Tepid US growth fuel part-time hiring
US businesses are hiring at a robust rate. The only problem is that three out of four of the nearly 1 million hires this year are part-time and many of the jobs are low-paid.
Faltering economic growth at home and abroad and concern that President Barack Obama's signature health care law will drive up business costs are behind the wariness about taking on full-time staff, executives at staffing and payroll firms say.
Employers said part-timers offer them flexibility. If the economy picks up, they can quickly offer full-time work. If orders dry up, they know costs are under control. It also helps them to curb costs they might face under the Affordable Care Act, also known as Obamacare.
This can all become a less-than-virtuous cycle as new employees, who are mainly in lower wage businesses such as retail and food services, do not have the disposable income to drive demand for goods and services.
Some economists, however, say the surge in reliance on part-time workers will fade as the economy strengthens and businesses gain more certainty over how they will be impacted by Obamacare.
Executives at several staffing firms told Reuters that the law, which requires employers with 50 or more full-time workers to provide healthcare coverage or incur penalties, was a frequently cited factor in requests for part-time workers. A decision to delay the mandate until 2015 has not made much of a difference in hiring decisions, they added.
"Us and other people are hiring part-time because we don't know what the costs are going to be to hire full-time," said Steven Raz, founder of Cornerstone Search Group, a staffing firm in Parsippany, New Jersey. "We are being cautious."
Raz said his company started seeing a rise in part-time positions in late 2012 and the trend gathered steam early this year. He estimates his firm has seen an increase of between 10% and 15% compared with last year.
Other staffing firms have also noted a shift.
"They have put some of the full-time positions on hold and are hiring part-time employees so they won't have to pay out the benefits," said Client Staffing Solutions' Darin Hovendick. "There is so much uncertainty. It's really tough to design a budget when you don't know the final cost involved."
Cautious strategy
The delay in the Obamacare employer mandate "confused people even further," said Bill Peppler, managing partner at Kavaliro, a technology staffing firm in Orlando, Florida. "When we talk to customers, I still don't think anyone has a handle on this."
Obamacare appears to be having the most impact on hiring decisions by small- and medium-sized businesses. Although small businesses account for a smaller share of the jobs in the economy, they are an important source of new employment.
Some businesses are holding their headcount below 50 and others are cutting back the work week to under 30 hours to avoid providing health insurance for employees, according to the staffing and payroll executives.
Under Obamacare, any employee working 30 hours or more is considered full-time. An effort to trim hours might have helped push the average work week down to a six-month low in July.
"As organizations and companies reduce the hours of part-time workers, they still have to replace the capacity, so they go out and hire additional part-time workers," said Philip Noftsinger, president of CBIZ Payroll in Roanoke, Virginia, which manages payroll for more than 5 000 small businesses.
Some large companies are also leaning more heavily on part-timers.
Walmart has been hiring more part-time workers, although it says the move is to ensure proper staffing when stores are busiest and is not an effort to cut costs.
Spokesperson Kory Lundberg said the world's largest retailer promotes about 75000 people from part time to full time work each year and is on track to do so again in 2013.
Similarly, a memo that leaked out from teen and young adult retailer Forever 21 last week showed it was reducing a number of full-time staff to positions where they will work no more than 29.5 hours a week, just under the Obamacare threshold.
In a statement, the company said the move will affect fewer than 1% of its US store employees, and was taken to better align staffing with sales expectations - not to lower costs under the Affordable Care Act.
Some public school boards and local governments, including the city of Long Beach in California, are also cutting hours.
"The difference between 30 and 40 hours can be the difference between being able to make ends meet month-to-month," said Heidi Shierholz, a senior economist at the Economic Policy Institute in Washington.
"That contributes to reduced living standards for American families and translates into having less income to spend on goods and services, which holds back the economy."
Weak economy not helping
Obamacare is only one factor. The surge in part-time employment also reflects an economy that has struggled to maintain decent growth.
That has left business owners such as Jason Holstine, who owns a building supply store in Baltimore, Maryland, reluctant to take on full-time staff.
Holstine said he was more concerned about budget policy in Washington than about Obamacare, given that federal government furloughs tied to across-the-board spending cuts led some of his clients to put home renovations on hold.
"We are still working in an environment that is very hard to forecast the near future and remains very cash-constrained," said Holstine. "We were always nimble, but we had to become more reactive. Using part-timers gives us more flexibility."
In a paper published last month, the San Francisco Federal Reserve Bank said uncertainty over fiscal and regulatory policy had left the US unemployment rate 1.3 percentage points higher at the end of last year than it otherwise would have been. The jobless rate stood at 7.8% in December; it has since fallen to 7.4%.
"That's about 2 million jobs below where we should have been in 2012 because of policy uncertainty," said Keith Hall, a senior research fellow at George Mason University's Mercatus Center in Arlington, Virginia.
Economists and staffing companies are cautiously optimistic that part-time hiring and the low wages environment will fade away as the economy regains momentum, starting in the second half of this year and through 2014.
