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March 2017 Federal Reserve Board's Beige Book

DISCLAIMER: Below are excerpts from the Federal Reserve Board's Beige Book published on March 1, 2017. It "... was  prepared at the Federal Reserve Bank of New York based on information collected on or before February 17, 2017. This document summarizes comments received from business and other 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 expected to be released on April 19, 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)

First District businesses contacted in early February reported modest to moderate increases in activity from a year earlier. Retailers cited flat or single-digit increases in sales, while two-thirds of responding manufacturers saw revenue gains. Staffing firms mostly saw slight year-over-year declines in revenues, attributable in part to tight labor supply. ... Across most sectors, input and selling prices were stable, although staffing firms have raised bill and pay rates. While some responding firms expressed concern about increased uncertainty, most continued to say they were upbeat about 2017.

Employment and Wages
Retail firms cited a continuing tight labor market for positions involving information technology. Retailers planning to open new stores expect to hire sales associates and front-office personnel in line with that growth. Manufacturing respondents reported that employment was up, although for most it was a very minor change. Manufacturers continued to say they had difficulty finding skilled engineers and one added that the shortage of engineers was a problem overseas as well. No manufacturers reported any significant wage pressure. Among responding staffing firms, all observed strong overall labor demand and tight labor supply. Two firms mentioned lower demand from the manufacturing sector; sectors with particularly low labor supply were IT, accounting, and healthcare. Staffing firms indicated that bill and pay rates had increased since the previous quarter; most reported little pushback to increasing bill rates.


Manufacturing and Related Services

Of nine manufacturing contacts, six reported sales gains versus the same period a year earlier, two noted little change and one reported lower sales. For those reporting growth, it was generally stable. One of the firms reporting no growth said it reflected an exceptionally strong start to 2016.

Although contacts were generally positive about the near-term outlook, many expressed concerns about policy changes from the new administration. Three mentioned that the border adjustment tax would present a problem for them. A manufacturer of semiconductor equipment said that restrictions on the H1B visa program would affect its ability to staff positions. Another said that uncertainty about policy was the problem; for example, a border adjustment tax would have a big effect on where they located future production facilities and they would be reluctant to commit to new investment without some resolution of the issue. ...

Staffing Services
New England staffing services contacts reported mixed changes in year-over-year revenue. Unlike recent reports, most firms saw declining year-over-year revenue; nonetheless they said that the economy remained strong and they were optimistic about the future of their firms. Facing supply shortfalls, most contacts were trying out new ways to fill their open positions, including partnering with local non-profits, offering sign-on bonuses, and increasing their social media presence. While all firms expressed optimism about the next few months, several were concerned about policy uncertainty with the new administration. One healthcare staffing firm, for example, lost a substantial number of listings a few weeks ago when one of its clients issued a hiring freeze in Boston, waiting to see what happens with Obamacare.

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

Economic activity in the Second District has picked up since the last report, expanding at a modest pace, and labor markets have strengthened. Increases in both input costs and selling prices have become more widespread. Manufacturers noted a brisk pickup in business activity in early 2017, while service-sector contacts have continued to report steady to moderately expanding activity. ...

Employment and Wages
The labor market has strengthened in early 2017. Hiring activity has picked up--especially among service firms. In particular, businesses engaged in education and health, information, professional and business services, and wholesale trade reported that they have increased staffing levels. On the other hand, manufacturers report steady employment, and leisure and hospitality firms mostly indicated steady or declining employment. Businesses in almost every industry sector plan to add staff in the months ahead, on net.

Contacts at employment agencies reported that the labor market has remained tight and that hiring activity has been fairly brisk for this time of year. One contact in upstate New York noted a recent pickup in hiring at manufacturing and tech firms, while an agency in New York City reported brisk hiring from small to medium sized financial firms.

Contacts in most industries reported continued modest wage growth, though contacts in the leisure and hospitality sector noted a more significant pickup. Contacts at major employment agencies across the District report that starting salary offers have generally been steady to rising modestly, though they have risen more noticeably for some high-skill workers that are in short supply. While it is too early to assess any overall effects on wages and employment resulting from the January 1 increase in New York State's minimum wage schedules, a couple of contacts in the leisure and hospitality industry indicated that they have faced some challenges.

Manufacturing and Distribution
Manufacturers reported that business activity has picked up sharply in early 2017, with new orders, unfilled orders, and shipments rising noticeably. Manufacturing contacts also continued to express widespread optimism about the near-term outlook. Businesses in the wholesale trade and transportation industries reported more modest improvement but remain widely optimistic about future business conditions.

