firms also reported revenue declines, largely attributable to a shortfall of candidates in the current tight labor market. ... Manufacturers said they were cautious about 2019; other contacts’ outlooks remained mostly positive.

Employment and Wages

Business contacts said that labor markets remained tight but wage pressures continued to be moderate. Beyond a shortage of workers in certain skill categories, such as information technology, retail respondents reported no real problems filling job openings. ... The restaurant industry complained of severe labor shortages. Hiring by manufacturers was mixed. A furniture maker laid off 10 workers in January. A semiconductor manufacturer facing big declines in demand from China put a hiring freeze in place, but they were reluctant to institute layoffs since it takes three to six months to train new workers. Three-quarters of manufacturing contacts reported continuing to hire at their normal pace; none cited unusual wage pressure. Staffing firms reported tight labor markets and some increases in bill and pay rates (that is, wages).

Manufacturing and Related Services

The news from manufacturers was mixed. Of eight responding firms, two reported substantial drops in sales and two reported significant weakness. The two firms that reported serious issues were a semiconductor manufacturer and a furniture builder. The furniture firm makes its products in factories in New England; they reported sales in January were down 30 percent versus the same period a year earlier; but better results over President’s Day weekend reduced concern. The semiconductor firm sells mostly to the auto industry and said that a 40 percent drop in new orders from China was the biggest fall in sales since the collapse of Lehman in 2008. Two other firms, both with heavy exposure to semiconductors, said that the market had slowed significantly since earlier in 2018. Four other contacts reported good overall sales. ...

Most manufacturing contacts expressed caution about 2019. The ones facing the most severe declines were waiting to see if the weakness was transitory, while others said they were very uncertain. The slowdown in China, whether or not the result of trade issues, cast a shadow over the manufacturing sector.

Staffing Services

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

Economic activity in the Second District has increased slightly since the last report. The labor market has remained tight, and wage growth has picked up further—mainly in lower wage industries. Businesses noted continued widespread cost pressures and increasingly widespread hikes in selling prices. Manufacturing activity expanded slightly, while business picked up in a number of service industries. ...

Employment and Wages

The labor market has remained tight across the District, with employers reporting ongoing difficulties in filling job openings, particularly for skilled trades and technical fields. Businesses generally reported that employment was flat to up slightly, on balance, since the beginning of the year. Firms in the wholesale, finance, and education & health sectors reported modest net hiring, while contacts in the manufacturing, transportation, professional & business services, and real estate & construction sectors indicated that employment was essentially flat. Contacts in the retail and information industries noted modest net declines in staffing levels.

Wages have picked up further, particularly in the lower-wage retail and leisure & hospitality industries. A number of business contacts in New York State’s manufacturing, retail, and leisure & hospitality sectors indicated that the year-end hike in the minimum wage was affecting their employment and compensation decisions.

Manufacturing and Distribution

The manufacturing and distribution sectors picked up somewhat in the latest reporting period. Manufacturers noted a modest pickup in growth, while wholesale distributors and transportation firms reported solid gains, following weak reports at the end of 2018.

Looking ahead, contacts in the manufacturing and wholesale trade sectors have regained a fairly high level of optimism, but those in the transportation sector have remained more circumspect. A number of contacts continued to express concern about tariffs and trade restrictions, as well as New York State’s minimum wage hikes.

Services

Overall, business has been mixed but, on balance, up modestly in the latest reporting period. Contacts in the information and health & education sectors reported flat activity in early 2019, while businesses in professional & business services noted some pickup in activity. ...

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

On balance, growth of aggregate Third District business activity appeared to pause for much of the current Beige Book period; however, late reports indicated a resumption of slight growth in some sectors. Significant sectors, including manufacturing, nonfinancial services, and nonauto retail sales, slowed from modest growth in the prior period to little or no change in the current period. Factors cited for the slowdown included weak global demand and uncertainty because of trade wars and the government shutdown. Nevertheless, employment continued to grow at a modest pace, although the labor market remained tight and upward wage pressures remained moderate. ...

Employment and Wages

Employment growth continued at a modest pace during the current Beige Book period. About one-fourth of the firms reported an increase in staff. Manufacturers have noted little change in the average hours worked since the prior Beige Book period; however, average hours appeared to contract a bit among other firms.

Most contacts continued to note that the labor market was very tight and that hiring and retaining workers remained difficult. Firms are responding by raising wages, increasing job flexibility, training new hires who have fewer skills than desired, and making greater use of trial periods of temp agency placements.

Wage growth continued at a moderate pace, with reports of wage and benefit cost increases averaging about 3.0 percent. ... Contacts noted that recent state increases in the minimum wage may cause some wage compression, but most firms were already paying above the new minimums. A few that were not continue to look toward automation.

