Tags: companies | overtime | temporary | staff

Companies Use Overtime, Temporary Staff to Meet Demand

Friday, 06 Jul 2012 04:07 PM

Companies are relying on existing workers and temporary employees instead of hiring, evidence the European crisis is hurting U.S. confidence more than demand.

The average workweek climbed by six minutes to 34.5 hours in June, the first gain since February, Labor Department figures showed today in Washington. Temporary staffing rose by 25,200, the third consecutive increase.

The need to boost hours and add provisional employees is a sign that sales are holding up in the face of a deepening slump in Europe and a slowdown in China and the rest of the world. Nonetheless, businesses may lack conviction that revenue gains will be sustained in light of the threats, making them reluctant to permanently expand payrolls.

“Firms are still seeing an increase in demand, and there is a need for more labor,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts. “But there are so many risks out there that businesses don’t want to commit to hiring full-time employees.”

Payrolls advanced by 80,000 workers in June, fewer than the median estimate of 100,000 in a Bloomberg News survey of economists, after a 77,000 rise the prior month, today’s report showed. The lack of hiring fueled concern the world’s largest economy was slowing, pushing stocks down, with the Standard & Poor’s 500 Index heading for its biggest weekly loss in a month.

The pickup in hours “suggests there might be a little better momentum in the economy,” Bruce Kasman, chief economist for JPMorgan Chase & Co. in New York, said on a conference call. At the same time, there is “an absence of a real desire by firms to act on that in terms of hiring.”

Payroll Equivalent

The six-minute increase in the average workweek would be equivalent to a 325,000 gain in payrolls, according to estimates by economists at Nomura Securities International Inc. headed by Lewis Alexander.

Automobiles are one area where demand is holding up. Cars and light trucks sold at a 14.1 million annual rate in June, up from May’s 13.7 million pace, Ward’s Automotive Group data showed. General Motors Co., Ford Motor Co. and Chrysler Group LLC reported U.S. sales that topped analysts’ estimates, helping the industry surpass projections and stay on pace for the best year since 2007.

“We’re seeing strong demand for our current products as well as for our new models,” Bill Krueger, vice chairman of the Americas for Nissan Motor Co., said in a telephone interview. The Yokohama, Japan-based automaker plans to boost hours, add shifts or increase payrolls at plants in Tennessee and Mississippi “to really have the supply catch up with demand,” he said.

Factory Workweek

Manufacturers were among those asking existing employees to put in a longer workweek last month. Factory overtime climbed to 4.7 hours in June on average, the most in five years, today’s report showed.

In another bright spot, workers’ average hourly earnings rose to $23.50 in June from $23.44 in the prior month, today’s report showed.

“For the 92 percent of folks who have jobs, their incomes are rising, raises are still happening,” said Chris Varvares, senior managing director of Macroeconomic Advisers LLC in St. Louis.

Consumers are benefiting from falling gasoline prices and lower inflation. The cost of living dropped in May by the most in more than three years, Labor Department figures showed last month. A gallon of regular fuel at the pump cost an average $3.36 as of yesterday, down from this year’s peak of $3.94 in early April, according to AAA, the biggest U.S. auto group.

Retail Sales

Retailers reported this week that same-store sales rose 0.3 percent in June from a year earlier, based on results from more than 20 companies tracked by Retail Metrics Inc. Luxury chains such as Saks Inc. and discounters like TJX Cos. topped analysts’ expectations, while stores targeting middle-income consumers trailed projections.

“What we are seeing today from an income perspective is our economy is modestly adding jobs,” Robert Hull, chief financial officer at Lowe’s Cos., the second-largest U.S. home- improvement retailer, said at a June 26 consumer conference in Boston. “That’s the good news. The bad news is it’s not sufficient to have a material impact on the unemployment rate.”

The jobless rate held at 8.2 percent in June, today’s report showed. Unemployment has exceeded 8 percent since February 2009, the longest such stretch since monthly records began in 1948.

Fed Outlook

The “mixed” jobs report suggests that Federal Reserve policy makers are unlikely to take further action to boost the economy at their next meeting, such as a third round of so- called quantitative easing, said David Greenlaw, a managing director and economist at Morgan Stanley in New York.

“We don’t think the report was quite bad enough to tip the scales toward doing something like QE3,” Greenlaw said. “But I certainly think there’s plenty of fodder for discussion and definitely some indication that the Fed needs to be more worried about prospects for growth going forward.”

Private employment, which excludes government agencies, increased 84,000 in June, the weakest in 10 months. Retailers cut payrolls by 5,400, while manufacturers added 11,000 workers.

The report “reminds everyone that confidence matters,” said Joel Naroff, president of Naroff Economic Advisors in Holland, Pennsylvania. “In June, the European debt issue reached a boil and a meltdown could not be ruled out. That had to have a major impact on business confidence.”

Europe’s Influence

Concerns about Europe are lingering, with the euro slumping to a two-year low of $1.2260 today and yields on 10-year Spanish bonds rising to more than 7 percent. The decline in Spanish bond prices came even though the European Central Bank yesterday reduced its benchmark rate to a record low of 0.75 percent.

Uncertainty about the U.S. government’s fiscal outlook may also be hampering hiring plans. Congress has yet to resolve the so-called fiscal cliff, which represents more than $600 billion in higher taxes and reductions in defense and other government programs in 2013 that will take place without action.

The best strategy for companies to follow when confronted with such uncertainty ahead of Dec. 31 is to “stay lean and keep your inventories taut,” Sandy Cutler, chief executive officer of industrial equipment-maker Eaton Corp. in Cleveland, told a conference May 31.

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