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Excerpts from Dec. 2015 Fed Beige Book

 

 

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DISCLAIMER: Below are excerpts from the Federal Reserve Board's Beige Book published on December 2, 2015. It was "Prepared at the Federal Reserve Bank of Richmond based on information collected on or before November 20, 2015. This document summarizes comments received from businesses and other contacts outside the Federal Reserve 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 brucesteinberg.net. The full report -- more than 19,000 words -- 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 January 13, 2016, 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.

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

Reports from First District business contacts suggest that activity is expanding at a somewhat slower pace currently than was the case six weeks ago. Although most retail and manufacturing respondents cite revenue increases from a year earlier, slightly more contacts in those sectors report declines in sales than during the last Beige Book round. Software and information technology services firms cite mostly flat revenues on a year-over-year basis; staffing firms, by contrast, continue to grow robustly. ... Some firms say they are providing larger wage increases than in the past few years to most or to selective job categories to retain existing employees; others are not. Half of respondents across sectors are holding employment steady and most others plan to do modest net hiring; a couple are cutting jobs.

Manufacturing and Related Services
Of 11 responding firms, only two, a maker of semiconductors and a manufacturer of motors and other items for industrial uses, saw falling sales. The semiconductor sales declines reflect the idiosyncratic cycle of the semiconductor business, while the motor-related firm's falloff resulted from exposure to mining and oil and gas, which have been hit hard by falling commodity prices. ...

With the exception of the manufacturer of motors, respondents' outlooks are generally optimistic. The semiconductor maker with down sales was upbeat about the outlook for its other businesses, which include life sciences. And the two firms with flat sales are positive about their ongoing prospects.

Staffing Services

Staffing contacts report continued growth in the New England region, with year-over-year revenue increases in the 10 percent to 25 percent range. Labor demand remains very strong, and contacts note that an increased number of companies are relying on staffing firms for recruitment. Labor supply is reportedly tighter than in August, with shortages of skilled ambulatory nurses, medical assistants, administrative assistants, skilled trades workers, IT programmers, legal professionals, and executive assistants. The rate of temporary-to-permanent job conversion remains strong. Firms continue to use recruitment tools such as LinkedIn and job boards in order to identify candidates to fill client job orders. Reports on bill and pay rates are mixed, ranging from flat to increases of 10 percent year-over-year. Looking forward, most contacts are cautiously optimistic, expecting the upward trajectory to continue through the end of the year, despite the challenges inevitably posed by winter weather and holiday season. Many contacts express concerns about the threat of terrorism and its possible effects on the economy.

 

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

Economic activity in the Second District has leveled off since the last report, though labor markets have shown some further signs of tightening. Selling prices remain generally stable, while service-sector firms indicate ongoing upward pressure on input prices and wages. Consumer spending has been mixed but somewhat weaker, on balance, while tourism has remained sluggish. Manufacturers continue to report weakening in activity. Housing markets continued to improve, while commercial real estate markets were mostly stronger....

Other Business Activity

The labor market has been mixed but still fairly strong in recent weeks. More manufacturers say they are reducing than expanding their workforce. Moreover, fewer service-sector firms report that they are hiring. On a more positive note, two major New York City employment agencies report that hiring activity has remained fairly brisk, and a major agency in upstate New York characterizes hiring as steady at a moderate pace. Demand is described as particularly strong for workers in information technology and human resources; and professional services and consulting firms are said to be more actively hiring. One employment agency contact notes that more businesses are inquiring about salaries and anticipates some possible upward recalibration of pay at the start of the new year. Looking ahead to the next year, both manufacturers and service-sector businesses expect to increase employment, on net.

 

 

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

Aggregate business activity in the Third District continued to grow at a modest pace during the current Beige Book period. Firms hired additional employees at a similarly modest pace; most of the hiring was reported from staffing firms and service sectors. On balance, only slight increases were reported in wages and prices, including home prices. Moderate growth of economic activity is anticipated over the next six months.

Across sectors, activity at staffing firms continued to grow at a strong pace during the current period, and the growth of auto sales, general services, and contracts for new homes accelerated from the prior period to a moderate pace of growth. ...

