Login | February 17, 2019

Beige Book: Labor market tightening

Special to the Legal News

Published: February 6, 2018

The latest Beige Book of the Federal Reserve System shows the economy in Federal Reserve Bank of Cleveland's district, which includes Ohio, is humming along nicely, though finding good workers is getting increasingly challenging.

"Labor markets continued to tighten," the report stated for Cleveland district, which encompasses all of Ohio and parts of Kentucky and Pennsylvania. "Challenges in attracting and retaining qualified workers, especially for low-skills jobs, contributed to wage pressures. Manufacturers and professional services providers experienced pushback when attempting to increase their selling prices. Retailers reported higher-than-expected sales for the early part of the holiday shopping season. Manufacturing output grew, albeit at a slow pace. Freight transport and nonfinancial services firms saw moderate to strong gains in activity. The housing and commercial real estate markets remained healthy."

For employment and wages, construction and nonfinancial services sectors had the strongest activity as the labor markets tightened during the period. The manufacturing sector have slowly increased hiring.

"A large majority of contacts reported they are replacing departed workers; the share of firms creating new jobs was stable," the report stated.

The main challenge was attracting and retaining talent for low-to-middle-skills jobs. Therefore, companies are raising wages and developing career paths for these kinds of jobs.

But the markets' competitiveness has so far prevented costs being pass onto the customer.

On the other hand, high-skills jobs including in science, technology, engineering and mathematics fields have seen less turnover.

Some building contractors attributed last year's hurricanes for higher material prices in the construction and nonfinancial services sectors. For truck driver, rising fuel and maintenance prices have been reported.

While these costs have lead to some rate increases, the markets have forced some sectors to keep prices down because of competition. The report states: "Professional services firms described their billing rates as flat. Some of these firms are feeling pressure from clients to lessen the rate of increase in billing rates or to reduce rates overall for the next year or two."

For consumer spending, the retail industry's outlook improved this past holiday season with anecdotes suggesting that revenues were "moderately higher" for the season's early half, according to the report.

Companies that invested in technology to improve the shopping experience improved their same-store sales. Buy online for in-store pickup was a growing share among online sales.

"This model has been good for generating increased in-store sales when the customer comes in to pick up an order," the report stated.

Some fast-food chains are seeing more people using self-ordering kiosks, while vehicles rose 3 percent through November 2017 compared with the previous year.

The report provided a closer look at manufacturing. Some firms credited an improving economy, strengthening construction and motor vehicle industries or a stable energy sector as the reason for new business.

But some concerns include whether the domestic business cycle was at its peak point.

In real estate, there has not been a usual decline in demand for homes this season, according to the report, citing several homebuilders.

Reasons could include low interest rates and low inventory of existing homes, but commercial construction services continue at its high level since the last report because of confidence in the economy.

In the financial industry, banks experienced lending increase slowly across all loan products along with higher year-over-year balances.

For nonfinancial services, freight volume increased moderately with the energy sector's demand for steel products was the main driver with help from e-commerce. Shipping rates escalated because of labor shortages and other constraints.

The publication comes out eight times a year to provide qualitative information about current economic conditions for the system's 12 districts.

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