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Beige Book: Labor markets tighten, staffing firms report rising wages

December 01, 2016

Labor market conditions tightened in seven districts from early October through mid-November, with modest employment growth on balance, according to the Federal Reserve’s Beige Book report released Wednesday. Staffing services demand grew at about the same pace or improved slightly since the prior report.

The Beige Book, a collection of observations from the 12 federal regional banks, provides a snapshot of current economic conditions.

Most districts saw increases in staffing activity. Boston reported fairly strong activity, with most staffing firms’ revenue increasing 10% to 25% year over year. Staffing firms in Cleveland attributed a modest decline in the number of job openings and placements to uncertainty stemming from the presidential election.

Staffing services also reported rising wages or difficulty filling positions without wage increases in a majority of the districts.

Observations by staffing firms include:

Boston: Labor demand continued to increase and labor supply continued to tighten in the fall. Legal, marketing, and medical assistant positions were particularly hard to fill. One contact cited the “often negligible” difference between public benefits that potential job candidates receive and earnings from a minimum wage job as a possible explanation of the tightening labor supply. Bill and pay rates have stayed flat or risen; most staffing firms are not getting pushback in response to increasing pay rates. One contact pointed out that his clients recognize it has become more costly to recruit and secure qualified and experienced candidates. Most of the staffing firms plan to increase in size in 2017, citing the need for specific skills to grow the company, overworked staff, and expected increases in revenue. All firms plan to increase wages for their employees over the next year.

Philadelphia: Staffing firms indicated modest increases in hiring. One staffing firm noted wage pressures were becoming more broad-based. Generally, staffing firms reported that labor markets were tightening, while overall growth of hires remained modest. Staffing contacts noted that they are getting less pressure from their client firms to keep wages down; firms are accepting increases in order to attract talent. Over the next year, most firms expect their own compensation costs per employee — wages plus benefits — to rise 3.0%.

Cleveland: Staffing firms reported the number of job openings and placements declined, a situation they attributed to jitters about the presidential election. Contacts noted an increase in the number of temporary positions.

Richmond: The demand for contingent labor picked up slightly in the last several weeks, according to a staffing agent in North Carolina. A contact from Virginia added that their staffing firm entered the busy season in recent weeks and was tracking last year’s pace. In the district as a whole, demand recently picked up for the permanent placement of skilled tradespeople, construction workers, engineers, scientists, elevator mechanics, accountants and IT professionals. Staffing services firms in the Carolinas were seeing more wage increases, with one noting that higher turnover led businesses to raise wages.

Chicago: A staffing firm again reported no change in billable hours and ongoing difficulty filling orders at the wages employers were willing to pay.

Minneapolis: Three staffing agencies covering portions of Wisconsin and Minnesota all reported strong October job orders, though each also reported significant difficulty in finding necessary workers. Employers in western Wisconsin have become “very favorable” toward increasing wages, said a staffing contact.

Dallas: Some staffing firms cited a tight labor market, with many candidates receiving multiple job offers. Staffing services firms said demand was flat to up, with activity in North Texas remaining strong. Staffing contacts noted strength in demand from the healthcare, logistics, distribution, manufacturing and construction sectors, while oil- and gas-related activity remained tepid.