March 2021 Federal Reserve Board's Beige Book

DISCLAIMER: Below are excerpts from the Federal Reserve Board's Beige Book published on March 5, 2021. It "... was prepared at the Federal Reserve Bank of Atlanta based on information collected on or before February 22nd. 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 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

Economic activity was decidedly mixed in the First District, with moderate growth on balance. Manufacturers reported strong to very strong results, while restaurants and hotels experienced very weak demand. ... Performance at staffing firms was mixed but most saw growth that exceeded expectations. ... The outlook took a more optimistic turn among many contacts in response to the vaccine rollout and the pending arrival of warmer weather.

Employment and Wages

According to reports from staffing firms, labor demand was strong from manufacturing, legal services, health care, and scientific and technical firms, while the market for lower-skilled services workers exhibited significant slack. A staffing firm described the markets for health care and scientific/technical workers as being at full employment, making it difficult to find qualified workers in those fields. Among manufacturing contacts, all but one planned to add workers. Most of those were engaging in light to modest hiring but two planned on dramatic increases in headcounts, including a life sciences firm hoping to hire 12 to 15 times as many workers in 2021 as in a typical year. Several manufacturers reported having difficulties finding qualified workers and two also said that absenteeism was a problem. About half of manufacturing contacts remarked that labor costs had increased and a few had raised or were planning to raise salaries by around 3 percent in 2021. Staffing firms said that wages were up for highly skilled temporary employees and that both the duration of temporary employment and the conversion rate from temporary to permanent employment had increased for high-skilled occupations.

Manufacturing and Related Services

All ten firms contacted this cycle reported higher sales, and three said their company had seen its best performance ever in recent quarters. Semiconductor industry contacts reported exceptionally strong demand, coming from both the auto industry and manufacturers of personal computers and other electronic devices. Combined with supply-chain hiccups that began in 2019 and were exacerbated by the pandemic, the surging demand has led to shortages in the chips used in automobiles in particular. Other manufacturers, producing everything from almond milk to bulk chemicals to veterinary diagnostics to lab equipment, also reported very strong sales.

Most contacts planned to increase their capital expenditures in 2021. Some of these increases were intended to compensate for COVID-19 related disruptions to investment activity in 2020. Surprisingly, however, some contacts revised their capital expenditure plans down for 2021 because they had completed more investment in 2020 than originally expected. Contacts were generally optimistic about 2021, despite expressing uncertainty about the evolution of the pandemic and vaccinations. One contact expressed concern that some of the demand increases they had experienced in 2020 would recede along with the pandemic. For example, a veterinary care products maker said that COVID-19 had led people to spend more time with pets and to adopt new ones, a pattern that could reverse in the coming months.

Staffing Services

A few New England staffing firms reported negative year-over-year revenue growth, but the majority experienced stronger-than-expected growth in Q4 of 2020. The demand for labor was strong in most sectors, including manufacturing and legal services, but one contact noted a surplus of lower-skilled services workers. Both bill and pay rates increased for most firms, but without any substantial changes to mark-ups, as client organizations were willing to pay higher wages. In addition, most contacts reported incurring greater costs in order to attract candidates, such as expanding their advertising efforts and/or hiring additional recruiters. Contacts were unanimous in expressing greater optimism about the coming quarters, as they expect that vaccine rollouts will allow more people to reenter the workforce

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

Economic activity in the Second District has declined modestly in the latest reporting period. However, with vaccinations rising and the spread of COVID on a steady decline, business contacts have grown considerably more optimistic about the near-term outlook. While the labor market has remained sluggish, with employment flat to down modestly in almost all industries, wage growth and hiring plans have picked up. ... Tourism has picked up and prospects for the months ahead have improved. ...

Employment and Wages

The labor market has remained sluggish since the start of the year. A major New York City employment agency characterized hiring activity as moribund, noting that it is hard to on-board and train new staff remotely and that there is still a great deal of uncertainty. On the other hand, an upstate employment agency reported a pickup in hiring activity in recent weeks and noted that it has been difficult to fill lower-wage jobs. A major upstate New York employer indicated that it has had difficulty retaining IT workers, losing them to remote work opportunities in other parts of the country.

Businesses in most sectors  —  particularly construction and leisure & hospitality  —  have continued to report weakening employment. The exceptions were manufacturing, information, finance, and retail, where employment was reported to be little changed. Looking ahead, however, a growing proportion of businesses reported plans to add staff, on net, especially in the leisure & hospitality sector.