Manufacturing

Manufacturing activity appeared to decline slightly – a reversal of trend from modest growth. The percentage of firms that reported increased shipments and new orders fell almost to one-fifth, but the percentage reporting decreases rose to about one-fourth.

The makers of chemicals, primary and fabricated metal products, and electronic and industrial equipment mostly have noted no change in new orders and shipments – and occasionally declines – since the prior period. However, these changes were weaker than those reported for the same period last year. The makers of lumber and paper products also reported flat or negative activity, changes which were comparable to the prior year.

Explanations cited for the slowdown included falling demand from European and Asian markets, with tariffs and Brexit as prime factors. Reduced demand from domestic sources was attributed to several factors: a pullback in orders following an excessive inventory buildup; lower oil prices, which have dampened capital expenditures from energy producers; and uncertainty during the government shutdown. ...

Nonfinancial Services

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

Economic activity in the Fourth District grew at a modest pace since our last report. Professional and business services saw moderate demand growth. ... Manufacturers gave mixed reports, as some saw a pickup in demand, while others reported slowness and uncertainty in the global economy weighed on growth. Employment in the District increased modestly, with much of the growth coming from nonfinancial services and from manufacturing. Wages rose moderately across many sectors and occupations. ...

Employment and Wages

District contacts reported modest increases in staffing levels. Construction companies added some office staff but, because of the winter weather, did not hire field workers. They expect to resume increasing field staff in the spring. Manufacturers added both salaried and hourly staff, with one contact stating that her company had been hiring more of its temporary staff into full-time employment. Staffing companies reported increased placements and noted that nursing, information technology, and manufacturing staff are particularly in demand. Professional and business services firms, especially information technology firms, accelerated hiring to meet strong demand and expected to continue to add to their payrolls in the next few months. ...

Wages in the District rose at a moderate pace that was similar to that of the previous survey round. Wage growth was broad-based, as wages rose for a wide range of industries and occupations. Bankers raised wages both for low-wage and for high-wage positions, citing competitive labor markets. ... Manufacturers re-evaluated wage rates for blue-collar laborers, and many manufacturers increased pay beyond the rate of inflation. ... Staffing firms also noted upward wage pressures. One firm stated that new hires have been pressuring the firm to increase its starting wages; another stated that it now offers raises every 6 months instead of every 18 months, as it did previously. The rate of hiring by professional and business services firms accelerated somewhat. Nevertheless, wage increases in the industry decelerated, with a number of firms stating that wages were already high.

Manufacturing

Manufacturers in the District gave mixed reports. Many contacts reported that activity picked up during the last two months as a result of the usual seasonal build up and that they expect growth to continue. However, others expressed concerns about a number of factors that dragged down demand and weighed on the outlook for future growth. These include 1) supply chain constraints that have affected the availability of intermediate goods and components, 2) slower global growth--particularly in Europe and China--that contributed to a slowing in orders, 3) continued uncertainty about the future of tariffs on steel and aluminum and ongoing US-China trade negotiations, and 4) decreased consumer confidence. In addition to the ongoing trade negotiations between China and the United States, one manufacturer noted that if Chinese policymakers choose to stimulate heavy industry in their country, the outlook for his organization would be better than it would be absent intervention in the Chinese market.

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

The Fifth District economy continued to grow at a modest pace in recent weeks. ... Manufacturing activity was mixed, and firms continued to report uncertainties and higher materials costs associated with tariffs and trade. ... Labor demand strengthened moderately, wages rose modestly, and many firms reported using non-wage benefits to attract and retain talent. Price growth remained moderate, overall.

Fifth District manufacturing activity was mixed in recent weeks. Several firms, including a Virginia furniture manufacturer, continued to struggle to deal with uncertainty surrounding tariff-related cost increases. In addition, a cabinet manufacturer reported strong demand and was able to pass through part of the materials cost increase that resulted from the tariffs. Many firms, such as a Maryland concrete company, attributed a decline in business to intemperate weather. Food manufacturers in Maryland and Virginia reported robust growth despite a drop in sales to D.C. area restaurants during the partial government shutdown.

Non-Financial Services

Reports from nonfinancial services firms were mixed in recent weeks. Demand increased for some engineering consultants, law firms, advertising agencies, hospitals, and IT businesses. Meanwhile, several firms noted a decrease in demand, including those engaged in telecommunications, security services, and federal government contractors. Overall, firms indicated that the partial government shutdown resulted in lost revenue, job cuts, and project delays due to lapses in grant and permit approvals.

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

Sixth District business contacts reported that economic activity continued to advance at a moderate pace over the reporting period and the outlook among contacts remained positive. Labor markets continued to tighten, and some firms noted relocating certain segments of their operations to gain access to larger pools of talent. On balance, firms noted growth in wages since the previous report, along with mounting pressure in a number of hard-to-fill positions. ... Manufacturers reported that new orders were flat; however, production levels increased. ...