Manufacturing

Contacts indicated that general activity declined slightly during the latest Beige Book period. Moreover, a greater percentage of firms reported declines in new orders and shipments than reported increases. Over the period, firms reported little overall change in employment numbers, but decreases in the average employee workweek. Activity appeared to be down to flat for most major industrial sectors, with firms continuing to cite the strong dollar, low commodity prices, and weak global demand for their products. That said individual firms within sectors sometimes reported increasing demand. Growth in activity was most often found among firms producing goods for the consumer, the housing market, or select markets, such as, natural gas transmission pipeline projects. 

However, the percentage of firms that expect to increase employment has risen and the percentage expecting to reduce employment has fallen.

Services

Third District service-sector firms reported a moderate pace of growth -- a slight improvement from the prior period. On balance, firms reported additions of full-time and part-time payroll employees, plus increases in hours worked. Staffing firms throughout the Third District continued to report strong growth for temporary positions and permanent placements across a broad range of manufacturing and service sectors. Temp positions have also included long-term temporary placements. ... Overall, expectations for future growth in services remained strong, with nearly two-thirds of all service-sector contacts expecting growth.

 

Price and Wages

On balance, general price levels have continued to rise slightly since the previous Beige Book period. Roughly two-thirds of all contacts reported no significant change in the prices they pay for inputs and the prices received for their goods and services. Of firms that indicated a change, most nonmanufacturing contacts reported increases of prices paid and prices received, although retail contacts reported little pressure to raise prices. Firms from the smaller manufacturing sector tended to report a slight decrease in prices paid and little change in prices received.

Overall, contacts continued to report only slight upward wage pressures, although some contacts continued to report difficulties filling highly technical positions. One staffing contact indicated a little upward wage pressure, noting that several client firms had set higher wage rates, which allowed his firm to be more competitive in its search for qualified workers. In addition, he noted that more prospective employees have begun trying to negotiate higher offers. ...

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

On balance, the economy in the Fourth District expanded at a modest pace since our last report. ...

Reports indicated a tightening in labor markets. Net gains in employment were seen in construction and banking. Staffing firms reported a pickup in the number of job openings, although many are temporary positions. Job placements were stable. Wage pressure is widespread, especially in higher-skilled jobs. Overall, input and finished-goods prices were steady.

Manufacturing

Demand for manufactured products was little changed over the period. Key factors tempering output include a strong dollar, a slowdown in the energy sector, and softness in some emerging market economies. ... Despite the downside risks, many of our contacts expect that business activity will expand during 2016.  

Capital spending was largely allocated for maintenance projects and new equipment. ... On balance, manufacturing payrolls were stable. Difficulty finding high-skilled craft and professional workers is driving up wages in some job categories. An auto executive reported that he expects a general lifting of wages across the motor vehicle industry because of the recent UAW contract negotiations. We heard many comments about moderate to large increases in health insurance premiums.

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

Fifth District economic conditions strengthened modestly since our previous report. Manufacturing grew marginally, on balance. ... Labor demand also strengthened. ... Average manufacturing wages edged up. Service sector wages rose at a modest pace, with particularly strong growth in retail wages.

Manufacturing
On balance, manufacturing grew modestly since the previous report. Producers reported mild growth in shipments and the volume of new orders. Food manufacturers located in Virginia noted an improvement in overall conditions with increased new orders. They reported a slight decrease in egg prices, but noted that other prices remained elevated. A South Carolina box manufacturer said that shipments and new orders were up, despite early October flooding that slowed production for a week. Contacts in Maryland and Asheville, North Carolina reported mixed manufacturing conditions, with growth occurring primarily in larger firms. In contrast, overall demand and new orders declined for a Virginia furniture manufacturer and a North Carolina textile company. Executives in fabricated metal, transportation, chemical, and textile producing industries reported softer global demand, resulting in falling exports....

 

Services
Services-providing firms reported little change in activity since the previous Beige Book, with the exception of faster growth in telecommunications. Additionally, according to several District healthcare organizations, demand for services was mostly unchanged and at typical levels for this time of year. Prices at services firms rose at a moderately faster rate.

