September 2019 Federal Reserve Board's Beige Book

DISCLAIMER: Below are excerpts from the Federal Reserve Board's Beige Book published on September 4, 2019. It "... was prepared at the Federal Reserve Bank of San Atlanta based on information collected on or before August 23, 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 reported modest revenue growth in the second quarter and into the summer months, but some retailers, hotels, and manufacturers cited stronger sales growth and a couple of manufacturers said revenue was down from a year earlier. Tariffs and general trade uncertainty continued to be mentioned as risk factors. Staffing firms were more upbeat than three months ago, reporting improvements in the pace of revenue growth. .,. While some firms mentioned raising wages somewhat to attract and keep employees, most said the labor market was steady. Outlooks ranged from guardedly optimist to generally positive.

Employment and Wages

Labor markets were reportedly not much changed from the last report. One fast-growing retailer reported a successful on-campus recruiting push, filling technical and other jobs and raising wages to do so. Another retailer continued to cite little difficulty hiring sales people. Manufacturing respondents, with one exception, reported no major revisions to their hiring plans. The exception was a semiconductor-related firm facing sales declines, who said they would probably start layoffs within six to eight weeks. Staffing firms said the number of job requests overall remained strong for both temporary and permanent openings. Most staffing contacts reported stable bill and pay rates, but two firms increased both rates by low single-digit percentages.

Manufacturing and Related Services

Reports from manufacturing contacts continued to be mixed. Three of the nine firms contacted this round are in the semiconductor industry; two reported sales declines versus the same period a year earlier, including one with a 20 percent drop. Several contacts in other industries reported that growth, while still positive, was slower than in earlier periods. A manufacturer of electrical equipment attributed some of its slowdown to lower energy prices reducing demand from energy extraction firms. ... A manufacturer of dairy products said demand for their products was the strongest in a long time.

No contacts reported significant revisions to capital expenditure plans. One respondent in the electrical equipment business said that the tariffs had led them to invest more in automating factories in the U.S. as opposed to moving them to Mexico.

Outside of the semiconductor industry, the outlook remained generally positive for most contacts. Many continued to mention trade tensions as an issue.

Staffing Services

New England staffing firms reported positive revenue trends for the second quarter of 2019. All firms cited improved growth rates compared to the previous quarter, with rates as high as 20 percent quarter-over-quarter. Two mentioned that their business results were among the top five performing firms in their respective region. On the other hand, scarce labor supply continues to be the most challenging issue among staffing businesses. Several respondents noted difficulty in matching the skill sets job seekers possessed with those desired by employers. Consequently, companies wanting to hire have been accepting less qualified workers and offering higher pay rates. Staffing firms mentioned aggressive use of online recruiting job boards and offering competitive rates and benefits to candidates. With unemployment low and labor supply limited, staffing respondents cited a guardedly optimistic outlook.

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

The Second District economy continued to expand at a modest pace in the latest reporting period. The labor market remained very tight, as employment levels were flat, and wage growth picked up slightly. ... Manufacturing activity was steady to slightly higher, while trade and distribution activity was mixed. However, most service sectors saw steady to modestly growing activity. ...

Employment and Wages

The labor market has remained very tight across the District. Contacts have continued to report trouble finding qualified workers in a wide variety of roles, including engineers, teachers, construction workers, truck drivers, and retail clerks. An employment agency noted that one factor holding back hiring has been a wide gap between job candidates' salary demands and employers' offers.

Businesses in most industries continued to report little or no net hiring. Contacts in the manufacturing, transportation, information, finance, and professional & business services sectors reported flat to slightly declining staffing levels, while businesses in education & health, real estate, and leisure & hospitality reported modest increases in headcounts. The one industry noting fairly brisk net hiring has been wholesale trade. Looking ahead to the next six months, though, businesses in manufacturing and most service sectors still plan on adding to staff.

While businesses generally report that wage growth has remained moderate, there have been scattered signs of a pickup. A large New York City employment agency notes somewhat more upward pressure on salaries, and a finance sector contact in upstate New York notes that they recently upped pay scales for entry-level workers in response to the tight labor market.