Employment and Wages

Business contacts continued to cite challenges finding and retaining workers, particularly in information technology, construction, food services, medical, finance, manufacturing, and transportation. In response to these challenges, some firms shared that they were considering or had already taken steps to relocate portions of their business, mainly information technology, finance and accounting, customer service, and upper management positions, to larger urban locations with greater access to talent. Several contacts continued to report that their inability to find workers hindered their firm’s ability to grow and meet rising demand. Consequently, many cited a renewed focus on productivity enhancements using existing and/or new technology and automated systems.

On average, firms across the District reported wage increases from 2 1/2 to 4 percent. Increases were greater and pressure was described as more acute in urban areas and/or among hard-to-fill positions, including jobs in nursing and other medical fields, engineering, manufacturing, retail, hospitality, and banking and finance. Similar to previous reports, many contacts shared that even after increasing wages, they struggled to attract enough qualified candidates, and thus indicated expanding non-wage offerings, such as additional vacation time, flexible work arrangements, and/or reduced hours for full-time, exempt employees.

Manufacturing contacts described overall business conditions as relatively healthy during the reporting period. While new order levels were somewhat flat, production levels were reported to have increased, along with a small rise in finished inventories. ...

Economic activity in the Seventh District increased slightly on balance in January and early February, though contacts expected growth to return to a modest pace over the next 6 to 12 months. Employment and business spending increased slightly; manufacturing and construction and real estate activity were little changed; and consumer spending fell modestly. Wages rose modestly, prices rose slightly, and financial conditions improved modestly. ...

Employment increased slightly over the reporting period and contacts expected a similar-sized increase over the next 6 to 12 months. Hiring was focused on professional and technical, production, and sales 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. A staffing firm that primarily supplies manufacturers with production workers reported continued difficulty in filling orders and a small decline in billable hours. A number of manufacturing contacts noted that a slowdown in demand had reduced their reliance on overtime and lessened the urgency of filling open positions. Wage growth remained modest overall. Contacts were most likely to report wage increases for managerial, professional and technical, and production workers. ...

Manufacturing production was little changed in January and early February, though contacts were generally pleased with the level of activity. ...

Economic conditions have been unchanged since our previous report. Labor market conditions remained tight as firms continued to note difficulties finding qualified workers. Wages increased at a moderate pace, and survey respondents reported a slight increase in prices charged to consumers. ... Overall, the outlook among contacts continued to weaken for the fourth consecutive quarter but remains slightly optimistic. On net, a slightly greater share of contacts expect conditions in 2019 to be better or somewhat better than in 2018.

Employment and Wages

Employment has grown slightly since the previous reporting period. On net, 11 percent of contacts reported that employment was higher than a year ago. Worker shortages continued to restrict hiring. Contacts reported a tight labor market for skilled jobs in construction, healthcare, and manufacturing. One contact in the tech industry noted a shortage of technical workers, citing difficulties finding and retaining migrant workers and temporary employees. Contacts also reported difficulties finding unskilled workers with reliable means of transportation to work. Louisville contacts in higher education noted that enrollments are down as the employee-friendly labor market has led potential students to enter the workforce instead of pursuing a college degree.

Wages have increased moderately since the previous report. On net, 40 percent of contacts reported that wages were higher or slightly higher than a year ago, and 39 percent reported that labor costs increased. ...

Manufacturing

Manufacturing activity has increased moderately since our previous report. Contacts reported that production, new orders, and capacity utilization increased in the first quarter relative to one year ago, and they expect this growth to continue into the second quarter. Survey-based indexes also indicated that Arkansas and Missouri manufacturing activity continued to expand from December to January. Several firms announced plans to expand facilities and hire new employees, including manufacturers in the automotive and furniture industries. However, a Memphis medicine manufacturer announced plans to lay off workers by mid-March.

Nonfinancial Services

Activity in the services sector has modestly improved since the previous report. ... Posted vacancies for nonfinancial service jobs increased across Louisville, Memphis, and St. Louis from December to January. Major transportation firms in the District announced plans to expand full-time and part-time hiring.

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

The Ninth District economy grew modestly overall since the last report. Employment grew slightly, hampered by tight labor and some signs of weakness. Wage and price pressures were moderate. The District economy showed growth in services, manufacturing, residential construction, commercial real estate, energy, and mining. ...

Tenth District economic activity expanded slightly in late January and February, and contacts expected additional gains in the months ahead. ... Manufacturing activity also grew at a slight pace despite a decline in new orders for exports. Sales rose in the professional and high-tech, transportation, and wholesale trade sectors, and contacts expected additional gains moving forward. ... Overall employment and employee hours held steady across the District, although conditions were mixed across sectors. Wages continued to rise at a modest pace, with additional gains expected moving forward. ...