Wages have accelerated further, with more businesses raising wages than at any time since the start of the pandemic. Wage increases were most widespread in the education & health, retail, finance, and transportation sectors. A number of contacts stated that the January 1st minimum wage hike across much of the District, as well as generous unemployment benefits, have put upward pressure on wages. Looking ahead, a growing number of businesses also plan to raise wages  —  most notably in leisure & hospitality and retail & wholesale trade

Manufacturing and Distribution

Manufacturing activity picked up somewhat in January and early February, expanding at a moderate pace. In contrast, wholesale trade contacts reported flat activity, and businesses in transportation & warehousing noted some weakening. A large and growing number of firms in these sectors reported supply disruptions and delays — particularly in getting shipments from overseas.

Looking ahead, manufacturers and wholesalers remain widely confident about business prospects for the first half of 2021, while transportation & warehousing contacts have now also become more optimistic.

Services

Service industry contacts noted ongoing weakening in business activity in the latest reporting period. Contacts in the information, and leisure & hospitality sectors continued to report fairly widespread declines in activity, while those in education & health and professional & business services reported more moderate declines. Looking ahead, professional & business service firms expressed widespread optimism about prospects for the first half of 2021, while those in other industries have grown somewhat more optimistic and expect moderate improvement. ...

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

On balance, business activity in the Third District rebounded to a modest pace of growth during the current Beige Book period – the first significant growth since midsummer. However, activity in most sectors remained below levels observed prior to the onset of the COVID-19 pandemic. Net employment appeared to rise slightly after falling slightly in the prior period. Positive wage and price growth trends increased to modest and moderate paces, respectively. Economic gains appeared to reflect waning COVID-19 cases and the relaxation of some business restrictions. However, firms continued to cite disruptions at production sites, consumer outlets, and along supply chains. Moreover, wintry weather conditions have constrained growth in several sectors. More than half of the firms expressed positive expectations for modest growth over the next six months – the percent broadened further among nonmanufacturing firms but narrowed among manufacturers.

Manufacturing

On average, manufacturing activity appeared to pick up to a moderate pace of growth following a period of no growth. More than 40 percent of the firms reported increases of shipments and new orders. Although some firms have reported increased demand for their products through the pandemic, manufacturing activity as a whole remained below pre-pandemic levels.

Several contacts noted that demand was increasing across most sectors from countries throughout the world. Plant operations continued to be plagued by COVID-19 outbreaks and supply chain disruptions. Contacts noted that backlogs have grown and delivery times have lengthened.

Nonfinancial Services

On balance, nonmanufacturing activity appeared to pick up to a modest pace of growth following a modest decline in the prior period. About one-fourth of the firms reported increases of sales and new orders. On balance, the firms continued to report that output remains below pre-pandemic levels.

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

The District's economy regained momentum after it had slowed in the previous reporting period. Customer demand in the current period proved to be better than what contacts had expected, reflecting declining numbers of coronavirus infections and various fiscal relief measures. That said, activity remains below prepandemic levels for most firms. In addition, many firms, particularly those in construction, retail, and manufacturing, reported that delayed deliveries from suppliers and coronavirus-related employee outages constrained their output. Hiring activity was modest, even though customer demand improved, and wage pressures increased moderately. ... expected stronger gains in the second half of the year as coronavirus vaccines are more widely distributed.

Employment and Wages

Staff levels increased modestly, on balance, and hiring activity cooled somewhat despite the pickup in business activity. Labor demand varied across sectors. In the freight sector, labor demand was especially strong, and many firms noted they would like to hire more drivers but experienced shortages. By contrast, labor demand was weakest in financial services, wherein several firms reported they were cutting costs and reducing their physical footprints. Consistent with activity in the last several reporting periods, a number of firms in manufacturing, retail, and construction noted that they wanted to add staff but found it difficult to fill open positions. Aside from typical staffing challenges, one in four firms reported that coronavirus-related staff outages impeded their ability to meet customer demand. Such reports were more common among manufacturers and construction firms where close to one third of firms expressed these difficulties.

Overall, upward pressure on wages was moderate, and more firms reported increasing wages than at any point in the pandemic. Pay raises were often between 2 percent and 3 percent, although several retailers and manufacturers commented that there were pockets of more sizeable increases for lower-wage workers and some skilled tradespeople such as machinists.

Manufacturing

Manufacturing orders increased moderately, on balance, although demand varied by industry segment. Contacts noted that demand for home goods, shipping materials, construction equipment, and logistics equipment was particularly strong. By contrast, demand for products related to commercial aerospace and to oil and gas production remained depressed. Many manufacturers experienced delayed deliveries of inputs, which impeded their ability to meet demand. Most manufacturers expected that demand will improve over the coming months, although many were concerned about rising input costs and turnover of entry-level employees.