Manufacturing and Distribution

The manufacturing and distribution sectors have improved somewhat since the last report. Manufacturers reported that overall activity and new orders have been steady to slightly higher in the latest reporting period, after a pullback during the late spring. Wholesale distributors reported that growth rebounded to a fairly brisk pace. However, transportation firms noted a moderate drop-off in activity in recent weeks.

While manufacturers remain fairly positive about the near-term outlook, wholesale distributors and especially transportation firms have become noticeably less optimistic. Contacts in these sectors, as well as in manufacturing, have expressed ongoing concern about tariffs and trade tensions and about uncertainty going forward.

Services

Service-sector businesses reported that activity has been mixed but, on balance, a bit stronger since the last report. Contacts in leisure & hospitality noted a substantial pickup in business. ...

Other service industries have not been as robust. Businesses engaged in professional & business services and education & health reported modest growth in activity, while finance and real estate firms generally reported flat activity. Contacts in the information sector reported some pullback in activity. Service firms, in general, were fairly optimistic about the near-term outlook, except for those in the finance sector.

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

On balance, aggregate Third District business activity continued at a modest pace of growth during the current Beige Book period. Manufacturing accelerated to a moderate pace of growth, and nonmanufacturing, nonauto retail sales, and tourism continued at a modest pace of growth. ...  The firms' outlook for growth over the next six months remained positive, with about half of all firms anticipating increases in general activity and less than one-fifth expecting decreases. However, contacts noted a slightly more cautious outlook given trade and market uncertainty.

Employment and Wages

Employment growth continued at a modest pace during the current Beige Book period. More than one-fourth of all firms reported increases in staff, similar to the previous period, however, the share of manufacturers reporting decreases rose. Average work hours were little changed across firms over the period.

Contacts continued to report that tight labor market conditions were constraining growth, as many noted difficulty in finding qualified workers for needed positions in various sectors. Staffing firms reported continued struggles in finding qualified candidates, with one firm describing the labor pool in its area as "nearly nonexistent."

Wage growth continued at a moderate pace, with contacts reporting wage increases ranging from above 3 percent to above 5 percent on a year-over-year basis. The share of nonmanufacturing contacts who reported increases in wage and benefit costs edged down below 45 percent; only 1 percent reported decreases. Several contacts reported no change or a leveling-off in wages from the prior period.

Manufacturing

On balance, manufacturers reported moderate growth in activity – a pickup from the slight pace of growth during the prior period. Indexes for shipments and unfilled orders remained above long-term nonrecession averages, and the new orders index improved to an above-average level as well.

The makers of lumber products, chemicals, and fabricated metal products noted gains in new orders and shipments since the prior period. The primary metal and industrial machinery producers reported little change, and the makers of electronic products noted declines. These trends were somewhat weaker this year compared with the same period one year ago for most of the sectors.

Manufacturers' expectations of activity over the next six months improved somewhat. Expectations of shipments and of new orders were above long-term nonrecession averages, with the latter rising above average over the period. Expectations of future employment and planned capital spending also remained above average but were little changed. Some firms reported that uncertainty continued to hamper their investment decisions.

Nonfinancial Services

On balance, activity at service-sector firms continued at a modest pace of growth. The percentage of firms reporting increases in current revenues rose, although the percentage reporting increases in new orders fell. Roughly one-half of firms expect growth over the next six months, unchanged over the period. One large firm noted that it had a modestly more conservative outlook and that it was cutting back on capital spending a bit because of recent uncertainty.

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

Economic activity in the District was steady on balance. Retailers reported modestly improving sales over the period. ... Manufacturers saw weaker demand because uncertainty led their customers to delay capital expenditures. In addition, factory inventories were elevated as sales fell more than anticipated. Freight volumes decreased. Overall District employment remained relatively steady, with little change in most sectors. Wages rose moderately across industry sectors and occupational categories. Prices were little changed in general in the District. However, many contacts expected input costs to rise in the near future, in part because of anticipated new tariffs.

Employment and Wages

Total employment was steady in the District, although reports on hiring varied by industry. Professional and business services firms continued to hire to keep up with strong demand. ... Meanwhile, factories tried to align their labor needs with slower sales. Generally, manufacturers did not lay off workers, but several implemented other labor-reducing measures such as fewer shifts, reduced overtime, fewer temporary employees, and shrinkage by attrition.

