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April 2017 Federal Reserve Board's Beige Book

DISCLAIMER: Below are excerpts from the Federal Reserve Board's Beige Book published on April 19, 2017. It "... was prepared at the Federal Reserve Bank of Richmond based on information collected on or before  April 10, 2017. 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.

Since there are several references to changes 'since the last report,' our summation of the previous report is here.

The next Beige Book is scheduled to be released on May 31, 2017, at which time we will offer our next summation. If you want to receive notification when it is posted, please fill-in the form above.

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First District -- Boston Fifth District -- Richmond Ninth District -- Minneapolis
Second District -- New York Sixth District -- Atlanta Tenth District -- Kansas City
Third District -- Philadelphia Seventh District -- Chicago Eleventh District -- Dallas
Fourth District -- Cleveland Eight District -- St. Louis Twelfth District -- San Francisco



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

Business activity continued to expand in the First District in recent months, with the year-over-year pace of increase said to be modest to moderate. Most responding retailers and all contacted manufacturers and software and information technology services firms reported increases in revenue from a year earlier when contacted in early April. ... Across sectors, hiring was reportedly modest as were wage increases, while many respondents cited difficulty filling a range of positions. ...

Employment and Wages
Labor markets in the First District continued to tighten somewhat. Many employers sought to add modestly to head counts (although one manufacturer laid off about 4 percent of staff over the last year), while wage increases were modest. Some smaller retailers noted increasing labor costs, in part driven by increases in state minimum wages being implemented over a multi-year period. Restaurant contacts, particularly in heavy tourism regions, expressed concern about possible labor shortages this summer, exacerbated by an expected slowdown in granting H-2B visas. Half of contacted manufacturers were hiring, though none in large numbers; several firms said it was hard to find workers. One respondent said that during a recent six-month attempt to add to staff for a new product, two-thirds of applicants for assembly line jobs were screened out before hiring via math tests and drug tests; of 400 workers hired, only 180 worked out. All software and IT services respondents said they expect to grant wage increases in the low single digits and plan net increases in headcount between zero and 3 percent through the end of the year. They reported that high-skill positions such as engineers and data scientists were increasingly hard to fill, and covering attrition remained a challenge in both technical and unskilled areas; for example, one contact noted difficulty covering very high attrition in a Maine call center.


Manufacturing and Related Services

All ten contacted manufacturers said sales were higher in recent periods versus the comparable period a year ago. Reports ranged from growth that was slow and below expectations for a data and publishing firm to "tremendous growth" for a packaging firm. The latter firm said that increased e-commerce was driving increases in demand for boxes for mailing. Otherwise, firms reported sales growth that was in line with expectations. ...

Several contacts expressed concerns about policy uncertainty. A manufacturer of test equipment which exports a significant portion of its production worried about trade deals. Firms said that a Border Adjustment Tax would have mixed effects but hoped for some resolution.

Software and Information Technology Services
Firms experienced revenue growth in the range of 1 percent to 20 percent year-over-year, and even the 1-percent-growth firm saw "incredible" new orders in the first quarter. While health care and health services are generally strong in New England, multiple contacts indicated that business sentiment turned positive lately, bolstering firms that serve more cyclical industries, such as manufacturing and industrial IT.

All contacts were optimistic. One contact expressed concern that continued legislative struggles could put a damper on business confidence in the future, and another noted that hostile immigration policy could further tighten labor markets for skilled and unskilled labor.


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

Economic activity in the Second District has expanded modestly since the last report, with labor markets remaining tight. ... Manufacturers noted a deceleration in business activity, following brisk growth in the first two months of the year, while service-sector contacts have generally continued to report steady to modesty expanding activity. ...

Employment and Wages
The labor market has remained fairly tight. Contacts at employment agencies continued to report tight job market conditions and fairly brisk labor demand -- particularly for engineers and other tech workers. One New York City agency characterized hiring as steady at a moderate level, while two others -- one in the city and one upstate -- noted a pickup in hiring. However, one noted a pullback in hiring in the health insurance industry.