Professional and Business Services

Demand for professional and business services continued to increase, albeit at a slower pace than in the last reporting period. Authentication and cloud services and human resources and payroll software providers all continued to benefit from the shift toward more remote work and online purchases. One contact noted that demand for the firm's cloud offerings increased significantly because many firms have begun to outsource certain functions to software vendors rather than investing in their own IT resources or equipment. Contacts anticipated further increases in activity in the coming months as the economy continues to recover and more firms shift to remote channels of commerce and communication.

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

The Fifth District economy continued to grow at a modest rate. On balance, manufacturers reported modest growth in shipments and new orders, with some food and furniture manufacturers experiencing strong growth. ... Demand for nonfinancial services increased moderately, overall, with some sectors seeing strong demand, such as technology consultancy services. Employment rose slightly as firms struggled to find employees to fill open positions and were reluctant to raise wages. Only a few manufacturers reported slight increases in wages in recent weeks. .... Food manufacturing inputs and construction materials prices were particularly high and increased further in recent weeks.

Employment and Wages

Employment in the Fifth District rose slightly since our previous report. Many contacts reported having difficulties finding workers, with several of them noting that fewer women were returning to their jobs due to childcare and homeschooling needs while others cited skills mismatches as a hinderance. One contact said that there were many hospitality workers out of a job and manufacturers who need workers, but those skills don't easily translate. Additionally, a staffing agency contact believed that workers were hesitant to change jobs right now and firms were unwilling or unable to raise wages. Indeed, there were few reports of firms raising wages outside of a few manufacturers that reported slight wage increases.

Manufacturing

Manufacturing in the Fifth District grew modestly since our last report as shipments and new orders increased. Furniture and food manufacturers had particularly strong business and were often unable to meet demand. Many firms reported supply chain disruptions as shortages of materials and packaging, both domestic and imported, led to longer lead times and higher input prices. Some manufacturers were also constrained by labor shortages and employee absences. Several manufacturers reported transportation delays and high prices both from trucking and from sea transport.

Nonfinancial Services

On balance, the demand for nonfinancial services increased moderately in recent weeks. A technology consulting firm saw robust growth and the demand for health services remained high. A digital marketing contact noted a recent uptick in radio advertising from local restaurants and small businesses, particularly from home improvement and repair companies. College enrollment, on the other hand, was down considerably. The president of a community college in North Carolina said that majority of the students not returning were black or Hispanic and enrollment in high school equivalency programs was down the most substantially.

Economic activity in the Sixth District expanded modestly, on net, from January to mid-February. Labor markets improved some as employers added to headcounts, and wage pressures remained muted. ...

Employment and Wages

On balance, contacts indicated that employment levels and hours worked rose modestly over the reporting period. Most reported that employment levels were even with or below pre-pandemic levels, and about half of contacts expect to increase employment levels slowly as demand improves. ... Among firms planning to reduce employment levels over the coming months, most planned to downsize through attrition rather than layoffs. Those hiring indicated that most jobs were easy to fill with the exception of lower-skilled positions, nurses, and long-haul drivers. The remote work stance was largely unchanged since the previous report, and several noted that this has allowed them to fill higher-skilled positions more easily. Many firms indicated that they planned to encourage employees to get the COVID-19 vaccine but at this point would not require it. Some contacts were offering paid time off to get the vaccine or were looking to provide the vaccine onsite.

Most contacts noted that wage pressure remained subdued. Shortages of nurses, skilled trades workers, warehouse workers, and commercial drivers were putting upward pressure on wages in those occupations according to several contacts. ...

Manufacturing

Manufacturing firms indicated that business activity accelerated since the previous report. Contacts reported an increase in new orders and production levels, while purchasing managers continued to see longer supply delivery times and slightly elevated finished inventory levels. Expectations for future production remain optimistic, with almost two-thirds 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 in January and early February but remained below its pre-pandemic level. Contacts expected growth to pick up in the coming months, but most did not expect to see full recovery until at least the first half of 2022. Manufacturing and consumer spending increased moderately; business spending and construction and real estate increased slightly; and employment was little changed. Wages and prices rose modestly. ...

Employment and Wages

Overall, employment was little changed over the reporting period, though contacts expected a moderate increase over the next 12 months. Contacts reported that staffing challenges related to COVID-19 cases or exposures and childcare needs had become less severe. In addition, a staffing firm that primarily supplies manufacturers with production workers noted that reduced risk of contracting COVID-19 — because of modifications to worksites, training, and falling case counts — was helping support the supply of workers. That said, many contacts continued to experience difficulty in hiring workers, especially at the entry level. One electronics manufacturer was still struggling to fill open positions despite implementing training programs and building relationships with technical schools. Several contacts expressed concern that unemployment benefits were putting a damper on worker availability. Wages across skill levels and benefits costs increased modestly.