Overall wage growth increased slightly to a moderate pace in recent weeks, with modest to moderate growth in most sectors. Retailers, bankers, and staffing agencies reported strong upward pressure on entry-level wages. One staffing executive commented that many clients were raising entry-level wages, and that it is "very strange to see a client offering the [state] minimum wage." Stiff competition for skilled workers led to higher wages in manufacturing, construction, and professional and business services. A manufacturer said that wages were still rising because "despite demand shortfalls, the employment market remains tight." ...

Manufacturing

Manufacturing activity declined modestly as demand continued to soften across end markets. Several contacts reported that both they and their customers had delayed capital spending as trade tensions and related uncertainty clouded their outlooks. Additionally, respondents noted that weakening demand abroad pushed down prices and intensified competition with foreign manufacturers who were looking for new markets in which to sell their products. Capacity utilization declined, but some manufacturers indicated that this was a return to normal following more than a year of hectic activity. Several contacts reported that inventory levels were elevated because demand fell more sharply than anticipated. Looking forward, reports were mixed: some manufacturers believed that orders would improve in the fourth quarter and beyond, while others expected demand to weaken further.

Professional and Business Services

Activity in professional and business services remained solid, but growth softened since the previous report. Consulting firms reported strong activity and generally indicated that their smaller, local clients had a solid pipeline of projects. By contrast, technology firms suggested that activity was flat or down slightly. One technology contact reported softening demand from clients in Asia, and another noted an overall reduction in the volume of large-scale deals.

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

The Fifth District economy grew at a modest rate since our previous report. Manufacturers experienced a decline in shipments and new orders, and continued to cite trade-related impacts on demand and raw materials costs. ... Meanwhile, demand for nonfinancial services remained moderate. Several firms indicated that they were holding back on new investment due to uncertainties with trade, the federal budget, and the availability of labor. ... Labor markets remained tight and wage increases were modest. Prices continued to rise at a moderate rate.

Employment and Wages

Manufacturers in the Fifth District experienced sluggish demand since our last report. Both shipments and new orders declined, and many firms reported weaker local business conditions. Several contacts cited tariff-related effects on their businesses, including lower demand and higher raw materials costs that they could not pass through to customers. A Virginia manufacturer delayed purchasing new equipment because of fear that business conditions would deteriorate in the coming months. However, a South Carolina appliance manufacturer reported strong sales and revenue growth and invested in expansion projects.

Non-Financial Services

Since our previous Beige Book report, demand for nonfinancial services remained moderate, overall. Professional and health services firms generally reported steady to increasing demand. A few contacts, however, reported that turnover and labor shortages were driving up recruiting costs and in some cases constraining growth. Educational institutions also indicated steady demand, and a university president saw significant investment in computer science related programs in Northern Virginia. On balance, services firms indicated modest business investment. A few firms said they were holding back or being cautious due to uncertainties around trade, the federal budget, and the availability of labor

Sixth District business contacts indicated that economic activity softened slightly during the reporting period. Many firms noted persistent challenges with filling positions. Annual wage increases remained between 3-4 percent, on average, and businesses across the District continued to report increased nonlabor input costs.... Manufacturers noted a decrease in overall business activity since the previous report. ...

Employment and Wages

Reports of challenges finding, hiring, and retaining workers persisted for various labor market segments. Several business contacts continued to share that their inability to secure labor was holding back growth, encouraging investments in automation, and pushing a few firms to acquire competitors as a means of gaining labor resources. Employers continued to collaborate with workforce development organizations and schools to enhance curricula at vocational centers and to create pipelines of potential employees. A number of contacts expressed that hiring and retention costs, primarily those associated with training programs, were rising. Employers continued to report that while they had increased wages to attract and retain workers, efforts to improve employee benefits offerings, enhance work arrangement flexibility, eliminate some drug testing, and reduce experience requirements remained prominent attraction and retention tools.

Annual wage increases, on average, remained between 3-4 percent, though several employers noted that, in some cases, overall compensation was accelerating at a fast clip as healthcare costs were rising. Wage growth was concentrated in technology, healthcare, construction, and lower-skilled hourly positions. Business contacts continued to report that demographic shifts from older experienced workers to younger inexperienced workers were compressing salary budgets.