Manufacturers indicated that they have ramped up hiring in recent weeks, and businesses in education & health services reported that they have continued to add jobs, on net. Employment was reported to be steady to up slightly in other service industries. In contrast, contacts in the leisure & hospitality industry reported declining employment. Looking ahead, however, businesses in all industries indicated that they expect employment to rise, on balance.

Contacts across all service industries reported moderate wage growth and expected this to continue in the months ahead. Employment agency contacts in New York City noted some pickup in wages for new job openings, while a major agency in upstate New York indicated that wages have held steady.

Manufacturing and Distribution
Manufacturers reported that growth in business activity has receded from the brisk pace seen in early 2017. Businesses in the wholesale trade and transportation industries reported steady to moderately growing activity. Businesses in manufacturing and wholesale trade remained widely optimistic about the outlook, while those in transportation & warehousing have become less upbeat.

Business in most service industries reported little change in general business activity since the last report, though contacts in education & health services reported steady, moderate growth. Looking ahead, businesses were generally optimistic about the outlook -- particularly those in the information and professional & business services sectors. However, businesses in the leisure & hospitality industry were considerably less upbeat about the outlook.

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


Aggregate business activity in the Third District continued at a modest pace during the current Beige Book reporting period. Manufacturing, nonfinancial services, and homebuilding continued at a moderate pace of growth. ... According to most contacts, employment, wages, and prices continued to grow at a modest pace. Overall, firms continued to expect moderate growth over the next six months.

Employment and Wages
Employment has continued at a modest pace of growth since the prior report. A higher percentage of manufacturing firms reported increases in employment this period than during the prior period. Manufacturers also continued to note increases in the number of average hours worked. Employment indicators from nonmanufacturing firms also improved, as contacts reported overall increases in full-time and part-time staff as well as workweek hours.

On balance, wage pressures continued to be modest, although contacts reported tightening labor markets. A majority of manufacturers reported labor shortages and skills mismatches, but less than half indicated increasing wages as a result. A Pennsylvania staffing firm continued to see strong demand for staffing services from companies across various sectors and noted a stronger pickup in wages than usual. Wage pressures remained modest for nonmanufacturers, though a slightly lower percentage of nonmanufacturing contacts reported wage increases this period than during the prior period.



Reports from manufacturers continued to suggest overall moderate growth. Higher percentages of firms reported increases in both new orders and shipments this period compared with the prior period.

Overall, gains in activity were indicated by most major sectors, including the makers of lumber products, paper products, chemicals, primary and fabricated metal products, industrial machinery, and electronic products.

Roughly two-thirds of the manufacturing contacts were optimistic that orders, shipments, and general activity would grow over the next six months, up slightly from the prior Beige Book period. Firms also expressed broader optimism for future employment and capital expenditures.


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

Economic activity grew moderately on balance across the Fourth District since our last report. Labor markets continued to strengthen, with moderate to strong wage gains. ... The outlook by manufacturers noticeably improved as factory output picked up. Nonfinancial services firms experienced moderate revenue growth overall. ...

Employment and Wages
District payrolls continued to expand at a steady, albeit slow, pace. Increases were prevalent in the financial services, construction, and manufacturing industries. Brick-and-mortar retail was the only industry to report an overall staffing decline. Here, several contacts announced job cuts because of store downsizing or closures. Staffing firms noted that their clients expect that both the pace of hiring will pick up as the year progresses and the number of openings for permanent jobs will rise. One staffing firm reported that billable hours for the first quarter were 20 percent higher compared to the historic average. Workforce development officials told us that while the number of entry-level jobs is rising, finding candidates with the required core skills is difficult. Job churning has become an issue confronting many hiring managers. Wage increases during 2017 are expected to average about 3 percent, with significantly higher increases needed to retain high-skilled employees.


