March 2020 Federal Reserve Board's Beige Book

DISCLAIMER: Below are excerpts from the Federal Reserve Board's Beige Book published on March 4, 2020. It "... was prepared at the Federal Reserve Bank of Richmond based on information collected on or before February 24, 2020 This document summarizes comments received from contacts outside the Federal Reserve System and is not a commentary on the views of Federal Reserve officials."

SPECIAL NOTE:  Comments included in this latest Beige Book regarding the impact of COVID-19, a.k.a. the coronavirus, on the economy were mainly limited as 'disruptions in supply chains' because this latest Book is based upon interviews and comments received on or before February 24th, which was the the first day of the recent stock market plunge.

The excepts are 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 and / or highlighted) is 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

First District firms continued to report increases in economic activity heading into 2020. Retailers reported mixed but mostly positive results, while restaurateurs saw solid revenue gains. Most manufacturers experienced revenue increases ranging from mid single-digit percentages to more than 20 percent, but two respondents cited revenue declines, both attributed in part to disruptions related to the coronavirus outbreak in China. Staffing firms continued to report moderate to strong revenue gains, although a couple cited slowing growth or fewer job requests compared with last year. ... Outlooks continued to be positive, with the coronavirus and the presidential election cited as risk factors..

Employment and Wages

Labor markets in the First District remained tight. ... Employment increased year-over-year at five contacted manufacturing firms; headcount was down modestly year-over-year at one manufacturer and flat at four. Almost all the manufacturers who were actively hiring reported difficulties finding workers for nearly all positions ranging from skilled executive assistants to experienced wood-workers and engineers; competition was said to be particularly fierce for higher skilled jobs in northern New England. Staffing firms reported that low unemployment rates gave workers less incentive to look for new temporary or permanent positions; at the same time, a dearth of fresh college graduates and young workers with two to three years of experience further limited the available pool of qualified talent. A majority of contacted staffing firms reported bill and pay rates that were either holding steady or rising only modestly in line with inflation or increases in benefits costs.

Manufacturing and Related Services

Reports from manufacturers were mostly positive, with seven of ten respondents reporting increased sales compared to the same period last year. Two semiconductor-related manufacturers reported the greatest gains: driven primarily by a buildup in 5G-related technology, revenues were up more than 20 percent compared to last year. A veterinary care supplier and a dairy manufacturer both reported revenue growth around 11 percent year-over-year. Two other contacts reported low double-digit growth from a year ago, including a furniture manufacturer, who cited large hotel orders as well their most successful Presidents' Day weekend in several years. A biotech firm saw sales and revenue growth in single digits. On the down side, a textile manufacturer reported flat sales, and two firms, in advanced sensors and chemicals, pointed to disruptions related to uncertainty and supply chain challenges from the coronavirus as factors leading to their slower 2020 start. Seven of ten manufacturers did not mention disruptions from the virus to date. A handful of contacts pointed to uncertainty related to the election as a potential risk factor later in the year.

Staffing Services

New England staffing firms ended 2019 on a positive note: some contacts reported higher-than-projected revenue growth; one firm cited a year-over-year growth rate of 47 percent. Some companies saw declines in revenue growth; they indicated the slowdowns were within a tolerable range. Most contacts cited a steady and healthy demand for labor, still outweighing labor supply. Two firms cited a slight drop in the total number of job requests compared to a year ago. One contact shared anecdotally that help-wanted signs were prevalent at a range of local businesses. A number of firms shared favorable projections and most are guardedly, if not highly, optimistic going into the second quarter.

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

The Second District economy picked up to a moderate pace of growth in the latest reporting period. The labor market remained tight, and wage growth picked up somewhat, though hiring activity was sluggish. ... Manufacturing activity picked up noticeably, while most service industries reported some pickup. ... Finally, business contacts in most sectors have grown a bit more sanguine about the near-term outlook.

Employment and Wages

The labor market has remained stable and tight across the District, while hiring has been restrained. Employment agencies have noted ongoing trouble finding workers in occupations ranging from IT workers to customer service reps. A major payroll firm noted that job growth at small businesses has slowed across New York State. Reports from business sectors were mixed. Retail, finance, and transportation firms reported declining employment, on balance, but contacts in manufacturing, wholesale trade, professional & business services, and information reported modest net hiring.