Service-sector businesses continued to report mixed but, on balance, steady business conditions in early 2017. Contacts in both the finance and health & education sectors noted a pickup in activity, while those in leisure and hospitality and information sectors reported some softening. Looking ahead, service-sector businesses remained generally optimistic about the outlook--particularly those in the professional & business services industry. Tourism activity has shown signs of continued softening, with Broadway theaters reporting sharp declines in attendance in January and especially February, and hotels generally reporting lower occupancy rates.

Third District  --  Philadelphia (DE, PA & NJ)


Aggregate business activity in the Third District continued at a modest pace during the current Beige Book reporting period. Notable shifts in activity included manufacturing and homebuilding, which improved to a moderate pace of growth. Four sectors -- nonauto consumer spending, lending, and nonresidential construction and leasing -- were essentially unchanged, after growing at a modest pace in the prior period. ... According to most contacts, employment, wages, and prices continued to grow at a modest pace. ...

Employment and Wages
Employment has continued at a modest pace of growth since the prior report. Manufacturing firms continued to note increases in employment and in the length of average hours worked. Employment indicators from nonmanufacturing firms remained positive overall, but with smaller net increases as a growing percentage of firms reported a decrease in full-time and part-time workers.

Staffing firms described themselves as busy. In some cases, activity picked up immediately following the holiday lull and continued at a steady pace.

Wage pressures continued to be modest with little shift in reporting on wage levels or labor market tightness. Staffing contacts noted little change in overall wage pressures. A somewhat lower percentage of nonmanufacturing contacts reported wage increases than during the prior period.


A greater percentage of firm contacts in a broader range of sectors reported increased manufacturing activity than in the previous period, suggesting moderate growth overall. Contacts reported that new orders picked up to a moderate pace of growth, while shipments continued at a modest pace.

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.

More than half of the manufacturing contacts were optimistic that orders, shipments, and general activity would grow over the next six months, similar to the prior Beige Book period. About one-third of the contacts expressed expectations for increased capital expenditures, although this was a bit lower than the prior period.

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

Economic activity grew moderately on balance across the Fourth District during the current reporting period. Labor markets continued to show signs of tightening, with moderate wage gains. Upward pressure on prices paid and prices received dampened slightly. ... Nonfinancial services firms experienced slight revenue growth overall, but demand was strong for IT and data analytics services. ...

Employment and Wages
Reports indicated continued tightening in labor markets. Staffing increases were prevalent in the nonfinancial services and the real estate and construction industries. Manufacturing saw a pickup in hiring after reporting flat or lower payrolls since late last summer. Attracting and retaining qualified employees in the skilled trades and technical positions such as engineering and data analytics remain challenging and are fueling wage and benefit increases across industry sectors. One large manufacturer noted that the average time required to fill skilled production or professional job openings has risen from two months to six months. Reports of average wage increases during 2017 are generally expected to fall within the 2 percent to 3 percent range, but there were a few reports of 3 percent to 5 percent increases.



Factory output picked up slightly since our last report. Activity for suppliers to the aerospace, construction, and motor vehicle industries remains elevated. Manufacturers of food service and warehouse automation equipment cited strong growth during 2016. ...


Nonfinancial Services

Activity in the nonfinancial services sector grew slightly over the period. Strongest demand was seen in the IT and data analytics, commercial real estate services, and management consulting segments. Several contacts observed that clients were in a wait-and-see mode prior to the presidential election and that demand for services picked up post election. An engineering design firm reported that through much of 2016, clients had been hesitant to move forward with projects, especially large projects. That said, there was a noticeable pickup in project feasibility studies since the presidential election. Similarly, a law partner noted that demand for legal services was stable through most of 2016. However, in the fourth quarter, his firm saw a broad-based uptick in demand. A landscape architecture firm reported a large spike in RFPs during December, especially for nontraditional services. The firm indicated that many of these projects had been postponed for years and that property owners are now feeling confident about the economy.


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

Economic activity in the Fifth District grew moderately since the previous Beige Book report. Labor demand continued to increase and there were more reports of employees being converted from temporary to permanent workers. ...

Employment and Wages
Labor demand remained moderate, although hiring increased at a slightly slower pace since the previous Beige Book because of usual seasonal slowing at the beginning of the year. District contacts reported modest increases in wages in recent weeks. Recruiters continued to report tight labor markets, with strong demand, particularly for higher-level skilled workers. Staffing firms reported that the volume of worker conversion from temporary to permanent increased modestly. Tourism and hotel contacts were planning typical levels of seasonal hiring but were experiencing shortages of applicants; some businesses were offering higher wages or incentives to fill those positions.