Nonfinancial Services

Professional and business services firms reported moderate levels of activity on balance over the period. Strongest demand was seen by bioscience, IT, logistics, and management consulting firms. An IT executive reported that year-to-date results have been unusually positive so far. A management consultant said that his firm has recently seen a broad-based rise in demand. Factors contributing to increased demand are a stronger economy and a need for assistance in navigating emerging uncertainties such as changes in health-care laws.



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

The Fifth District economy expanded at a slightly faster, albeit still modest, pace than during the previous Beige Book reporting period. Manufacturing activity increased amidst reports of stronger shipments and new orders, but tighter margins reportedly cut into capital spending plans. ... Labor demand remained firm and reports of modest wage increases broadened. ...

Employment and Wages
Labor demand strengthened moderately in recent weeks, and wage gains were more widespread. Contacts generally suggested that wage increases remained modest, although some firms noted sharper increases for high-skill workers who are in short supply. Employment agencies reported an increase in the number of employed workers seeking different jobs, higher turnover rates, and more wage pressures. A Virginia recruiter said that he was encouraging clients to increase pay rates and make quicker hiring decisions when they find the right worker. Persistent shortages of skilled construction workers adversely affected a larger number of builders, and led one South Carolinian to get out of the business after 25 years in it.

Manufacturing activity increased as more firms reported higher new orders and shipments. Manufacturers of electrical equipment, semiconductors, computer products, autos, and fabricated steel noted stronger business conditions in recent weeks. Expectations for the next six months were positive, and small domestic manufacturers were particularly optimistic. Despite that optimism, contacts suggested that persistent labor shortages had pushed labor costs up beyond what could be recovered through price increases, with the resulting squeeze on margins leading to cutbacks in planned capital spending.

Non-Financial Services
Our most recent survey suggested that services firms saw a slight increase in revenues. In general, services related to home building, remodeling, and landscaping reported the most robust activity. Accounting services firms also noted stronger demand as the income tax filing season was well underway. Meanwhile, a marketing firm indicated that increased business to new clients more than offset a slight decline in demand from some existing clients. A legal services contact in West Virginia said that business was picking up, particularly from clients in the construction, health care, manufacturing, and mining industries.


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

Sixth District business contacts indicated that economic conditions improved modestly from the previous report. The majority of contacts remain optimistic in their outlook for growth over the next three to six months. The labor market remained tight and wage growth remained stable. ... Manufacturers cited solid increases in new orders and production. ...

Employment and Wages
Firms continued to struggle to find, hire, and hold onto quality workers, particularly in skilled technical jobs, but also in sales, finance, information technology, and compliance positions. Clerical and other entry-level jobs were also reported as increasingly difficult to fill. Leisure and hospitality contacts shared that they are exploring automation options for housekeeping and food preparation services. Partnerships expanded with workforce development organizations and educational institutions to develop custom training programs as a means to build larger pipelines of talent. Additionally, firms continued to increase investment in internal training programs in order to develop otherwise unqualified workers. In spite of these efforts, a number of contacts continued to express that the inability to find labor was restraining growth. Manufacturing, construction, and professional services firms reported strong additions to employee headcount levels. Reports of turnover increased since the previous report, particularly for entry level positions. Businesses continued to actively ramp up efforts to reduce turnover by offering bonuses, increasing flexible time policies, absorbing more healthcare costs, and offering other benefits.

Wage growth remained in the 2 to 3 percent range for most job categories, with the exception of stronger wage pressures for specialized positions in high demand.

District manufacturing contacts reported a solid increase in overall business activity compared to the previous report. New orders and production levels rose notably and finished inventory levels were higher. Purchasing managers also indicated that supply delivery times were longer. The outlook for future production continued to be optimistic, as nearly two-thirds of firms expect higher production levels over the next six months.


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

Growth in economic activity in the Seventh District continued at a moderate pace in late February and March, and contacts expected activity to continue rising at a moderate pace over the next six to twelve months. Employment, wages, and manufacturing production grew at moderate rates, while prices, business spending, and construction and real estate activity increased modestly. ...