Looking ahead, businesses in almost all major industry sectors indicated that they planned to add staff, on net. The one sector anticipating job reductions was retail trade. Businesses in most service sectors, as well as employment agencies, reported that wage growth has picked up a bit. Only in finance did contacts report flat wages. A number of businesses in both the manufacturing and service sectors noted that the latest rise in New York’s minimum wage has had ripple effects, boosting wages even for workers well above the minimum. 

Manufacturing and Distribution

Manufacturers reported a fairly brisk pickup in business activity and especially in new orders. On the distribution side, reports were also fairly positive: wholesalers reported continuing moderate growth in activity, while transportation contacts noted a rebound in business.

Looking ahead, manufacturers indicated that they project moderate growth in the months ahead, while wholesalers and transportation firms foresee more subdued growth. Contacts in these sectors have expressed concern about the latest round of minimum wage hikes, and there has been ongoing concern about tariffs. One manufacturing contact noted problems with supply disruptions and shipment delays related to the coronavirus.

Services

Service industry contacts generally noted a pickup in activity following flat business in late 2019. However, contacts in the education & health service sector indicated that activity was flat. Tourism activity was mixed. A few contacts reported that the coronavirus has deterred visitors, though New York City hotels have continued to report good business. Broadway theaters reported that business slowed by more than the seasonal norm, following a brisk December. Both attendance and revenues fell well below comparable year-ago levels.

Looking ahead to the first half of 2020, contacts in most major service industries were fairly upbeat, though businesses in education & health were more guarded in their optimism.

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

Aggregate Third District business activity resumed a modest pace of growth during the current Beige Book period, after a lull last period. Growth for manufacturing and nonfinancial services firms picked up to a modest and moderate pace, respectively. ... Labor markets remained tight throughout the District, generating slight employment increases, while wage growth appeared to ebb to a modest pace. O... A positive outlook for modest growth over the next six months tended to narrow among nonmanufacturing firms and broaden among manufacturers; however, contacts expressed concerns about potential supply chain disruptions from the coronavirus.

Employment and Wages

Employment continued to grow slightly during the current Beige Book period; however, a slower pace is evident, as the share of firms reporting staff cuts edged up. Nearly two-thirds of the firms reported no change in staff. Average work hours held steady at manufacturing firms and edged up at nonmanufacturing firms.

Difficulty hiring and retaining qualified workers remained a common thread from many firms as they continued to report tight labor market conditions, but the comment was less frequent. Some firms reported offering more competitive wage and salary packages; many firms are automating where possible.

Staffing firms continued to report demand for new job placements from clients and an insufficient supply of qualified labor to fill the orders. One staffing contact noted that many clients were converting current temporary workers to permanent staff and not placing new temp orders.

On balance, firms reported modest wage growth – slower than the prior period’s moderate pace. The share of nonmanufacturing firms reporting wage and benefit increases fell. One contact noted raising staff wages in January – earlier than the firm’s typical March adjustment.

Manufacturing

On balance, manufacturers reported modest growth, with steadily improving reports throughout the period versus the slight growth reported during the prior period. The percentage of firms reporting increases in shipments and new orders rose to nearly one-half, and the percentage reporting decreases in new orders edged down.

Positive expectations of activity over the next six months broadened among manufacturers. Nearly three-fifths of the firms expected shipments and new orders to increase. However, expectations diminished for future employment and held steady for planned capital spending.

Despite the growth and bullish expectations, several firms cautioned that the emerging coronavirus may disrupt supply chains in the near future. Two firms have already reported delays in receiving needed production inputs. Inquiries and orders to source parts domestically were increasing because of tariff uncertainty and are continuing because of the coronavirus. However, contacts explain that it can take three months to get a part into production, and longer for testing and redesign.

Nonfinancial Services

On balance, activity at service-sector firms grew moderately – a substantial pickup from the prior period. The share of firms reporting increased revenues and new orders rose, and the share reporting decreases in both measures fell significantly. The coronavirus has entered the list of concerns, which still includes tariffs and tight labor markets. One business services firm has already noted disruptions to its vendor’s supply chain. ... Over one-half of the firms – less than in the prior period – expect growth over the next six months.

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

Economic activity in the Fourth District increased modestly, albeit at a slightly slower pace than in the prior round. Manufacturing demand held steady, although some producers noted weaker demand because of the Boeing 737 Max production halt. Others expressed concern about supply-chain implications of factory shutdowns in parts of China caused by the outbreak of COVID-19. Retail demand was relatively strong thanks to mild weather, strong consumer confidence, and low interest rates. Professional and business services, a long-standing bright spot in the District, continued to report strong demand for legal, IT, and advisory services. ... Hiring and wage growth continued at about the same modest pace as in the previous survey period. Contacts indicated that labor was still in short supply, while often noting that they do not believe larger wage increases will attract more applicants. ...

