Investment Pros: Hiring Pace Accelerates with Growth

Sunday, 24 Mar 2013 08:31 PM

 

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At Industrial Builders Inc., Paul Diederich plans to boost payrolls about 10 percent this year.

“The economy is on the rebound,” said the president of the West Fargo, North Dakota-based heavy-construction company. “We have some projects in our backlog.”

Diederich, who is hiring “in the hope that when the weather breaks, we’ll have the need to put these people to work,” has already filled two management positions. He intends to increase staff, including seasonal employees, to more than 300 as the July-August peak building period approaches.

Industrial Builders isn’t alone. Companies from Ford Motor Co. to a California tortilla maker are stepping up hiring as the economy improves. The result, say Maury Harris of UBS Securities LLC and Allen Sinai of Decision Economics Inc.: Payroll growth is vaulting to a faster pace of about 200,000 a month, after averaging 167,000 in the second half of last year.

“The new normal is 200,000,” said Sinai, chief executive officer of the New York-based investment-research company. Payrolls may rise 216,000 this month after climbing 236,000 in February, the most since November, he estimates.

Russell Price, a senior economist at Ameriprise Financial Inc. in Detroit, predicts employers will take on 2.5 million workers this year, after hiring 2.2 million last year.

“And that may be a little bit on the conservative side,” added Price, the top-ranked payrolls forecaster for the two years ended in January, according to data compiled by Bloomberg.

Stronger Demand

Businesses are adding employees to meet stronger demand and supplement workforces that have become increasingly stretched during the four-year expansion. Smaller companies are finding it easier to borrow as banks loosen terms on loans.

Circle Foods LLC, a San Diego-based maker of TortillaLand uncooked fresh tortillas, has hired 165 people in the past six months and created the new position of human-resources training manager.

“The labor market has shown signs of improvement,” Federal Reserve Chairman Ben S. Bernanke said in a March 20 press conference. He mentioned indicators such as gains in payrolls, more hours worked and a decline in claims for unemployment insurance. The jobless rate, which “remains elevated” at 7.7 percent, has nonetheless “continued to tick down.”

The strengthening outlook for employment and growth is good news for the stock market. Sinai sees the Standard & Poor’s 500 Index rising to 1,600 later this year from 1,556.89 on March 22.

Temporary Help

Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, has identified three leading indicators of the labor market: changes in jobless claims, temporary help and the ability of small businesses to hire the employees they need. All three have improved, with applications for jobless benefits averaging 339,750 a week in the four weeks ended March 16, the lowest since February 2008.

A jump of 16,000 jobs in February brought temporary-help- services payrolls to 2.58 million, the highest since August 2007 and up from 1.75 million in June 2009, when the U.S. emerged from the 18-month recession.

The February survey of small-business optimism showed 21 percent of respondents had positions they weren’t able to fill, the most since June 2008 and an increase from 18 percent in January, the National Federation of Independent Business reported.

Rising Indicators

The Conference Board’s Employment Trends Index, which combines Lockhart’s three indicators with five others, rose 1.1 percent in February from the previous month, the biggest advance in a year.

Gad Levanon, director of macroeconomic research at the New York-based board, cautioned against reading too much into one month’s data, saying he expects payroll growth will slow to around 150,000 a month in the near term as government spending cuts kick in.

The nonpartisan Congressional Budget Office estimates the expenditure reductions known as sequestration could subtract 0.6 percentage point from gross domestic product in 2013, costing the economy 750,000 jobs.

The Fed is worried that “restrictive fiscal policies may slow economic growth and job creation in the coming months,” Bernanke said at the March 20 news conference. The central bank linked its benchmark borrowing cost to economic indicators in December for the first time, pledging to hold the target for the federal funds rate near zero as long as joblessness exceeds 6.5 percent and projected inflation isn’t more than 2.5 percent.

Defense Cutbacks

Harris, chief economist for UBS, doesn’t share the concerns. Defense contractors already cut back in anticipation of reduced outlays by the Pentagon, limiting how much more they’ll need to trim, he said. The large companies reduced headcount by 15 percent during the past few years, even though their revenue fell just 4 percent, according to UBS calculations.