Business Spending

Business spending increased slightly in January and early February.... Manufacturing inventories were generally at comfortable levels, though several contacts reported supply chain issues related to raw materials (particularly steel and copper), microchips, and specialty parts. Capital expenditures were little changed overall. And while some said they were holding back because of uncertainty over the pandemic, contacts overall expected a moderate increase in their capital spending over the next twelve months on the anticipation that the pandemic will continue to recede. ...

Manufacturing

Manufacturing production increased moderately in January and early February, with overall activity approaching pre-pandemic levels. Auto output slowed despite solid demand because of supply chain problems. Production of steel and aluminum increased moderately, responding to a broad increase in demand across most manufacturing subsectors. Manufacturers' sales of specialty metals increased moderately, driven by demand from the automotive, construction, and agriculture sectors. Demand for heavy machinery remained flat, while demand for heavy trucks increased moderately.

Reports from contacts indicate that economic conditions have been generally unchanged since our previous report. Firms continue to report mixed changes in employment levels. Firms reported difficulties attracting candidates for positions despite increasing wages. ... Most cited a high degree of uncertainty about the pace of recovery, which related primarily to the pace and efficacy of vaccinations..

Employment and Wages

Employment trends have been mixed since the previous report. On net, 12 percent of respondents reported employment levels lower than a year ago. Contacts noted stagnant or declining employment, especially among small businesses and leisure and hospitality firms, with continuing closures in a slower-than-expected recovery. Transportation and manufacturing firms reported their desire to expand their workforce has been stymied by a scarcity of workers. Many contacts ascribed this scarcity to unemployment benefits and other government aid: A grocery store contact expects some warehouse workers will quit when they receive another stimulus check, looking to return to work at a later time. Some reported turning to automation, with one contact emphasizing that robots were doing jobs for which they couldn't find workers. COVID-19 exposure has also depressed existing workers' hours: One manufacturer reported more than 10 percent of his workforce was quarantined on any given day.

Wages grew slightly. On net, 23 percent of respondents reported wages higher than a year ago. Many contacts emphasized the need to raise wages while workers remained scarce; some, however, reported more stagnant wages, especially in the worst-hit sectors. One restaurant owner reported recently giving his workers much-delayed raises, fearing they would otherwise be lured away by other businesses as the recovery continues.

Manufacturing

Manufacturing activity has modestly increased since our previous report, though the change from firm to firm varied considerably. Contacts reported that production and capacity utilization remained unchanged, while new orders have modestly increased. However, some firms reported strong upticks in production and new orders. Several firms in the region reported labor force shortages have inhibited production. ...

Nonfinancial Services

Activity in the nonfinancial services sector has decreased slightly since our previous report. ... Half of all nonfinancial services contacts reported sales below expectations this quarter, reflecting clients who are cautious to spend due to uncertainty about the near-term economic recovery, as well as pandemic-related difficulties meeting new clients. ... Logistics contacts reported first-quarter sales were stronger than expected despite the post-holiday slowdown. Most contacts expect sales next quarter to be at least as good as this quarter given vaccinations are becoming more widespread.

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

Economic activity in the Ninth District increased modestly since early January. Employment was flat, with rising labor demand offset by labor supply constraints. Wage and price pressures were both modest. Sources reported growth in consumer spending, residential construction and real estate, manufacturing, energy, and agriculture. ... Conditions for minority- and women-owned businesses were difficult.

The Tenth District economy expanded slightly in January and February, with conditions strengthening in most sectors. Contacts in almost every sector anticipated stronger activity in the months ahead, although the majority also noted that the COVID-19 vaccine rollout was somewhat or very important to their outlook. ... Manufacturing production and new orders expanded modestly, with gains at both durable and nondurable plants. Contacts reported modest gains in professional and high-tech sales and moderate gains in wholesale trade sales. ... Employment continued to expand slightly, and wages rose modestly. ...

Employment and Wages

District employment continued to increase at a slight pace but remained slightly below year-ago levels. Overall employment growth in the services sector was driven by moderate gains in retail and wholesale trade, while employment fell slightly in the transportation, tourism and restaurant sectors. Looking ahead, contacts from all service industries expected employment to remain unchanged or to increase in the coming months. Manufacturers noted slight increases in employment levels and hours and expected similar gains in the next few months.

