Labor Market Remains Tight and Economic Growth is Improving, Fed’s Beige Book Says

WASHINGTON, DC - APRIL 17: U.S. President Donald Trump speaks during an Opportunity Zone conference with state, local, tribal and community leaders, in the Eisenhower Executive Office Building on April 17, 2019 in Washington, DC. (Photo by Mark Wilson/Getty Images)
Mark Wilson/Getty Images

Businesses continue to claim they are struggling to find workers even as wages grow only modestly and some have missed out on qualified candidates because they refused to meet salary demands, the Federal Reserve said on Wednesday in its latest report on the economy.

The Fed’s Beige Book, a collection of anecdotal reports on economic conditions based on conversations with business contacts across all 12 of the Fed’s regional districts, said economic activity continued to grow slowly in the spring but some areas reporting a pick-up. Several expect growth to pick up in the coming months.

Wages grew moderately in most districts for both skilled and unskilled workers, with only three reporting slight growth in workers’ pay, the Fed said.

As they have for several months, employers told Fed officials that the tight labor market was making it hard for them to find qualified workers for open positions, particularly for skilled positions in manufacturing and construction. But the businesses in most districts still describe raising wages for both skilled and unskilled only moderately. And three districts said wages grew only slightly.

“One major employment agency in New York City noted that salaries have not risen as much as one would expect given the tightness of the labor market,” the Fed noted. “Two employment agency contacts noted a large and widening gap between salary demands and salary offers, noting that this has led some employers to miss out on good candidates. Manufacturers, in particular, were said to be holding the line on wages, while service firms have become somewhat more flexible.”

This suggests that employers are holding back from raising wages in hopes of a looser labor market, which could be brought about by opening the U.S. to more foreign workers or by an economic slowdown. Because reducing wages is extremely difficult for businesses, raising wages is often viewed as a last resort by businesses.

The Fed described economic growth as “slight-to-moderate” in March and early April, noting the same phrase it used in its previous report published covering January and February. But while last time around two districts reported economic activity as flat, this time a few districts reported “strengthening.” That’s an upgrade to the Fed’s views of economic conditions.

Weather is weighing on farming areas. Several Fed districts said flooding and unusually cold weather in the Midwest had hurt agricultural production. The Minneapolis Fed said that widespread spring flooding was likely to delay planting and hamper hiring.  Job postings declined in Minnesota (8 percent), Michigan’s Upper Peninsula (12 percent), and Montana (17 percent).  The Kansas City Fed noted flooding could weigh on agriculture in the coming months.

But it wasn’t all bad news for the midwest, an important battleground in the 2020 presidential race.

A survey of job openings in Minnesota found that statewide STEM openings rose by 15 percent in February over a year earlier. The Kansas City Fed said that a majority of contacts from both services and manufacturing sectors noted higher levels of employment compared to year-ago levels and expected additional growth moving forward. The manufacturing and energy sectors are already reporting higher employment in the Kansas City district, geographically the second-largest in the country, covering Colorado, Kansas, Nebraska, Oklahoma, Wyoming, and portions of western Missouri and northern New Mexico.

The St. Louis Fed, which covers Arkansas and portions of Illinois, Indiana, Kentucky, Mississippi, the eastern half of Missouri and West Tennessee, reported improving economic conditions. The Cleveland Fed, which covers the politically important state of Ohio as well as western Pennsylvania, eastern Kentucky, and the northern panhandle of West Virginia, reported a “modest” improvement to economic activity.

“Manufacturers and freight haulers increased wages for their hourly staff to aid retention efforts, pointing to wage increases by competitors,” the Cleveland Fed reported. “A contact in robotics development noted that he had lost out on several candidates for new hires because competitors offered higher salaries, so he has increased his offer in turn.”

Reports on consumer spending across the country were mixed but suggested sluggish sales for both general retailers and auto dealers. Some of this was also chalked up to poor weather. Some districts said businesses expected sales to pick up now that warmer weather was arriving.

The Fed said described reports on manufacturing activity as favorable. “Trade uncertainty” remains a concern voiced by many business leaders, although the number of times the word “trade” appears in the report dropped to 20 from 33 in the prior report. The citations of tariffs remained constant at 18.


The housing market’s recovery continues, likely because the Fed’s new “patient” stance has led to dramatically lower mortgage rates. Most of the Fed’s districts reported stronger home sales, although some noted low demand for higher-priced homes.

Prices rose only modestly while input costs rose moderately. This is an indication that businesses are absorbing tariffs and wages rather than passing them on to consumers.

In California and the west coast, there were no signs of a farm labor shortage. The Fed noted that oversupply and weak export demand depressed prices for dairy and nut products. But the tech industry continues to feel pressure from a tight labor market.

“A large San Francisco software and consulting company reported searching for candidates outside the District and even abroad in order to fill its vacancies,” the Fed noted.


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