But businesses, accustomed to functioning with fewer workers, might not be in a hurry to change course. A study by financial analysis firm Sageworks found that profit per employee at privately held companies jumped to more than $18 000 in 2012 from about $14 000 in 2009.
"Private employers are either able to make more money with fewer employees or have been able to make more money without hiring additional employees," said Sageworks analyst Libby Bierman. "The lesson learned for businesses during the recession was to have lean operations."
Disasters cost insurers $20bn
Catastrophes cost global insurers more than $20bn (€15bn) in just the first six months of 2013, including $17bn for natural disasters alone, Switzerland-based reinsurance giant Swiss Re said on Wednesday.
While the insurance bill is huge, it is below the average for the past decade.
And it covers less than half of the estimated $56bn in global economic losses suffered during the first six months of the year owing to man-made and natural disasters, Swiss Re said in a statement.
About 7 000 lives were lost because of such catastrophes during the same period, it pointed out.
Flooding was responsible for $8.0bn of the disaster-related insurance claims during the first half of the year, according to a Swiss Re survey called sigma.
This noted that massive June floods in Central and Eastern Europe alone cost insurers $4bn and killed 22 people, while floods in Alberta, Canada left insurers with a $2bn bill.
At least 1 150 people meanwhile died in India because of floods in June, while Australia, Southern Africa, Indonesia and Argentina also experienced cyclones and heavy rains that sparked large-scale flooding.
"As a result, 2013 is already the second most expensive calendar year in terms of insured flood losses on sigma records," Swiss Re said, pointing out though that in 2011, flooding in Thailand caused record flood losses of more than $16bn.
Other natural disasters during the first half of the year included deadly tornadoes in the Midwestern United States, which left 28 people dead and slapped insurers with $1.8bn in claims.
"Though 2013 has so far been a below-average loss year, the severity of the ongoing North Atlantic hurricane season, and other disasters such as winter storms in Europe, could still increase insured losses for 2013 substantially," Swiss Re chief economist Kurt Karl warned in the statement.
UK govt criticised for tax cut
Britain's government has come under fire for abolishing a tax on top earners after data released on Tuesday showed companies delayed paying employees £1.7bn ($2.66bn) in bonuses until the tax cut took effect.
Bonuses are traditionally paid between December and March, the so-called "bonus season", but an Office of National Statistics (ONS) report revealed that a number of companies deferred payouts until April, after the top income tax rate was reduced from 50 percent to 45%.
Bonuses paid to Britain's workers were £2.9bn in April 2013 compared to £1.9bn in April 2012, according to the ONS. In the finance and insurance industry, which pays more than a third of all bonuses, bonuses in April totalled £1.3bn, more than double the figure a year earlier.
The data show almost 30% of companies in the finance and insurance sector deferred bonus payments until April.
Chris Leslie, from the opposition Labour party which introduced the tax in 2010 and the shadow financial secretary to the Treasury, said on Tuesday the data showed the government was putting the richest before ordinary Britons.
"While ordinary families on low and middle incomes are seeing their living standards fall, those at the top are reaping the benefits of David Cameron's tax cut for millionaires," he said in a statement, adding that millions of pounds of revenue will have been lost as a result.
The issue of bankers' bonuses has triggered public anger in Britain, where despite signs of an economic recovery, ordinary citizens' incomes remain stuck at some of their lowest levels in a decade.
In January, US investment bank Goldman Sachs scrapped plans to delay paying bonuses to its Britain-based bankers after the then Bank of England Governor Mervyn King criticised the idea.
A spokesman for The Robin Hood Tax Campaign, which is lobbying for financial transaction taxes to help the government fund welfare programmes and reduce poverty, attacked the government's tax cut on top earners.
"The Government's manipulation of the tax code to benefit the super-rich has made a bad situation worse. It should put substance to its phrase that 'we are all in this together' and ensure the City pays its dues," a statement said.
A spokeswoman for the Treasury said the bonus figures were in line with forecasts in finance minister George Osborne's budget and said bankers' bonuses were well below their peak before the financial crisis.
The ONS figures show bonuses across the UK economy stood at £37bn in the 2012/2013 financial year (April to March), up 1% from the year earlier. Workers in finance and insurance got the largest bonuses, taking home on average an £11 900 bonus, nearly twice the next highest payment of £6 700 paid to those working in mining and quarrying.
Risky crisis derivatives return
Collateralised debt obligations, the complex financial instruments that cratered disastrously in the financial crisis, are back.
The market for the instruments, which were based on subprime mortgages, shrank from $520bn in 2006 to just $4.3bn in 2009 after the housing bust. Warren Buffett once called CDOs "financial weapons of mass destruction" because of their riskiness.
This time around, the investment has shifted from a mortgage-based CDO into a "collateralised loan obligation," a cash-generating asset structured similarly to CDOs, but consisting of loans to businesses.