Manufacturers reported increased shipments, along with stronger growth in new orders and greater capacity utilization since the prior Beige Book. Food producers and metals fabricators were among those indicating greater strength. A steel producer reported double-digit growth in quotes. Additionally, an executive from a paper products company said demand had increased for pulp and specialty products. A producer of aerospace products expected his output to double in 2017. Surveyed manufacturers anticipated stronger business conditions during the next six months.

Non-Financial Services
Revenues at services firms increased at a modest pace. Entertainment venues, accountant services, and trades associated with home-building reported increases. Healthcare organizations reported robust demand since the previous Beige Book. An executive at a large healthcare organization said capital projects were being considered to handle the growth. One hospital reported the opening of many new physician practices associated with the facility.


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


Business contacts indicated that economic activity in the Sixth District continued to expand, albeit modestly, from the previous report. The outlook among contacts for the next three to six months remains positive.
The labor market remained tight and wage pressures were mostly subdued. Overall, non-labor input costs remained modest.

Employment and Wages
Contacts reported ongoing tightening in the labor market since the previous report. Firms continued to struggle finding workers across various fields and skill levels. Firms continued to note growing partnerships with area workforce development organizations, community colleges, and universities to develop customized training programs to help develop larger pipelines of talent. Additionally, many firms continued to increase investment in internal training programs to develop existing personnel, rather than seek qualified labor across a limited pool of external candidates. Turnover picked up in banking and finance, manufacturing, and construction, where some industry contacts indicated they had to evaluate and adjust compensation structures, such as, increasing bonuses and incentive pay, to retain high-quality workers. There were scattered reports of plans to increase employee headcounts over the next 12 months, though overall, contacts indicated that they intend to keep employment levels steady. Wage growth continued to be evident in select geographic locations and particular occupations.

District manufacturing contacts indicated that overall business activity expanded since the last report. New orders and production levels continued to increase. Supply delivery times were slightly longer, while finished inventory levels fell. Expectations for future production rose with nearly two-thirds of firms expecting higher production levels over the next six months.


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

Growth in economic activity in the Seventh District picked up to a moderate pace in January and early February, and contacts expected activity to continue rising at a moderate pace over the next six to twelve months. Employment, wages, business spending, and manufacturing production all grew at moderate rates, consumer spending increased modestly, and construction and real estate activity rose slightly. ...

Employment and Wages
Employment growth picked up to 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. Contacts continued to indicate that the labor market is tight and that they are experiencing difficulty filling positions at all skill levels. A staffing firm again reported little change in billable hours and ongoing difficulty filling orders at the wages employers were willing to pay. Wage growth remained at a moderate pace. Some contacts noted larger wage increases for high-skilled occupations, while a number indicated that they raised wages nearly equally for all employees. Many contacts also reported rising healthcare costs.

Business Spending
Growth in business spending continued at a moderate pace in January and early February. Most retailers indicated that inventories were at comfortable levels. Manufacturing inventories were also at desired levels overall, though steel service center inventories were very low. Capital expenditures grew at a moderate pace, and contacts expected that pace to continue 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 for expansion.

Manufacturing production again grew at a moderate pace in January and early February. Growth was widespread across sectors, and even picked up for some long-struggling sectors. Specialty metals manufacturers reported increased shipments and steady growth in order books. Demand for steel remained modest, but there were early signs of a pickup as steel service centers began to replenish low inventories. Heavy machinery manufacturers reported an increase in sales overall, with slow but steady improvements in construction demand outweighing weak agricultural demand. Manufacturers of construction materials also reported slow increases in shipments, in line with the modest pace of improvement in construction. Activity in the autos and aerospace sectors slowed some but remained at a high level.


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

Economic conditions have continued to expand at a modest pace since our previous report. General retail sales growth was modest, while manufacturing activity showed signs of strengthening. Conversely, reports from auto dealers indicated a slight decline in first-quarter sales. Business contacts surveyed in mid-February continued to hold an optimistic outlook for growth in 2017. On net, 57 percent of contacts expect District economic conditions in 2017 to be better or somewhat better than last year. This was a slight improvement since contacts were surveyed in mid-November.


