BEIGE BOOK: DEMAND FOR STAFFING SERVICES RISES MODERATELY IN TIGHT LABOR MARKET

Demand for staffing services increased at a moderate pace in July and August, according to the Federal Reserve’s Beige Book report released Wednesday. Labor markets were widely tight, with reports of worker shortages in numerous industries — most notably in manufacturing and construction. It was too soon to gauge the full economic impact of Hurricane Harvey on the Gulf Coast.

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

Employment growth slowed some as economic activity expanded at a modest to moderate pace. Manufacturing activity expanded modestly on balance, but reports were mixed regarding auto production and contacts in many districts expressed concerns about a prolonged slowdown in the auto industry.

Many districts indicated businesses were having difficulty filling openings at all skill levels, with firms in the Atlanta, St. Louis and Minneapolis districts reporting they had turned down business because they could not find the necessary workers. Despite the tight labor market, most districts reported limited wage pressures and modest to moderate wage growth; however, firms in the Dallas and San Francisco districts reported that labor shortages were pushing up wages.

The Federal Reserve noted Hurricane Harvey created broad disruptions to economic activity along the Gulf Coast in the Dallas and Atlanta districts, although it was too soon to gauge the full extent of the impact.

Observations by staffing firms include:

Boston: Most staffing firms cited revenue declines — which they blamed on limited labor supplies — and all reported high demand for labor and tight labor supply. Demand for skilled labor has been strong, but contacts said many job applicants fall short on requested training; some suggested that clients needed to moderate their expectations. Likewise, low-skill labor supply has not met demand, with two firms citing public assistance as a challenge to recruitment, given the low wages in these positions. All responding staffing firms reported rising pay rates. Multiple firms cited the current political situation as a negative influence on hiring; healthcare reform was singled out as a source of instability, as job applicants now seek employer-based coverage as their top job benefit. All contacts said they are adapting to the tight-supply landscape through targeted recruitment including an expanded online presence, a better referral process, active community engagement, and building stronger relationships with job market candidates.

Philadelphia: Staffing firms and other contacts generally reported steady wage growth and an occasional lack of labor availability for specific jobs. In particular, Pennsylvania staffing firms continued to note difficulties finding qualified, committed workers, while demand for labor continued to grow. One staffing firm added to its own staff to keep pace.

Chicago: A staffing firm that supplies companies with IT workers said growth was strong, while a staffing firm that primarily supplies manufacturers with production workers reported a slight decline in billable hours.

Minneapolis: A Minneapolis-St. Paul staffing firm said “lots of needs go unfulfilled” and business was being turned away because of tight labor. Labor retention continued to be a problem. A South Dakota human resources consultant said most businesses were hiring, but more often “to replace turnover and retirements than to increase headcount.” A South Dakota contact said there was pressure to boost wages and companies “seem to be willing to pay a bit more” for talent. A staffing contact said that the recently passed $15-per-hour minimum wage in Minneapolis — being implemented over five years — was rippling across wage expectations of workers earning below or near that level.

Dallas: (Note: The information included in this report was collected before Hurricane Harvey made landfall in Texas). Two staffing firms cited wage pressure for lower-level manufacturing positions, and one contact noted wage pressure for higher-level IT and engineering workers. Staffing firms said pricing was flat, although one contact noted renegotiating certain contracts at lower rates.

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