District employers increased staff levels slightly, and firms expect a similar pace of hiring in the near term. Employment gains were concentrated in services. The majority of professional services firms added workers to meet growing customer demand, as has been the case for a number of months. ... Most manufacturers held staff levels steady, and the few that added workers added finance and sales analysts and engineers to design new products.

Wages rose modestly and in line with the trend during the past several periods. A greater share of professional and business services raised wages to attract and retain talent. ... Wage growth did not change meaningfully in other sectors. Despite low unemployment, contacts cite modest inflation as a reason for not granting larger wage increases. Contacts often noted that they do not believe larger wage increases will attract more applicants. Many firms that were hiring workers with general skills were concerned they would not be able to pass through the higher costs to customers. Among firms that were hiring skilled or professional workers, many were enhancing other benefits in lieu of more substantial wage increases.

Manufacturing

Conditions in the manufacturing sector remained stable. One steel producer noted that the bottoming of steel prices led to an increase in demand. Also, for some manufacturers, demand improved because of a usual seasonal pickup that follows a quiet holiday season. Aerospace parts manufacturers and those who serve them noted dampened demand as a result of the Boeing 737 MAX production halt. Many contacts commented on general sluggishness in the global economy and voiced concern about the outlook given the spread of COVID-19 and the resulting effective shutdown of many commercial centers in China. Just more than a quarter of respondents reported that capacity utilization was lower than normal, citing slower demand and excess capacity in the market as the reasons.

Professional and Business Services

Activity in the professional and business services sector remained strong but has moderated somewhat from that of recent months. Contacts noted that favorable economic conditions were encouraging firms to spend on legal, advisory, and IT services. Contacts expect demand for their services to remain strong going into the second quarter.

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

The Fifth District economy grew at a moderate pace since our previous Beige Book report. Manufacturers’ shipments and new orders increased modestly. They were encouraged by recent trade negotiations with China, but expressed some concerns about the coronavirus delaying some shipments of inputs. ... Nonfinancial services firms reported moderate growth in revenues and demand in recent weeks. Employment increased at a modest rate, overall, while wages grew moderately. ...

Employment and Wages

Overall, employment increased at a modest rate in recent weeks. Firms indicated that the demand for labor was strong and turnover rates declined slightly; however, employment growth was being restrained by a tight labor supply. Difficulties filling open positions were cited by employers across a wide variety of industries. One employment agency said that they encouraged clients to seek direct hires because it was harder to recruit workers without a guarantee of a full-time job. Wage growth remained moderate, overall, with higher wage growth reported for certain occupations in high demand. In addition, there were continued reports of firms offering non-wage benefits, such as flexible work schedules, to recruit and retain workers.

On balance, manufacturers in the Fifth District reported a modest increase in shipments and new orders in recent weeks. Food, auto parts, and furniture manufacturers reported stable, strong demand. Several manufacturers were encouraged by trade negotiations with China. However, many firms noted that while conditions were improving, their markets remained soft. Some manufacturers were able to raise prices. Others reported higher costs of inputs in some cases due to tariffs that squeezed profit margins. Also, the coronavirus led to concerns about delays in the arrival of inputs.

Nonfinancial Services

On the whole, nonfinancial services firms indicated a moderate increase in revenue and demand in recent weeks. There were some reports of strong growth from firms engaged in construction-related services, legal services, advertising, and IT consulting services. Contacts in the healthcare sector also saw solid growth. One hospital administrator said that they were investing in brick and mortar facilities to meet demand, and in IT infrastructure for productivity gains. ...

Sixth District business contacts reported that economic activity grew modestly from January to mid-February, and the outlook remained positive, on balance. Reports of tightness in the labor market persisted. A majority of firms noted a steady pace of wage growth outside of specialized jobs and those in high demand. ... Overall manufacturing activity weakened as new orders and production levels declined. ...

Employment and Wages

A majority of firms continued to report tight labor market conditions. A shortage of workers for lower-skilled positions, as well as for some specialized occupations such as software developers, nurses, and engineers, was noted. The continued lack of available construction labor was said to be lengthening project timelines. Many employers noted productivity concerns as the lack of available skilled labor required more in-house training and supervision.