Manufacturers reported a decrease in overall business activity since the previous reporting period. A number of firms indicated that new orders and production levels declined, while finished inventory levels continued to rise. Purchasing managers cited that supply delivery times were slightly longer than normal and a few contacts indicated that tariffs were impacting business activity. Expectations for future production levels decreased, with just over one quarter 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 overall in July and early August, and contacts expected growth to continue at a similar pace over the next 12 months. Consumer spending increased modestly; employment and business spending increased slightly; and manufacturing and construction and real estate were little changed. Wages and prices rose slightly. ...

Employment increased slightly 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, with a noticeable increase 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 it was difficult to fill positions at all skill levels. A staffing firm reported little change in billable hours. Wages increased slightly overall. Contacts were most likely to report wage increases for professional and technical, administrative, and production workers. Many firms reported rising benefits costs.

Manufacturing production was little changed in July and early August, though contacts were generally satisfied with the level of activity. ... Manufacturers of construction materials reported a modest increase in shipments. Auto production was flat.

Economic conditions have been mixed but generally unchanged since our previous report. Labor market conditions remained tight as firms continued to note difficulties finding qualified workers. ...Across all industries, the outlook among contacts turned slightly pessimistic. On net, a slightly greater share of contacts expect conditions during the remainder of 2019 to be worse or somewhat worse than the same period in 2018.

Employment and Wages

Employment has grown slightly since our previous report. On net, 12 percent of survey respondents reported that employment was higher than a year ago. Labor market tightness has persisted throughout the District, including in transportation, healthcare, and manufacturing. Firms reported increasing benefits, loosening hiring requirements, and more aggressively marketing themselves to attract workers.

Wages have grown moderately since our previous report. On net, 40 percent of contacts reported that wages were higher than a year ago; one contact in Little Rock reported that new graduates applying to jobs at an engineering firm were expecting $10,000 to $15,000 more than their offered starting salary. Numerous firms saw rising wages as a consequence of the tight labor market, with several businesses — due to their size, location, or budget — especially struggling to keep up with wage gains and attract potential employees.

Manufacturing

Manufacturing activity has been mixed since our previous report. A majority of contacts reported declines in production, new orders, and capacity utilization relative to one year ago. Respondents have noted slowdowns in the growth of manufacturing activity over the past few quarterly surveys, but this is the first time that they have reported declines for all three of these measures since 2016. Multiple contacts reported that tariffs and general uncertainty with regard to the ongoing trade negotiations with China contributed to declines in activity. On net, most contacts expect manufacturing conditions to stay at a similar level next quarter. However, several local manufacturing firms across a variety of industries, including automotive and food manufacturing, recently announced plans to expand operations. Likewise, other survey-based indexes indicate that activity in Arkansas and Missouri increased at a modest pace from one month earlier, with new orders and production increasing in both states.

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

Ninth District economic activity was stable since the previous report. Employment was flat, while wage pressures were moderate and price pressures remained modest overall. The District economy saw growth in construction, real estate, and manufacturing. Consumer spending was flat while tourism activity was mixed. Energy activity decreased while agricultural conditions remained weak.

Tenth District economic activity edged up in July and early August, led by increases in consumer spending, wholesale trade and professional and high-tech services. ... Manufacturing activity fell slightly, and a majority of contacts expected their businesses to be negatively affected by the latest round of U.S. tariffs on China. ... Employment rose, but contacts in several sectors noted a slowdown in job gains as labor shortages persisted. Wages were mixed across sectors, and a majority of respondents expected the pace of wage growth to remain the same or accelerate in 2020. Input prices rose slightly, while selling prices continued to hold steady.

Employment and Wages

District employment rose, and employee hours held steady since the previous survey period. Compared to a year ago, contacts reported that employment gains were strongest in the real estate, health services and retail trade sectors. However, the pace of job gains had slowed in several sectors including manufacturing, energy, transportation, tourism and auto sales in recent months. Looking ahead, contacts expected employment to increase slightly and employee hours to remain flat in the next few months.