Employment and Wages

Overall District employment and employee hours held steady in late January and February, and respondents projected slight gains in the months ahead. Contacts in the wholesale trade, real estate, health services, restaurant, and tourism sectors noted steady-to-modestly higher levels of employment, while those in the retail trade, auto sales, transportation, and professional and high-tech services noted a decline. ...

A majority of respondents continued to report labor shortages for low- and medium-skill workers, including positions for truck drivers, all retail store positions, skilled technicians, and specialty-trade construction workers. A few contacts also noted shortages for high-skilled positions such as those in information technology, engineering, and finance. Wages continued to expand at a modest pace since the previous survey period and were strongly above year-ago levels. Additional modest wage gains were projected for the months ahead.

Manufacturing and Other Business Activity

Manufacturing activity grew slightly since the previous survey period, and business contacts in wholesale trade, transportation, and professional and high-tech sectors also reported rising sales. Factory activity increased at both durable and nondurable goods plants, with faster growth at durable goods plants due primarily to increases in electrical equipment and appliances, and furniture manufacturing. ...

Outside of manufacturing, firms in the wholesale trade and professional and high-tech sectors experienced moderate growth in sales, while sales rose slightly at transportation firms compared to the previous survey period. In the coming months, wholesale trade, transportation, and professional and high-tech contacts anticipated moderate sales growth.

The Eleventh District economy expanded at a moderate pace. Activity in the manufacturing, housing, and nonfinancial services sectors improved. ... Employment expanded moderately, despite a tight labor market. Wage growth remained elevated, while price growth eased. ...

Employment and Wages

Employment grew moderately during the reporting period. A lack of qualified candidates continued to challenge businesses across sectors and skill levels, but shortages remained most severe for mid-skilled positions such as nurse aides, heavy equipment technicians, auto mechanics, construction personnel, and factory floor workers. There were multiple mentions of restaurant worker shortages, and one commercial landscape management firm said they were looking to fill 75-100 entry-level positions.

Wage pressures generally remained elevated. One staffing firm noted that employers were especially willing to raise wages for jobs paying less than $15 per hour. A durable goods manufacturer said raising starting hourly pay by at least 15 percent had helped draw in more and better-qualified applicants.

Looking ahead, firms were bullish on their hiring plans. Forty-eight percent of the 384 firms responding to supplemental questions in the February Texas Business Outlook Surveys said they expect to increase their employment over the next six to twelve months while only 8 percent said they expected to decrease jobs.

Manufacturing

Overall output growth improved slightly during the reporting period, led by an increase in fabricated metals and transportation equipment manufacturing. Outlooks among manufacturers improved compared with the previous reporting period, but trade issues, labor constraints, the rising cost of credit, and political uncertainty were cited as factors damping outlooks. ...

Nonfinancial Services

Activity in the nonfinancial services sector accelerated in the reporting period. The increase was widespread and led by growth in the professional, scientific and technical services sector. Demand for staffing services strengthened after a deceleration in activity at yearend 2018, and growth was broad-based geographically and across industries. Revenues rose in the health care and administrative support services industries. ...

Economic activity in the Twelfth District continued to expand at a moderate pace during the reporting period of January through mid-February. Conditions in the labor market remained tight, and wage growth was moderate. Price inflation was unchanged. ... Conditions in the manufacturing sector strengthened moderately, and conditions in agriculture deteriorated modestly. ...

Employment and Wages

Conditions in the labor market remained tight, with persistent worker shortages reported across many industries and skill levels. Hiring picked up moderately on balance. Employment at a large San Francisco software and consulting company grew notably as demand for its services increased. ... In the Mountain West, a regional bank noted that its hiring was limited only by a shortage of qualified labor. ... A steel manufacturer in Oregon reported that hiring activity was flat. ...

Wage growth continued to increase moderately across most sectors due to continued brisk labor demand amidst persistent shortages of qualified workers. Contacts emphasized that wage growth was especially noticeable for higher-skilled workers. Demand for high-skilled warehouse workers and truck drivers picked up in the Mountain West, resulting in wage pressures. Employers continued to raise starting salaries for most information technology and cybersecurity positions. ...

Manufacturing

Conditions in the manufacturing sector strengthened moderately overall. A steel manufacturer in Oregon noted strong activity in the industry due to lower competition from abroad arising from trade policy actions. A contact in Northern California reported that activity in the semiconductor industry continued on solid footing. ... The outlook in the manufactured lumber sector was for solid building activity as weather conditions improve.

© 2019, Bruce Steinberg.  All rights reserved.

last updated March 06, 2019