Most contacts expect overall wage growth to remain steady, with larger wage increases going to positions in high demand or those deemed critical.

Manufacturing

Manufacturing firms reported a decline in overall activity. Contacts indicated that new orders and production levels decreased since the last reporting period, while purchasing managers indicated little to no change in supply delivery times. Finished inventory levels continued to decline, but at a somewhat slower pace since the previous report. Optimism for future production levels was reflected, however, in over one-half of contacts expecting higher levels of production over the next six months.

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

Economic activity in the Seventh District increased modestly overall in January and early February, and contacts expected growth to continue at a similar pace over the next 12 months. Consumer spending and employment increased modestly, while construction and real estate activity increased slightly. Business spending and manufacturing production were little changed. Wages increased modestly, prices increased slightly, and financial conditions were unchanged. ... Few contacts indicated that the coronavirus outbreak had affected their business operations to date, but there were concerns about supply chain issues going forward.

Employment increased modestly over the reporting period, but contacts expected a slightly faster rate of growth over the next 12 months. Hiring was focused on professional and technical workers and managerial workers. As they have for some time, contacts indicated that the labor market was tight and that it was difficult to fill positions at all skill levels. Manufacturers facing slow demand again reported cutting hours rather than laying off workers because they were worried the tight labor market would make it too difficult to hire when demand recovered. A staffing firm that primarily supplies manufacturers with production workers reported no change in billable hours. Wage growth increased modestly overall, and contacts expected a similar growth rate over the next 12 months. Contacts reported wage increases across most occupations, with multiple contacts again highlighting growing wage pressures for entry-level workers. ...

Manufacturing production was little changed overall in January and early February. Auto production was unchanged, but continued at a solid level. Steel production also was flat. Heavy machinery demand decreased overall, as a slowdown in demand in China — apparently due to the coronavirus — more than offset robust demand in the US. Heavy truck demand decreased, but contacts expected a turnaround in growth as the year progressed. Specialty metals orders were flat overall, with reports of lower sales to the auto and aerospace industries. Manufacturers of construction materials reported a slight increase in shipments, in line with growth in home building.

Reports from District contacts indicate that overall economic conditions have been mixed but generally unchanged since our previous report. Labor market conditions continued to show improvement with modest employment gains and steady wage gains. Overall inflation pressures increased slightly, although there were some signs of softening. Reports from manufacturing contacts indicate a modest rebound in activity after consecutive reports of slowing growth. ... Contacts were uncertain about the impact of coronavirus on their business; no contacts reported a significant impact, but some have experienced travel and shipment delays.

Employment and Wages

Employment has increased modestly since the previous report. On net, 18 percent of survey respondents reported that employment was higher than a year ago. Firms spanning several industries — including healthcare, information technology, and manufacturing — reported difficulty hiring workers due to the tight labor market. Employers reported lowering their hiring expectations and coordinating with educational programs to increase their applicant pools. One nursing program in Arkansas recently doubled its student enrollment but characterized the expansion as a “drop in the bucket” compared with employer demand. Smaller employers particularly continued to struggle to hire, with survey-based measures showing more mixed employment trends among small firms.

Wages have increased moderately since the previous report, though small-firm wage growth has been more muted. On net, 39 percent of survey respondents indicated that wages were higher than a year ago, with multiple contacts ascribing this to the scarcity of workers; contacts reported improving benefits and increasing variable compensation for similar reasons.

Manufacturing

Manufacturing activity has rebounded after a period of weakening growth, which started last summer. In a recent survey, contacts reported a modest improvement in manufacturing conditions. On net, production, new orders, and capacity utilization improved relative to one year ago. Most contacts were optimistic about the next quarter, with net majorities expecting growth in production, new orders, and capacity utilization. Other survey-based indexes indicate that Arkansas and Missouri manufacturing activity expanded moderately from December to January. ...

Nonfinancial Services

Activity in the services sector has slightly improved since the previous report. On net, 51 percent of contacts reported similar or greater dollar sales over the past quarter. Also, 68 percent of respondents expect similar or improved sales in the next quarter. In the transportation industry, major logistics firms are conducting job fairs to fill a wide array of positions for existing and planned distribution centers. Overall labor conditions are improving, as professional service job vacancies have risen year-to-year District-wide. In particular, contacts in IT services expect stronger revenue growth due to improving labor supply. ...

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

Economic activity in the Ninth District increased moderately since the last report. Employment rose moderately, and wage pressures were also moderate overall, while price pressures remained modest. ...