A majority of contacts continued to report labor shortages across all skill levels. Specifically, contacts noted shortages for hourly retail and food-services positions, truck drivers, auto technicians, physicians, pilots and IT personnel. Wages were mixed across industries as services sector wages increased modestly since the previous survey period, while manufacturing wages held steady. A majority of respondents expected wage gains in 2020 to equal or exceed those in 2019.

Manufacturing and Other Business Activity

Manufacturing activity declined slightly in July and early August, but activity remained slightly above year-ago levels. Factory production and shipments edged down compared to the previous survey period at both durable and non-durable goods plants, while new orders declined slightly. Manufacturers anticipated modest increases in production, shipments and new orders in the coming months. Capital spending was modestly above year-ago levels, and slight increases were expected in the months ahead. However, a majority of respondents expected the most recent round of U.S. tariffs on Chinese goods to negatively affect their businesses.

Outside of manufacturing, other business contacts reported mixed sales since the previous survey period. Firms in the transportation sector experienced modestly lower sales, while sales increased strongly in the wholesale trade sector and slightly in the professional and high-tech services sector. In the coming months, contacts in the professional, high-tech and wholesale trade sectors expected sales to expand moderately and transportation sector contacts anticipated modest increases.

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

Moderate expansion continued in the Eleventh District economy. Output growth in manufacturing strengthened, and expansion in the service sector was strong in July but eased in August. ... Employment growth was solid and wage pressures remained elevated. ... Outlooks improved slightly in manufacturing but softened in the service, energy, and agricultural sectors, with uncertainty surrounding trade policy, tariffs, stock market volatility, and slowing global growth weighing on business sentiment.

Employment and Wages

Employment expanded at a solid pace. A lack of qualified candidates continued to challenge businesses across sectors and skill levels, but shortages remained most severe for mid-skilled positions. Construction craft labor shortages were reportedly less acute, though food services firms said they were still struggling to find workers. Airlines and energy firms' headcounts were stable, with hiring limited to certain skill sets. Several firms noted that retention of employees was a challenge as well.

Wage pressures remained elevated. Many respondents said they were struggling to fill positions partly because applicants were looking for higher pay than was offered.

Nonfinancial Services

Nonfinancial services activity expanded strongly in July but growth eased in August. Expansion during the reporting period was led by growth in professional and technical services. Most staffing services companies continued to experience year-over-year demand increases. A few that noted softness said it was in part due to heightened uncertainty among clients. ...

Service-sector outlooks were lackluster, with uncertainty surrounding trade policy, stock market volatility, slowing global growth, and expectations of a looming U.S. recession were a drag on expectations.

Economic activity in the Twelfth District continued to expand at a moderate pace during the reporting period of early July through mid-August. The labor market remained tight, characterized by modest employment growth and moderate wage growth. ...

Employment and Wages

The labor market remained tight, and employment growth was modest. Across the District, some contacts reported steady growth in employment, especially in urban areas. Others cited little change in employment, mostly due to continued difficulties in finding qualified workers. Information technology and financial sector positions were especially hard to fill. A contact in the payment-processing sector noted that job openings remained unfilled for longer than they did a year ago. Some employers suggested that shortages of qualified workers were a major factor behind a slowdown in their business expansion plans. ...

Wage growth rose further over the reporting period due to brisk competition for qualified workers across sectors. ... Businesses reported continued positive adjustments to starting wages due to new minimum wage laws and tight competition for entry-level workers. Some employers noted their employees' preferences for expanded benefits packages over higher wages including signing bonuses, flexible work arrangements, paid time off, and varied health insurance options.

Manufacturing

Activity in the manufacturing sector slowed somewhat. A chip manufacturer in the Mountain West reported continued worldwide softening of orders. In the Pacific Northwest, wood product manufacturers noted faltering demand. An energy supplier mentioned lower demand for natural gas from various industrial customers ranging from asphalt and concrete producers to paper makers. Production slowed in a large aerospace business in the Pacific Northwest. On the other hand, contacts in the semiconductors and metals-producing sectors reported strong output and a positive outlook.

© 2019, Bruce Steinberg.  All rights reserved.

last updated September 04, 2019