Tourism increased robustly in recent weeks. An hotelier in the mountains of North Carolina commented that autumn bookings were at record levels and expectations are that the hotel will be sold out during the holidays. Several new hotels are being built in various areas of the state, and a Charlotte executive noted that occupancy at existing hotels has been at record levels. Additionally, a source in the Virginia Beach area said that hotel bookings have been strong and that several new hotels are planned for that region. An executive on the outer banks of North Carolina said that the record floods in South Carolina did not affect local tourism. ...

 

Labor
Labor markets strengthened moderately across most of the District since our previous report. A staffing agent in Maryland noted a stronger-than-usual seasonal pick-up in demand across all sectors. Sources reported greater demand for high-end IT talent, skilled tradespeople, managers and supervisors, and construction workers. Several contacts reported that builders were struggling to find framers and welders to fill open positions. Similar difficulties were reported for accountants, manufacturers, IT consultants, engineers, truck drivers, mechanics, and bankers. An executive said that IT companies only wanted people with five or more years of experience, leading to multiple offers for qualified candidates. Wage pressures varied by region and occupation. For example, a South Carolina executive saw wage pressures for construction and hospitality workers, while a Maryland source cited increased wage pressure for construction workers, project managers, drivers, and HVAC technicians. According to our most recent surveys, employment softened at manufacturing firms but rose modestly at services firms. Average wage growth edged up slightly at manufacturing firms and rose at a modest pace in the service sector, with particularly strong growth in retail wages.

 

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

Sixth District business contacts described economic conditions as modestly improving from October through mid-November. On balance, the outlook remains largely optimistic with the majority of contacts expecting growth to be sustained at or slightly above current levels for the remainder of the year and the early part of 2016.

... Manufacturers indicated that levels of new orders and production increased since the previous report, although expectations are subdued going forward. ... The District continued to experience a tightening labor market and greater demand for entry-level workers since the last report. On balance, input cost and wage pressures remained subdued.

Manufacturing and Transportation

District manufacturers reported an uptick in business activity from the previous reporting period. Contacts indicated that new orders and production levels were up, and employment levels improved at District firms. ...

 

Employment and Prices

Business contacts continued to describe a tightening labor market, and difficulties finding workers with specialized skills persisted. Demand for entry-level workers increased, and some contacts noted recruiting challenges, leading firms to adjust expectations and implement or enhance on-site training programs for new and existing staff. In some cases, in order to attract and retain talent, businesses redesigned incentive and benefits programs. Energy sector firms continued to cite layoffs.

Outside of select high-demand and specialized positions, wage pressures remained muted. However, there were some signs of emerging pressures to raise starting wages, even among lower skilled jobs. Non-labor input cost pressures remained restrained, helping support ongoing improvement in profit margins, particularly for businesses with large commodity or imported inputs. ...

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

Growth in economic activity in the Seventh District continued at a modest pace in October and early November. Gains in construction and real estate were moderate, while growth in consumer and business spending remained modest. In contrast, there was little change in the level of manufacturing production. ... Wage pressures remained limited. ...

Business Spending
Growth in business spending slowed to a more modest pace in October and early November. Most retailers and manufacturers indicated that their inventories were at comfortable levels. Current capital spending slowed and now appears in line with the modest plans for capital outlays that contacts have reported for a while. Current expenditures were primarily focused on replacing industrial and IT equipment, though spending on structures picked up. ... Overall, though, the pace of hiring slowed notably, particularly for non-auto-related manufacturers, and hiring plans remained modest. Staffing firms reported slower activity, with one firm noting a widespread decline in orders across industries and skill types. That said, labor demand continued to be strongest for skilled workers, especially in many professional and technical occupations, sales, and skilled manufacturing and building trades. Several contacts reported having trouble finding skilled labor and that turnover rates were higher than desired.