Tenth District economic activity was largely unchanged in January and February, but was expected to expand in the months ahead outside of the energy and agriculture sectors. ... After declining for several months, manufacturing activity appeared to be stabilizing with a slight uptick in activity in February, despite nearly half of firms noting some negative effect from the coronavirus spread. ... District employment held steady since the previous survey period, while employee hours expanded modestly. Wages continued to rise at a modest pace, but gains were expected to increase in the months ahead. Both services and manufacturing contacts reported modestly higher input and selling prices.

Employment and Wages

Manufacturing activity was mostly unchanged in January, followed by a slight uptick in February. The increase in recent activity was across both durable and nondurable goods factories, despite nearly half of firms reporting some negative effect from the coronavirus spread. Expectations for future activity also remained positive. Order backlogs declined for District manufacturers, but new orders improved in February, especially for durable goods firms. ...

... Sales for professional and high-tech services sectors grew in January but slowed somewhat in February. Sales for all three sectors remained above year-ago levels. Contacts in the transportation sector anticipated sales to edge down in the coming months, whereas sales were expected to rise in the wholesale trade and professional and high-tech services sectors.

Eleventh District  --  Dallas (LA, NM & TX)  return to District list

The Eleventh District economy expanded moderately over the reporting period. Solid growth continued in nonfinancial services, and expansion in the manufacturing sector picked up to a more moderate pace. ... Employment growth slowed to a modest pace, with a majority of hiring firms noting difficulty finding qualified workers. ... Outlooks generally improved, though the coronavirus introduced new uncertainty into the business environment.

Manufacturing

Nonfinancial Services

Solid expansion continued in the nonfinancial services sector, with many contacts reporting strong momentum at the start of 2020. Growth was led by professional and business services. Staffing services contacts noted solid broad-based demand, though most reported weak demand growth year over year. Multiple staffing contacts said that companies are slowing down hiring due to election uncertainty. ... 

Outlooks continued to improve, though the coronavirus and the upcoming presidential election were noted as increasing uncertainty.

Economic activity in the Twelfth District continued to expand at a modest pace during the reporting period of January through mid-February. The labor market remained tight, employment increased somewhat, and wages rose further. Reports on prices suggested inflation was largely stable. ... On balance, commerce in the manufacturing sector contracted minutely, and activity in the agriculture sector picked up slightly. ...

Employment and Wages

The labor market remained tight, with persistent worker shortages reported across various skill levels and industries. Hiring increased somewhat, despite limited availability of workers. Businesses in several sectors, including information technology, finance, payment processing, and legal services, reported larger payrolls. Other contacts in the construction, utilities, manufacturing, and health-care sectors reported that the pace of hiring was flat. They attributed the lack of additional hiring primarily due to continued difficulties in finding and employing workers. Some businesses mentioned seeking new hires to fill only positions vacated due to retirements or voluntary departures. A few contacts highlighted their firms’ efforts to avoid having to rehire workers in the future, with a manufacturer in the aerospace sector reducing layoffs to a minimum despite weakened activity, and a transportation services provider keeping typically seasonal employees on the payroll during the off-season. Others reported increasing their investment in offshoring and automation to combat labor shortages. Some employers characterized low worker availability as a significant deterrent to business expansion.

Wages continued to rise over the reporting period, as companies tried to attract and retain qualified workers. The reported main drivers behind increased compensation pressures were heightened labor market competition and increased minimum wage requirements. Some employers mentioned failing to match wage and benefit packages requested by candidates. A health-care provider reported being unable to attract individuals from outside the labor force and into entry-level positions due to unattractive wages. ... A few employers in the finance sector noted slightly lower wage pressures for specific sets of expertise due to improved labor availability in those particular skill areas.

Manufacturing

Activity in the manufacturing sector contracted minutely, on balance. Energy use by manufacturers in the Pacific Northwest increased, and across the District, production and sales of manufactured wood products and building materials accelerated due to increased construction of residential units. However, activity in the aerospace sector weakened following the announcement of delays in planned production from a large Northwestern manufacturer. Additionally, the COVID-19 outbreak led to decreased aircraft demand from China and Southeast Asia, with one supplier reporting no orders received in January. Solar energy equipment manufacturers also experienced delayed order fulfillment due to supply chain disruptions related to the COVID-19 outbreak.

© 2019, Bruce Steinberg.  All rights reserved.

last updated March 04, 2020