Employment and Wages
Employment growth continued at a moderate rate over the reporting period, and contacts expected it to continue to rise at a moderate rate over the next six to twelve months. The labor market remained tight. Contacts indicated that they were experiencing increased difficulty filling low-skilled positions, though higher-skilled workers were still in highest demand. Some contacts reported a greater willingness to accept less-qualified applicants. Staffing firms again reported little change in billable hours and ongoing difficulty filling orders at the wages employers were willing to pay. One staffing firm indicated that they were no longer taking orders from clients in any industry offering wages of less than $11 per hour. Wage growth continued at a moderate pace. High-skilled occupations were more likely to be given wage increases, though there were more reports of increases for production workers as well. A number of contacts reported a rise in healthcare costs.

Business Spending
Growth in business spending slowed to a modest pace in late February and March. Most retailers indicated that inventories were at comfortable levels, though light vehicle inventories were slightly high. Manufacturing inventories were also at desired levels overall, with the exception of stocks at steel service centers, which continued to be low. Growth in capital expenditures slowed to a modest pace, but contacts expected moderate growth over the next six to twelve months. Outlays were primarily for replacing industrial and IT equipment, though there was an increase in the number of firms reporting spending on structures.

Manufacturing production again grew at a moderate pace in late February and March. Growth was widespread and conditions in some long-struggling sectors improved again. Demand for steel increased to a moderate pace and was stronger than expected. Growth was led by demand from the energy sector and steel service centers, which were in the process of replenishing low inventories. Specialty metals manufacturers also reported higher sales to the energy sector, though contacts noted that efficiency gains in the sector over the last couple of years have resulted in a notable decline in sales volume per barrel of oil produced. Demand for heavy trucks increased moderately. Manufacturers of construction materials continued to report slow increases in shipments, in line with the modest pace of improvement in construction. Activity in the auto and aerospace sectors was unchanged, but remained at high levels.


Eighth District  --  St. Louis (AR, KY, IL, IN, MO, MS & TN)  return to District list

Reports from contacts suggest that economic activity in the District has continued to increase at a modest pace since our previous report. Overall employment growth was modest, while wage growth remains moderate. Overall inflationary pressures remained modest. ...


Employment and Wages

Anecdotal evidence suggests modest employment growth since the previous report. Several industries continue to report shortages of available workers. Construction contacts in Memphis and Little Rock reported shortages of workers, and manufacturing contacts reported difficulties in hiring and retaining experienced employees. Contacts in transportation and manufacturing reported that growth has been restrained because of difficulties hiring experienced workers.

Contacts reported moderate wage growth since the previous report. A manufacturing contact in Louisville noted upward pressure on wages in the region, with employers expecting to moderately increase wages. Anecdotal evidence suggests that tightness in the labor market has resulted in some employers increasing wages to attract employees.

Manufacturing activity has increased modestly since our previous report. Manufacturing activity in March was stronger than one month earlier in both Arkansas and Missouri, although the pace of increase slowed slightly in Missouri. Many companies reported capital expenditure and facility expansion plans in the District, including firms that manufacture medical devices, clothing, and chemical products. However, a number of firms announced plans to close facilities, including manufacturers of machinery, food products, and primary metals.

Nonfinancial Services
Reports of plans in the District's service sector have been mixed since the previous report. In particular, several firms that provide transportation, warehousing, and information services reported plans to build new facilities or expand employment. Two trucking contacts reported business is good enough to justify new equipment and increased hiring. Reports from the professional business services sector were mixed. Some existing employers laid off workers but new companies opening in the District were hiring and building facilities. Reports from the healthcare sector were mostly negative; layoffs were announced in Louisville and Memphis; however, healthcare facility expansions were announced in Little Rock.

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 moderately, wage pressures picked up, and price pressures were modest overall. Activity increased in construction, manufacturing, energy, and mining, while commercial real estate activity was flat at strong levels. ...