Financial institutions have issued $50bn in CLOs in the US in 2013, estimates the Loan Syndication and Trading Association, a trade group. The LSTA estimates the industry will issue $7bn worth in the US overall in 2013 and $100bn worldwide.
Goldman Sachs, Morgan Stanley, Barclays and Citigroup are among the banks most active in structuring CLOs in 2013. Citigroup alone has sold about 20 of the instruments this year.
"There really isn't a CDO market anymore," but "the CLO market has been quite active" for a couple of quarters, said an executive at a major Wall Street bank, who asked not to be named.
Still, observers note the comeback is only partial.
"There's an uptick, but it's still small compared with the pre-crisis peak," said Campbell Harvey, a finance professor at Duke University.
CLOs are structured financial products in which financial institutions pool loans of varying risk and market the securities to investors.
The securities can be sliced into tranches of different underlying loan risk levels. The riskiest "junior" or "equity" tranches - which were at the heart of the financial crisis of 2008 - remain popular with speculative funds because they pay higher yields.
"With interest rates still very low and borrowing costs so cheap, some investors are searching for risk," said Ruben Marciano, a trader at Societe Generale.
Tranches packed with loans of moderate risk are known as "mezzanine" loans, while "senior" tranches are the safest.
Before the financial crisis, many CDO slices that were categorised "senior" and rated highly by credit ratings agencies were actually high-risk and contained many subprime mortgages that ended up in default.
Moreover, because all of the loans packaged in the same derivative products were in the same sector - housing - the instrument itself was vulnerable when the housing market collapsed.
An analyst who specialises in CDOs for a large British bank said the investments are better bets when they contain loans from different sectors.
Buyers of the current batch of CLOs have hired independent specialists to analyse the instruments and no longer rely on credit-rating agencies, said the analyst.
Even as new CDO issues have vanished, Marciano said there remains an active secondary market since the crisis.
"There are investors out there who have made a lot of money from buying low-quality CDOs at very low prices," Marciano said.
EU set for big wheat crop
The European Union's main wheat producers have gathered a bumper harvest despite worries the long winter and hot summer would damage crops, traders and analysts said on Tuesday.
"It looks as though wheat came through the long winter and scorching start to the summer better than feared," one German trader said. "EU wheat supply for export and domestic use will be better than expected only a few weeks ago and the problems in Britain have not spoiled the overall good picture."
In France, the EU's largest wheat producer, harvesting is almost over and a bumper crop is expected.
Analyst Agritel estimates France's 2013 soft wheat crop at 37.0 million tonnes, up 4 percent on 2012 and the largest in nine years.
"There were fears at first but the good weather at the end of the growth cycle helped yields," a French trader said.
Harvesting is 90% complete in France, but some producers said harvesting could last until mid-September in the far north of the country.
The French crop's specific weight and Hagberg values, two essential criteria for bread-making, are good but protein levels differed, sometimes below the 11 percent threshold for export in large producing regions such as Poitou-Charentes, analyst Strategie Grains said.
In the EU's second largest producer Germany, harvesting is in its final stages. Germany's Farm Cooperatives Association forecasts Germany will harvest 24.35 million tonnes of wheat in 2013, up 8.8% from 2012.
"Overall quality is satisfactory and the crop size good," a German trader said. "The extreme weather we had this year has led to some regional variations in quality but overall the crop is reaching a decent quality standard and I think there will be ample supplies of bread-quality wheat for German exports in the coming year."
In the UK, the third largest producer, harvesting is now in full swing, with traders forecasting a crop of around 12 million tonnes, down from 13.3 million tonnes last year and the smallest crop in over a decade.
ODA UK consultant Jake French estimates around 28% of the crop has now been collected. He said yields were better than expected, pegging the estimated average yield at 7.26 tonnes per hectare, close to the five year average of 7.7 tonnes.
He said quality is generally good but better quality wheat may be harvested first so early cuttings may not indicate the end result.
The wheat area in England fell to a 30-year low this season after wet autumn weather ruined sowings.
In the EU's number four wheat producer Poland, the harvest should rise to 9.03 million tonnes from 8.6 million tonnes last year, said ODA Polska director Regis Miola.
"Wheat has been harvested from over 80% of the sown area but there have been delays, especially in north Poland due to recent rain," Miola said.
"Yields are good and grain quality good until now, but we have to be careful about making overall judgements because recent showers may have impacted quality parameters."
Better weather is expected at the end of this week and 3-4 days without rain should see the harvest complete, Miola said.
Harvesting of wheat in Italy, a major grain importer, has ended, and the smaller crop was gathered after earlier heavy rains delayed and reduced plantings.
"The qualities are good," said Paolo Abballe, crop analyst at farmers group Coldiretti.
Soft wheat output is seen at 2.99 million tonnes, down from 3.41 million tonnes last year. The durum wheat crop, used for making pasta, is forecast at 3.71 million tonnes from 4.18 million tonnes.
