Most people think of economists as people who crunch numbers and stare at charts all day long. In reality, economists spend a lot of their time out in the world talking to people about their lives. They’re storytellers who want to know about our money habits, our jobs and how we make our financial decisions.
Nowhere is this more evident than in the Federal Reserve’s Beige Book, or “Summary of Commentary on Current Economic Conditions.”
Don’t let the name fool you — the Beige Book is anything but boring. Published eight times a year, the Beige Book is a collection of anecdotes about the U.S. economy collected by the staff at all of the different Federal Reserve banks.
More than two years after President Donald Trump took office, we have decided to take a look at the story of the economy under Trump as told by the Federal Reserve. This is a story told in four parts, focusing on tax reform, tariffs, the job market and America’s immigration policy.
While the full impact of the Tax Cuts and Jobs Act of 2017 has yet to be documented in a Beige Book, some employers seem to already have an idea of what they might use their tax savings on, namely, increasing wages for their workers.
“A Montana ski resort contact said that tax savings would allow the company to raise wages, and a Montana construction contact believed tax changes would provide a sizable, single-step increase in wages,” the Federal Reserve Bank of Minneapolis reported in March 2018.
Under the new law, corporate tax has been reduced from 35 percent to 21 percent. Using the tax cut to increase wages could help employers attract workers and, in doing so, accomplish what Trump envisioned when pushing for the tax reform.
According to Trump, reduced corporate taxes would, over eight years, lead to a $4,000 pay raise for a typical U.S. household. However, multiple surveys have found that most employers did not plan on using the tax cut to increase wages.
In March of last year, Trump announced that he was going to impose a 25 percent tariff on imported steel and a 10 percent tariff on imported aluminum. In May, manufacturers reported slowdown in business caused by the uncertainty surrounding tariffs. By summer, the industry was dealing with tariffs-induced pandemonium.
“One machinery manufacturer noted that the effects of the steel tariffs have been chaotic to its supply chain – disrupting planned orders, increasing prices and prompting some panic buying,” the Federal Reserve Bank of Philadelphia reported in July 2018.
Two months later, in September, the Federal Reserve Bank of St. Louis noted that an increase in costs, resulting from the tariffs, was being passed down onto the consumers. “Multiple manufacturers reported facing elevated input prices linked to steel and aluminum tariffs, as well as increased freight costs. Many of these contacts indicated they have passed or intend to pass along these costs to their customers,” it wrote.
Some customers, anticipating the price hike, placed orders for items before the increase went into effect. “A cabinet manufacturer reported an uptick in business in recent weeks, as customers rushed orders in anticipation of higher tariffs in the new year,” the Federal Reserve Bank of Richmond wrote in December 2018.
The job market
The U.S. economy would seem to be doing really well. The unemployment rate is at 4 percent, which is considered to be near full employment.
January marked the 100th month in a row during which the U.S. economy added jobs — more than 20 million jobs were added in that time. But a tight labor market comes with its own set of problems. When there are fewer people looking for jobs, companies have to compete with each other for candidates.
According to Beige Book data published over the last two years, the shortage of available workers has affected a wide range of industries.
“Residential and commercial construction contacts said that a lack of workers was slowing the completion of projects. One contact reported a delay of six weeks because they couldn’t find an elevator installer,” the Federal Reserve Bank of Chicago reported in October 2018.
That same month, the Federal Reserve Bank of Cleveland spoke to a trucking company that was having hard time finding drivers. “One trucking contact reported that it had 10 empty trucks because of its inability to find enough drivers with Class A commercial driver’s licenses,” it reported.
In July 2018, the Federal Reserve Bank of San Francisco reported that its contacts in the construction and trucking industry were also struggling to find workers.
“To attract and retain employees, firms reported lowering hiring standards, offering more generous nonwage benefits and establishing training programs through partnerships with local schools and nonprofit organizations,” it wrote.
In some cases, finding new workers has become so difficult that it’s caused employers to rethink layoffs. By avoiding laying off workers during slow business periods, a company can avoid looking for new workers when business picks up.
“There continued to be reports from manufacturing and construction firms that they had delayed or turned down projects because of difficulties in finding workers,” the Federal Reserve Bank of Chicago reported in May 2018.
“There were also reports of firms choosing not to lay off workers during production lulls so that they would not have to find new workers when activity picked up again.”
But in a tight labor market, it’s not just finding new workers that’s difficult. It’s also difficult to keep them. As companies try to attract new workers by offering improved perks and higher wages, employees might jump ship … some without giving any notice at all.
“A number of contacts said that they had been ‘ghosted,’ a situation in which a worker stops coming to work without notice and then is impossible to contact,” wrote the Federal Reserve Bank of Chicago in December 2018.
It’s not just millennial workers who are ghosting their employers, Washington Post reporter Danielle Paquette told Marketplace. “I’m hearing from workers of all ages, and particularly older workers who are fed up with how their rights, their pay, their benefits packages … have just dwindled over time,” she said.
Not all industries are doing well. One of the industries that keeps hemorrhaging jobs is retail. With most things just a click away, consumers are less likely to venture into stores. Lagging sales leads to the closure of brick-and-mortar stores, which leads to malls with empty storefronts.
The places that have survived cater to needs that are best addressed, or only addressed, in person, such as getting one’s nails done, getting a haircut or buying an engagement ring.
“The trend toward online shopping has continued to adversely affect many brick and mortar stores — particularly small businesses — though jewelry stores, nail salons, and other service providers have been less affected,” the Federal Reserve Bank of New York reported in March 2018.
What about the effect of immigration policy on the U.S. job market? Many American employers depend on temporary foreign workers who come to work seasonal jobs at farms, orchards and resorts. In a labor market where workers are in short supply, seasonal workers are a lifeline for many employers. Under Trump, however, that lifeline is up in the air.
While out on the campaign trail in 2015, the president said of Mexican immigrants: “They’re taking our jobs. They’re taking our manufacturing jobs. They’re taking our money.”
Trump promised dramatic reform of U.S. immigration policies, including restrictions on the J-1 visa and the H-1B visa program. He also promised new measures to prevent immigrants from entering the U.S. illegally.
In May 2017, just months into Trump’s presidency, the Federal Reserve Bank of San Francisco reported that agriculture businesses were already feeling the effect of Trump’s anti-immigration position.
“Recent changes in immigration policy created substantial labor supply shortages for low-skilled workers in the agriculture sector; as a consequence, some growers discarded portions of their harvest,” it wrote.
In September 2017, the Federal Reserve Bank of Boston reported that restaurants in tourists areas like the Berkshires and Cape Cod were having “severe staffing shortages, especially those that have historically relied on seasonal workers needing H-2B visas.”
“This labor shortage has had a negative effect on revenues in what is traditionally the high summer tourist season,” it reported.
Since, little has changed. In January, the Boston Fed said its tourism industry contacts on Cape Cod still had serious concerns about labor shortage, noting they “will be more severe in 2019 if limits on the J-1 and H-2B visa programs are not raised.”
At the same time, tourism to the area is only expected to grow. “Passenger traffic to Boston’s Logan Airport set a new record in 2018; departing flights in December were up 7.4 percent year-over-year,” wrote the Boston Fed. “In 2019, new flight services will be added by domestic and international carriers. Strong tourist activity was seen on Cape Cod through December, as retailers and inns reported having a good holiday season.”
And it’s not just Cape Cod employers on who are concerned about the availability of seasonal help. “A Virginia resort executive noted that heavy reliance on J-1 visa holders made them vulnerable to possible changes in immigration law,” the Richmond Fed noted in January.