Employment and Wages
Employment grew moderately since the last report, checked by tight labor conditions. From February to mid-March, initial unemployment claims were 14 percent lower relative to a comparable period a year earlier, dropping in every state except South Dakota. Continuing claims were also lower overall. A Minnesota staffing firm contact said job orders for seasonal workers in landscape and construction started rising due to the relatively warmer weather. Firms catering to tourists in the Black Hills region reported difficulty finding labor, especially seasonal immigrant labor they have traditionally used. A Montana source said many firms are hiring, "but there's not enough workforce for all of the openings." The oil-producing region of North Dakota saw an increase in hiring, according to a state contact. Employer booths at recent job fairs there were sold out and had double the job openings of the previous year, including one company looking to hire 200 to 300 certified drivers. There were some notable job losses, including 55 at a Minnesota construction firm and 100 at a South Dakota senior care organization, along with those affected by numerous retail closures across the District. But overall, said one source, "the good news certainly seems to be outweighing the bad news right now." A survey of employers in District states found that their second-quarter hiring outlook was solidly positive and more optimistic than a similar, first-quarter survey.

Wage pressures were moderate to strong since the last report. A staffing firm in Minneapolis-St. Paul reported that wages have increased by more than 3 percent from a year ago; reports from staffing firms in Montana and Wisconsin suggested even larger increases. A contact at a South Dakota human resources firm said more companies were asking for competitive wage analysis and, as a result, compensation increases were "above normal." A manufacturing consultant said clients were predicting "more aggressive" wage increases than in past years.

Professional services activity was up modestly. Information technology and software firms in Sioux Falls indicated continued growth in sales since the last report. Accounting firms across the Ninth District reported a normal, seasonal uptick in activity given the tax season. Several law firms in the Minneapolis-St. Paul region experienced modest growth since the last report, and one law firm is appealing to startup companies by providing cut-rate legal advice to compete with online legal tools. A public relations firm in Minnesota reported "steady work," as did an architectural firm in Fargo, N.D.

District manufacturing activity increased moderately since the last report. An index of manufacturing conditions produced by Creighton University indicated increased activity in March compared with a month earlier in Minnesota and the Dakotas. A medical device maker announced an expansion at a Minnesota facility. A Michigan firm noted that recent orders were "almost double" expectations. Several contacts across the District reported increased capital expenditures by manufacturers..

Tenth District  --  Kansas City (CO, NM, MO, NE, OK & WY)  return to District list

Economic activity in the Tenth District increased moderately in late February and March, and most sectors expected continued growth in future months. Manufacturing activity expanded at a strong pace, and real estate firms reported a modest rise in sales. ... Professional and high-tech firms reported moderate sales increases, and bankers reported steady-to-increased loan demand, stable deposit levels, and unchanged loan quality. ... Employment and employee hours increased modestly, and wages rose modestly. ...

Employment and Wages
Employment and employee hours increased modestly in late February and March, and expectations were for a continued increase in the months ahead. Contacts in the manufacturing, energy, retail trade, wholesale trade, professional and high-tech services, education, health services, and tourism and hotels sectors reported an increase in employment levels since the previous survey period, while contacts in the auto, transportation, and restaurant sectors noted a decline. All respondents expected a rise in employment in the coming months. Average employee hours rose modestly in the manufacturing, energy, and service sectors, and additional gains were expected moving forward. Respondents noted a shortage of commercial drivers, skilled technicians, and service workers.

Contacts in most sectors reported modest wage growth, and expectations in the coming months were for moderate wage growth.


Manufacturing and Other Business Activity
Manufacturing activity expanded at a strong pace, and most other business contacts reported increased sales. Manufacturers reported a rapid expansion in production, particularly for metals, electronics, and aircraft products. Shipments, new orders, and order backlog all increased over the previous survey, and activity was modestly higher than a year ago. Manufacturers' capital spending plans expanded moderately, and firms' expectations for future activity were at their highest levels in over twenty years.