The impact to payrolls also will be muted because the government intends to furlough workers for a day or two a month instead of laying them off, said Stuart Hoffman, chief economist at PNC Financial Services Group Inc. in Pittsburgh. He reckons the hit from sequestration will be about 400,000 jobs.

The blow from the spending cuts is “overcome-able,” said Industrial Builders’ Diederich, also president of the Associated General Contractors of America trade association. For his own company, which gets about 55 percent of its business from government agencies, there’s some cushion because of “a fairly steady flow of work” from private-sector clients, he said.

Fewer Firings

Much of the progress in the labor market so far has come from a decline in firings, rather than accelerated hiring. The Labor Department reported that 1.51 million workers were let go in January, down from 1.57 million in December and the least in records going back 12 years.

This pattern is changing, especially as industries that cut jobs during the recession rebound. Construction payrolls have advanced for nine straight months, jumping by 48,000 in February, the most since March 2007. Manufacturing employment grew by 14,000 to reach the highest level since April 2009.

Pent-up demand for vehicles will help sustain the need for more workers, with sales of cars and trucks on pace for the best year since 2007.

Ford, the second-largest U.S. automaker, plans to add 450 hourly workers and invest $200 million to make four-cylinder engines at a factory in Brook Park, Ohio, starting in late 2014. The Dearborn, Michigan-based company also will hire 2,200 salaried employees in the U.S. this year, the most in more than a decade.

Seasonal Workers

Housing, too, is strengthening as rising sales spur home- building, and in turn, boost employment in the industry, as well as in related businesses. Lowe’s Cos. said in January it will take on 45,000 seasonal workers, 13 percent more than last year, and add 9,000 permanent employees. The Mooresville, North Carolina-based home-improvement retailer also plans to open 10 stores and extend hours this year.

Companies are able to step up hiring because they’re finding it easier to borrow. “More aggressive competition” among lenders prompted banks to ease credit standards or terms in the fourth quarter, the Fed said last month.

The increased access to bank loans is particularly crucial for small businesses -- considered a driver of job creation -- as many lack the ability to tap other sources of credit.

That’s one reason why Harris sees payrolls continuing to expand, despite some employers’ concerns they’ll have to shell out more next year for health benefits under the Patient Protection and Affordable Care Act.

Boost Payrolls

Some companies are compelled to boost payrolls because they’re unable to wring much more out of their existing workforce.

About 20 percent of the 670 businesses contacted by the Atlanta Fed in early January said their staffs were putting in more hours than normal. More than one in three reported employees exerting a greater than normal effort in doing their jobs.

“These results suggest that some firms are approaching the limit” of how far they can go “before they have to hire more workers,” Atlanta Fed staffers John Robertson and Ellyn Terry wrote in a Feb. 5 posting on the bank’s website.

Employers in industries such as autos, aviation, housing and transportation are becoming more open to taking on people with low-to-medium skills they can train on the job, said Fred Dedrick, executive director of the National Fund for Workforce Solutions.

Gearing Up

“We’re seeing that need for workers,” said Dedrick, whose Boston-based organization helps low-wage workers upgrade their skills and connect with employers. Businesses “are gearing back up again.”

Insurer Geico, a unit of billionaire Warren Buffett’s Berkshire Hathaway Inc., began recruiting efforts on March 18 for a new sales and service center in Carmel, Indiana, where it will hire 400 workers in the next 12 months and 1,200 by 2016.

Janine Banuelos, 39, is among those benefiting from the stronger labor market. She said she couldn’t find regular employment for five years until 2011, except stints in consulting “that kept me from stagnating” and a three-month contract with a bank that ended in September. She began work Feb. 11 as Circle Foods’s new human-resources training manager.

“I honestly think the job market has become a lot better and there are more opportunities,” said Banuelos, who had been worrying about health insurance and household expenses. With a salary of $65,000 to $70,000, there’s room to “spoil the kids a little” and buy a new car, she said. “Financial stability is very nice.”

© Copyright 2014 Bloomberg News. All rights reserved.

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