 

Prices and Costs

Cost pressures remained subdued in October and early November. ... Wage pressures were subdued for most occupations. However, wages were up for workers in higher-skilled occupations, where contacts indicated personnel have become increasingly hard to find, particularly in health care, scientific, and technical industries. In addition, contacts reported that minimum wage initiatives were putting upward pressure on wages for lower-skilled positions. Some contacts indicated they were reducing benefits in order to contain labor costs and avoid increasing their own prices. A staffing firm continued to report moderate wage increases. Growth in non-wage costs ticked up, and many contacts described uncertain and unpredictable increases in health insurance costs.

 

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

Economic activity in the Eighth District has increased at a modest pace since our previous report. On net, hiring managers expect to increase their payrolls; most expect to raise starting wages or salaries to attract new hires. ...

Employment, Wages, and Prices

A survey of business contacts indicated that wage growth in the District was moderate, while employment and prices grew at a modest pace. About half of hiring managers reported raising salaries or wages of existing employees by more than they have in the past few years, and about two-thirds of hiring managers reported raising starting salaries or wages of new hires by more than they have in the past few years. Just over two-thirds of hiring managers surveyed are actively seeking employees: They cited high sales, overworked staff, and need for different skills among the top reasons why. ...

 

Manufacturing and Other Business Activity

Manufacturing activity has increased since our previous report. Several companies reported capital expenditure and facility expansion plans in the District, including firms that manufacture transportation equipment, electric appliances, and furniture. In particular, firms that supply parts for the automotive sector are working overtime to fill orders, according to contacts in Kentucky and Indiana, and several of these firms plan to expand to meet the demand. ...

 

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

The Ninth District economy grew moderately overall since the last report. Increased activity was noted in consumer spending, tourism, commercial construction and real estate, residential real estate, and professional services. .... Labor markets tightened overall, while wage pressures were modest and price pressures were low.

Services
Professional services growth was moderate to strong. A tele-health services firm opened in Sioux Falls in recent weeks. A health information management and records retrieval business in South Dakota was expanding operations. An architecture firm in Wisconsin grew during the past three months and reported "enough financial health that higher wages can be absorbed." A Wisconsin mental- and behavioral-health services company was expanding to Minneapolis-St. Paul due to growing demand. Revenue was up at staffing offices in Wisconsin, some of which was the result of high labor turnover for clients. A staffing executive there said, "Sales will not be sustained if there is not greater participation in the labor market."

 

Employment, Wages, and Prices

Labor markets tightened overall, but softened in some places and sectors. Two recent Minneapolis Fed ad hoc surveys showed that employers overall expect to add workers in the coming year. A media company announced in November that it plans to add 400 jobs in St. Paul next year. Across the District, numerous sectors reported difficulty finding workers. A staffing services executive in southeastern Minnesota noted that labor tightness had shifted from skilled labor to general labor. But employment was soft in some areas. In North Dakota, October online job openings with Job Service North Dakota dropped 4 percent over the previous month and 20 percent from a year earlier. In the past month, silica sand mines in western Wisconsin laid off workers, and two Minnesota iron ore operations announced total jobs cuts of about 650 workers.

Overall, wage pressures were modest. Ad hoc surveys suggested that a majority of District employers expect wage increases between 2 percent and 3 percent in the coming year, though larger raises were being reported for certain sectors and workers. A South Dakota firm noted that it was seeing "lots of wage pressure on the low-end, entry level." A Minnesota staffing firm expected wages to continue rising for its clients "but not as much as this year."

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

Economic activity in the Tenth District held steady on balance since the prior Beige Book, with continued mixed conditions across sectors. ... Professional and high-tech firms reported moderate increases in activity, and bankers reported steady loan demand, deposit levels, and overall loan quality. ... Although wage pressures were mostly contained, contacts in a few industries continued to report labor shortages for skilled and entry-level positions.

Manufacturing and Other Business Activity
Manufacturing activity was generally flat, while other business activity increased from the previous survey. ...

Outside of manufacturing, professional and high-tech firms reported moderate increases in activity, with sales well above year-ago levels and solid expectations for future months. Transportation and wholesale trade contacts noted a slight increase in November sales after a considerable drop in October, although many firms expected activity to rise steadily in the months ahead. Most service businesses reported fairly solid capital spending plans.