Outside of manufacturing, professional, high-tech, and wholesale trade firms reported moderate sales increases, while transportation contacts indicated a modest decrease in activity. Wholesale trade firms expected a strong increase in future sales, while professional, high-tech, and transportation contacts anticipated a more moderate sales improvement. Capital spending plans were favorable among most firms.


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

Economic activity in the Eleventh District expanded moderately over the past six weeks, with a slight acceleration from the prior reporting period. Manufacturing output strengthened further, and activity among nonfinancial services firms increased. Retail sales rose at a somewhat faster clip, including a pickup in auto sales. ... Employment and wages increased moderately, as did prices. Outlooks generally improved, with most contacts expecting 2017 to be stronger than 2016.

Employment and Wages
Overall employment rose moderately over the reporting period. Manufacturers have added to payrolls so far this year, in contrast with most of 2015 and 2016 when factory contacts noted employment declines on net. Hiring in the services sector continued, including slight job gains among retailers in March. In the energy sector, hiring among oilfield services firms picked up notably in the first quarter, while some exploration and production firms continued to note layoffs. Several contacts speculated that employment in the energy sector will not increase proportionately with increases in drilling activity because of improved production technology and efficiencies. Labor market tightness has appeared throughout the oil and gas supply chain, with several contacts specifically mentioning shortages of truck drivers, and nearly all sectors reported upward wage pressures. Some labor shortages were also noted by manufacturers and certain services contacts, including hospitality. Overall, upward wage pressures were similar to the last reporting period.



Expansion in the manufacturing sector picked up pace somewhat over the past six weeks. Output growth remained slightly stronger for durable goods than nondurables, with a rebound seen in fabricated metals manufacturing. Exports remained a source of weakness for firms that sell internationally. Overall, outlooks stayed positive. A few manufacturing contacts noted considerable policy uncertainty, especially regarding any changes that would impact trade with Mexico. ...


Nonfinancial Services

Demand for nonfinancial services generally continued to increase over the past six weeks, at roughly the same pace as seen in the prior reporting period. Professional and technical services firms noted particularly strong revenue gains, and leisure and hospitality contacts cited increased revenues in March after losses earlier this year. Transportation services firms also noted revenue gains, with rail contacts noting a strong increase in crushed stone, which is used for frac sand.... Staffing services firms saw a pickup in demand, relative to the six weeks prior as well as the same time last year. Demand for placements remained particularly strong in Dallas, especially in relation to Houston, where contacts noted energy firms' recoveries stalled a bit recently with depressed oil prices. Overall, most services firms noted improved outlooks.


Twelfth District  --  San Francisco (AK, AZ, CA, HI, ID, NV, OR, UT, & WA)  return to District list

Economic activity in the Twelfth District continued to expand at a moderate pace during the reporting period of mid-February through March. The labor market continued to tighten, wage pressures picked up further, and inflation increased modestly. Sales of retail goods improved moderately, and growth in the consumer and business services sectors remained strong. Manufacturing activity changed little on balance, and conditions in the agriculture sector improved modestly. ...


Employment and Wages

The labor market continued to tighten, and wage pressures picked up further. Contacts reported record-high demand, as well as wage increases, for engineers with experience in cloud computing. Contacts also noted that technology and non-technology sectors are increasingly competing for workers with the same advanced skills. In the financial services sector, wages for unskilled entry-level positions increased markedly. Labor shortages in the construction industry persisted, driving up wages for skilled workers. ... Contacts in the pharmaceutical manufacturing industry reported relocating workers and operations to lower-cost locales outside of the District.



Manufacturing activity was mixed across sectors but largely flat on balance over the reporting period. Conditions in the semiconductor industry were healthy, and consolidation in the industry picked up significantly. ... On balance, exports of manufactured goods continued to be held back by the strong dollar. However, demand for domestic steel picked. Overall, contacts reported that capacity utilization in the manufacturing sector remained below long-run averages.



2017, Bruce Steinberg.  All rights reserved.

last updated April 19, 2017