The majority of contacts reported labor shortages, with strong demand for technicians, truck drivers, and information technology professionals. More generally, contacts reported severe shortages for skilled hourly workers and notable shortages for unskilled hourly positions. Wages rose modestly since the last survey, and contacts expected wages to rise at a slightly faster pace in the coming months. Although the majority of firms expected vaccinations to affect their business outlook, less than one-third of firms anticipated that the COVID-19 vaccine rollout would impact their hiring plans this year.

Manufacturing and Other Business Activity

Manufacturing activity expanded modestly since the previous survey, and activity levels rose slightly above year-ago levels. Production and new orders increased modestly for durables and slightly for nondurables. ... Durable and nondurable manufacturing activity was expected to increase moderately in the next few months, but the vast majority of manufacturing firms indicated that widespread COVID-19 vaccination was somewhat or very important to their firm's overall business outlook.

Outside of manufacturing, sales rose modestly in professional and high-tech services and moderately in the wholesale trade sector. ... Respondents from all industries expected sales to increase modestly in the coming months.

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

The Eleventh District economy expanded at a moderate pace, though output in most industries remained below normal levels. Growth in the manufacturing and nonfinancial services sectors picked up in early February after stalling in January, while retail activity remained flat. Unprecedented winter storms and widespread power outages in mid-February severely disrupted economic activity, though the impact is mostly expected to be transitory. ... Employment rose and wages increased moderately. ... Outlooks were generally positive, but uncertainty persisted.

Employment and Wages

Employment was up overall, with solid hiring continuing in manufacturing and service-sector hiring picking up in February after easing in January. ... Modest job losses were seen in the retail sector, where work hours also dipped. Some firms reported short-term problems maintaining workflow while others closed temporarily amid widespread power outages and water problems from winter storms. Roughly 47 percent of contacts say headcounts are down from pre-COVID levels, by about 25 percent on average, according to a Dallas Fed survey of over 300 Texas businesses in February. Twenty-one percent of firms reported increased headcounts, and 32 percent reported no change from February 2020 levels.

Wage growth was moderate, though there were some reports of more significant wage pressure in segments experiencing difficulty finding and retaining workers. An investment firm said they had to increase wages 5–15 percent to keep employees from being lured away. Several contacts voiced concern over the prospect of a $15 minimum wage.

Nonfinancial Services

Growth in the nonfinancial services sector stalled out in January amid rising COVID-19 cases but resumed at a modest pace in early February. Despite the ongoing recovery, more than half of contacts report that revenues were still down from normal, though this share has slowly but steadily declined over the past eight months. Professional and technical services continued to outperform other segments, with generally robust revenue growth. Staffing firms reported increased demand as business among customers broadly recovered, with particular strength in healthcare, IT, and construction. ...

Severe winter storms and power outages in mid-February significantly and adversely impacted many businesses in the short term, but overall outlooks improved, with some contacts pointing to the COVID-19 vaccine as a particular driver of optimism.

Economic activity in the Twelfth District expanded at a modest pace during the reporting period of January through mid-February. Employment levels decreased somewhat, while wages increased slightly on net. Inflation has picked up, driven largely by increases in energy prices. .... Manufacturing activity continued to expand modestly ....

Employment and Wages

Employment levels decreased slightly, although conditions varied significantly by region and industry. Employers in the hospitality and tourism sectors generally reduced their workforce and extended furloughs due to the ongoing effects of the most recent wave of COVID-19 infections. An increasing number of contacts reported difficulty filling open positions, both for high-skilled and low-skilled workers. Employers in the construction, manufacturing, auto mechanics, and healthcare sectors continued to be constrained by shortages in qualified labor. Rising employee turnover was another commonly cited concern, mainly due to workers switching industries, moving, or leaving the workforce altogether. A few contacts in financial services, energy, and logistical services reported implementing hiring freezes or plans to reduce their workforce later in the year. On the other hand, demand for labor in consulting, legal services, technology, and healthcare sectors remained stable.

Wages increased marginally on balance. In addition to mandatory minimum wage increases in some areas, a few contacts also reported increasing compensation for frontline essential workers. Employers in manufacturing, construction, and health-care services also noted upward wage pressures, mainly due to labor supply issues. By contrast, a few contacts in the financial services and hospitality sectors mentioned plans for decreased wages and merit-based bonuses compared to previous years. Most other reports mentioned little to no change in wages.

Manufacturing

Activity in the manufacturing sector continued to strengthen modestly, although the pace of expansion has slowed somewhat since the last reporting period. Demand for metals and wood products remained strong, driven by the continued expansion in residential construction. ...

© 2020, Bruce Steinberg.  All rights reserved.

last updated March 03, 2021