Employment and Wages

Employment has increased modestly since the previous report. On net, 25 percent of business contacts surveyed in mid-February reported that first-quarter employment was higher or slightly higher than a year ago; 18 percent reported hours worked were higher or slightly higher. District contacts continue to report that the labor market remains tight. Manufacturing, real estate, and construction contacts in St. Louis reported difficulties finding qualified candidates, and contacts in Memphis and Louisville reported an inability to fill key positions.

Contacts reported moderate wage growth since the previous report. On net, 63 percent of contacts reported wages were slightly higher or higher than a year ago. Contacts in Little Rock reported that wages for skilled workers continue to increase slowly, with more employees changing employers for higher wages. Contacts in Memphis and Louisville reported upward pressure on wages for both skilled and unskilled positions.

Manufacturing activity has increased at a moderate pace since our previous report. Several companies reported capital expenditure and facility expansion plans in the District, including motor vehicle, food product, and wood product manufacturers. In a recent survey, contacts reported an improvement in manufacturing conditions. A strong majority reported that production, new orders, and capacity utilization increased in the first quarter relative to one year ago. This is an improvement from our previous survey, when most contacts reported no change in activity from one year earlier. Contacts were also optimistic about the second quarter, with three-fourths expecting further growth in production, new orders, and capacity utilization. Despite the optimistic outlook, some contacts expressed concerns about labor shortages and possible trade restrictions.

Nonfinancial Services
Responses from the service sector have been positive since the previous report. In particular, several firms that provide information technology services, leisure and hospitality services, and healthcare announced plans to build new or expand current facilities and hire new employees. Reports from the transportation sector were positive, with two large employers hiring new employees and renovating facilities. Reports from the professional business services and warehousing sectors were mixed--some existing employers reduced employment while new companies began hiring. ...

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

The Ninth District economy grew modestly overall since the last report. Employment grew moderately, accompanied by moderate wage and price pressures. The District economy showed growth in manufacturing, residential construction, energy, and mining. But real estate and consumer spending were mixed, commercial construction slowed, and agriculture remained weak.

Employment and Wages
Employment grew moderately since the last report. Ad hoc employer surveys in a Minneapolis-St. Paul suburb and in Michigan's Upper Peninsula found that more than one-quarter were adding headcount, while only 5 percent were cutting jobs. A monthly manufacturing index showed strong increases in hiring expectations in December and January for Minnesota and the Dakotas. Initial unemployment insurance (UI) claims in January were about one-fourth lower compared with a year earlier. A staffing agency in southern Minnesota said that client calls and overall business were increasing, and another in Minneapolis-St. Paul said job orders were flat in January, but clients expected activity to pick up. Job fairs were held by a frac sand mine in western Wisconsin and oil companies in the Bakken oil patch; a builders' group in Minnesota held a job fair to fill 200 openings. However, January online job openings in North Dakota continued to decline compared to previous-month and previous-year levels. Major upheavals continued in retail, where national outlets have seen significant layoffs in Minneapolis-St. Paul, Fargo, N.D., Sioux Falls, S.D., and elsewhere. A South Dakota manufacturer announced "substantial" but unspecified layoffs, and the closure of an engineering facility in Minneapolis-St. Paul will affect up to 72 workers.

Wage pressure was moderate to strong since the last report. A Minnesota state official noted that wages grew 4 percent in 2016, and manufacturing paychecks rose by even more. Ad hoc surveys of employers in two regions suggested that average wages in these locations grew about 3 percent in 2016. Their wage expectations for 2017 were slightly lower; however, given tight labor conditions, a lower wage outlook for 2017 might stem from historical expectations of long-standing wage stagnation. The owner of a southern Minnesota staffing agency expected manufacturing wages in the region to grow 8 percent to 10 percent in the coming year. "There's a huge demand and low supply. Wages need to match in order to supply workforce."

District manufacturing activity increased moderately since the last report. An index of manufacturing conditions produced by Creighton University indicated increased activity in January compared to a month earlier in Minnesota and South Dakota; the index indicated decreased activity in North Dakota. Two contract equipment manufacturers reported an increase in orders in late 2016 and optimistic expectations for 2017. A boat maker received a large contract to produce barges. A Minnesota candy maker opened a new production facility.

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

District economic activity continued to expand modestly compared to the previous survey period, and contacts in most sectors expected additional gains in the months ahead. ... The manufacturing sector continued to expand moderately, and contacts in the professional, high-tech, transportation and wholesale trade sectors reported increased sales. ... Employment and employee hours edged up in January, and wages increased slightly. ...

