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Beige Book: Tight labor markets fueling higher wage growth

June 02, 2016

Employment grew modestly in April through mid-May, but tight labor markets were widely noted in most districts, according to the Federal Reserve’s Beige Book report released Wednesday.

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

Wages grew modestly since the last report, with increases concentrated in areas of labor tightness.

Demand for labor rose moderately in the Richmond, Va., district and contacts noted continued difficulty finding workers in numerous occupations. In Boston, staffing industry contacts observed robust labor demand, particularly for specialized workers in high-skill fields.

Contacts in the Atlanta and Richmond districts said high-skill workers in high-demand fields continued to be hard to find, and low-skill jobs were also becoming harder to fill. In the St. Louis district, contacts that reported trouble filling job vacancies primarily cited few applicants or candidates lacking the necessary skills. In the New York district, employment grew modestly, and manufacturing and services firms planned to add jobs in the months ahead.

Soft labor markets were reported in energy sectors in the Cleveland, Atlanta, Minneapolis, Kansas City and Dallas districts.

Observations by staffing firms include:

Boston: New England staffing services contacts generally report strong business activity through May, with upticks in both direct hires and temporary placements, and year-over-year revenue increases ranging from 1% to 35%. Labor demand continues to be robust, with increased client demand for specialized workers in the Internet technology, software, legal, medical, mechanical engineering, business services and management consulting sectors. Workers with less specialized or nontechnical skills are less in demand. Both bill and pay rates increased from 3% to 10% year over year. Firms are reportedly recognizing the need to pay higher wages to attract top talent, and workers are negotiating higher starting salaries. Looking forward, staffing contacts are optimistic, expecting steady sequential and year-on-year growth. They expect to end the year with year-over-year revenue increases in the low to mid-single-digit range.

Philadelphia: Staffing firms remained more bullish, noting moderate hiring trends. Reports from staffing firms reflected continued moderate growth, faster decision-making by firms, and more competition. Overall, contacts are beginning to report more signs of modest wage pressure; some firms have experienced greater turnover or raised their own starting wages, while staffing contacts reported shifting their rate structures upward and receiving more push-back from recruits on salary offers.

Cleveland: Staffing firms noted little change in the number of job openings and placements. Temporary job openings are reportedly increasing.

Richmond: A staffing agent in Maryland indicated an increase in demand for almost every occupation with the exception of entry-level office jobs like customer service and clerical positions. A job-matching firm stated that new job openings were outpacing new job seekers on their site.

Chicago: Staffing firms again reported flat growth in billable hours and difficulty filling orders at the wages employers are willing to pay. In contrast, an online recruiting firm reported healthy growth in customers.

Minneapolis: An owner of staffing offices in Minnesota and Wisconsin said job orders were the same or better than a year ago but, “It’s a battle every day to find workers.” A Montana Job Service office had more than 900 job openings, which an official said was “close to our all-time high” in 2007.

Dallas: While some staffing firms reported that clients were seeking low wages, they noted that candidates were not accepting the low offers. Staffing services firms said demand remained strong in the Dallas area but weakened further in Houston. Overall, orders from the accounting, finance and healthcare sectors were solid. There were reports of increased demand for contract workers, which one firm attributed to clients being very selective in hiring permanent workers.