Wages and Prices
Price changes across industries were mixed, and wages were steady overall since the previous survey period. ... Wages in the retail sector were steady, while restaurants experienced faster wage growth and the transportation sector saw a slight decline in wages. Transportation contacts cited continued shortages in truck drivers, technicians, mechanics, and entry-level workers.

 

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

The Eleventh District economy grew at a modest pace over the past six weeks. Most respondents in manufacturing and services reported that demand either held steady or increased. ... Price pressures remained subdued and employment held steady or increased.

Labor Market

Employment in most industries held steady or increased. Contacts reported hiring in staffing services, professional and technical services, airlines, and leisure and hospitality. Several manufacturers also added to headcounts, including fabricated metals, transportation equipment and food producers. Retailers said holiday hiring plans were in line with last year, and most said there hasn't been any difficulty hiring temporary workers. The second round of layoffs in the energy sector was still underway and has consisted of more white-collar jobs than the round of cuts earlier this year. One petrochemicals contact noted that some laid-off oilfield workers were showing up on the coast and getting hired in the downstream energy sector, mostly in construction-related jobs. ...

Wages were mostly flat to up from six weeks ago. Several contacts continued to note difficulty finding or retaining workers, particularly truck drivers, although a few said layoffs in the energy sector eased labor tightness in some pockets of the service sector. ...

Manufacturing

Most manufacturers reported flat or increased demand over the last six weeks. ...

Demand for high-tech manufacturing picked up slightly, although concerns about weakness in the global economy continued to weigh on producers. Contacts noted persistent softness in some memory component manufacturing and consumer electronics. The overall outlook was slightly improved but contacts remained cautious, saying that they expected slight growth in 2016 but that uncertainty in international demand was a significant risk factor.

Nonfinancial Services

Most nonfinancial services firms reported demand was flat or up from six weeks ago. Reports among staffing services firms were mixed. Staffing demand from sectors such as logistics, healthcare, engineering, hospitality, and food service was strongest. One contact mentioned that there was more hesitation in the market and that demand had shifted back to temporary and contract workers and away from direct hires. Demand for professional and technical services increased moderately in the last six weeks. Law firms noted softer-than-expected growth, primarily due to less litigation work, but demand for intellectual property work strengthened, and mergers and acquisition activity remained elevated. Accounting demand continued to grow at a robust rate. Consulting work ticked upward, although international deals have been stagnant due to weakness abroad. ... Overall, outlooks were positive going in to 2016. ...

 

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

 

Economic activity in the District grew at a moderate pace during the reporting period of early October to mid-November. Overall price inflation ticked up, and upward wage pressures increased further. ... Activity in the financial services sector expanded at a modest pace.

 

Prices and Wages

Overall price inflation appeared to tick up slightly on balance. Prices for branded pharmaceuticals increased rapidly, while price growth for generic drugs was down relative to the same period last year. Shortages of labor, selected materials, and land in desired locations for building continued to push up construction costs in some metropolitan areas. Lower natural gas prices reduced electricity costs. In the technology sector, competitive pressures and technological advances reduced prices for consumer electronics, while price growth for technology services slowed as data centers continued to realize economies of scale.

 

Upward wage pressures increased across the District. On balance, wage growth for high-skilled workers exceeded that of low-skilled workers; however, contacts in a few areas reported that labor shortages for entry-level employees increased relative to the previous survey period. Wage pressures grew in the health-care sector, particularly for specialized positions such as nurses and software developers. Labor shortages in the financial sector have increased pressure on firms to raise compensation levels, but some contacts reported reliance on favorable benefit packages rather than salary increases to retain and attract talent. In the technology sector, higher demand for labor bumped up wages for both experienced and entry-level workers. ...

 

Manufacturing 
Activity in the manufacturing sector was largely flat. ... The recent passage of the federal continuing budget resolution eliminated the near-term risk of major demand disruptions in the defense industry; however, capacity utilization was flat and manufacturer competition for large contracts was intense. Activity in the biotech and pharmaceutical manufacturing sector expanded, on balance, supported in part by extensive merger activity spurred by ready financing.

 

 

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