Employment and Wages
Employment and employee hours edged up in January. Respondents in the professional and high-tech services, real estate, health services and manufacturing sectors noted an increase in employment levels since the previous survey, while respondents in the transportation, restaurant, and tourism sectors noted a decline. Employment in the retail sector was higher than year-ago levels, and employment in the auto sector remained steady. Contacts across all sectors, except auto and tourism, expected an increase in employment in the coming months. Average employee hours picked up in both the manufacturing and service sectors since the previous survey period, and additional gains were expected in the next few months. Respondents noted a shortage of commercial drivers, salespeople, and service workers.

Contacts in most sectors reported that the pace of wage growth slowed compared to the prior survey, but wages still rose slightly. In addition, moderate wage growth was anticipated in the coming months.

Manufacturing and Other Business Activity
Manufacturing activity continued to expand moderately, and other business contacts reported increased sales. Manufacturers reported considerable improvement in durable goods production since the previous survey, particularly for metals, electronics, and machinery, while nondurable goods plants expanded at a modest pace.

Outside of manufacturing, contacts in the professional, high-tech, and transportation sectors reported moderate increases in sales, with strong gains anticipated in future months. Wholesale trade contacts noted a slight uptick in sales and expected activity to increase sharply heading forward. Professional, high-tech, and wholesale trade firms reported favorable capital spending plans, while transportation contacts expected capital spending to continue to fall.

Eleventh District  --  Dallas (LA, NM & TX)

Economic activity in the Eleventh District expanded moderately over the past six weeks. Manufacturing demand strengthened, and activity among nonfinancial services firms increased. ... Employment and wages increased, as did prices. Outlooks generally improved.

Employment and Wages
Overall employment rose, with hiring relatively strong in manufacturing and relatively weak in retail. Energy contacts reported that layoffs were mostly done, and that there were even several signs of hiring activity ramping up. Reports of skilled labor shortages continued, particularly in manufacturing and construction, and restaurant contacts said hiring qualified people remains a huge problem. Upward wage pressures were similar to the last reporting period. One contact remarked that increases in health care costs are more than they can pass on to employees.



The manufacturing sector expanded again over the past six weeks. Output growth remained a bit stronger for durable goods than nondurables, although weakness persisted in fabricated metals --a segment with strong ties to the energy industry. However, a few fabricated metals manufacturers indicated activity has begun to increase in 2017. Exports remained a source of weakness for firms that sell internationally, with the strong dollar and softness in Mexico's economy hurting sales. Overall, outlooks remained positive. A few manufacturing contacts said their customers held a "wait and see" approach and that there is considerable uncertainty, including over the potential impacts related to policy changes from the Trump Administration. ...


Nonfinancial Services

Demand for nonfinancial services generally continued to increase over the past six weeks, with numerous reports of rising business activity. Most staffing services firms saw a pickup in demand. Staffing demand remained particularly strong in Dallas, with a surge in information technology, and rose slightly in Houston, including in the oil and gas sector. Professional and technical services firms noted increased revenues, while several reports from leisure and hospitality firms cited declines. Transportation services firms noted mixed movements in cargo volumes. Overall, most services firms noted improved outlooks. However, several expressed concern about uncertainty surrounding the new administration's potential policy changes and the resulting impact of those changes.


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

Economic activity in the Twelfth District continued to expand at a moderate pace during the reporting period of mid-January through February. Overall price inflation was mild, while upward wage pressures strengthened. ... Conditions in the manufacturing sector remained mixed, and activity in the agriculture sector was largely unchanged. ...


Employment and Wages

Wage pressures intensified in general as labor market conditions remained tight throughout much of the District. Seasonal job loss in the retail sector was less pronounced at the end of the holiday season than in previous years. Talent shortages in the technology industry have increased the time required to fill positions and the cost per hire. ... In the financial services industry, shortages of skilled bankers and credit analysts have boosted wages for those occupations. One contact in the hospitality industry reported a continued shortage of workers across all job categories despite wage increases, signing bonuses, and increased recruiting efforts. Shortages of construction workers and contractors persisted.



Conditions in the manufacturing sector remained mixed. New orders and production of manufactured pharmaceuticals remained strong. Conditions in the semiconductor industry stabilized, but exporters remain concerned about the value of the dollar and potential trade conflicts. ... Contacts in the metals fabrication industry noted that heavy equipment sales were weak, reducing demand for manufactured parts and accessories..



2017, Bruce Steinberg.  All rights reserved.

last updated March 01, 2017