Chicago Defender

Storm's Cost May Hit $50B; Rebuilding to Ease Blow

WASHINGTON (AP) — Superstorm Sandy will end up causing about $20 billion in property damages and $10 billion to $30 billion more in lost business, according to IHS Global Insight, a forecasting firm.

In the long run, the devastation the storm inflicted on New York City and other parts of the Northeast will barely nick the U.S. economy. That's the view of economists who say a slightly slower economy in coming weeks will likely be matched by reconstruction and repairs that will contribute to growth over time.

The short-term blow to the economy, though, could subtract about 0.6 percentage point from U.S. economic growth in the October-December quarter, IHS says. Retailers, airlines and home construction firms will likely lose some business.

The storm cut power to more than 8 million homes, shut down 70 percent of East Coast oil refineries and inflicted worse-than-expected damage in the New York metro area. That area produces about 10 percent of U.S. economic output.

New York City was all but closed off by car, train and air. The superstorm overflowed the city's waterfront, flooded the financial district and subway tunnels and cut power to hundreds of thousands. Power is expected to be fully restored in Manhattan and Brooklyn within four days.

The New York Stock Exchange will reopen for regular trading Wednesday after being shut down for two days. There's no evidence that the shutdown had any effect on the financial system or the economy. But Jim Paulsen, chief strategist at Wells Capital Management, said further delays might have rattled consumers and dampened their spending.

"It's about confidence," Paulsen said. "We're watching these horrific images of the storm, and people are thinking whether they should ahead with that big purchase ....It doesn't do any good to have another day with headlines saying the U.S can't figure out how to open its stock exchange."

Most homeowners who suffered losses from flooding won't be able to benefit from their insurance policies. Standard homeowner policies don't cover flood damage, and few homeowners have flood insurance.

But Fannie Mae and Freddie Mac said they will offer help to borrowers whose homes were damaged or destroyed, who live in designated disaster areas and whose loans the mortgage giants own or guarantee. Among other steps, mortgage servicers will be allowed to reduce the monthly payments of affected homeowners or require no payments from them temporarily.

Across U.S. industries, disruptions will slow the economy temporarily. Some restaurants and stores will draw fewer customers. Factories may shut down or shorten shifts because of a drop in customer demand.

Some of those losses won't be easily made up. Restaurants that lose two or three days of business, for example, won't necessarily experience a rebound later. And money spent to repair a home may lead to less spending elsewhere.

With some roads in the Northeast impassable after the storm, drivers won't be filling up as much. That will slow demand for gasoline. Pump prices, which had been declining before the storm, will likely keep slipping. The national average for a gallon of regular fell by about a penny Tuesday, to $3.53 — more than 11 cents lower than a week ago.

Shipping and business travel has been suspended in areas of the Northeast. More than 15,000 flights across the Northeast and the world have been grounded, and it will take days for some passengers to get where they're going.

On Tuesday, more than 6,000 flights were canceled, according to the flight-tracking service FlightAware. More than 500 flights scheduled for Wednesday were also canceled.

The three big New York airports were closed Tuesday. New York has the nation's busiest airspace, so cancellations there drastically affect travel in other cities.

Economists noted that the short-term hit to the economy was worsened by the size of the population centers the storm hit.

"Sandy hit a high-population-density area with a lot of expensive homes," said Beata Caranci, deputy chief economist at TD Bank.

Hurricane damage to homes, businesses and roads reduces U.S. wealth. But it doesn't subtract from the government's calculation of economic activity.

By contrast, rebuilding and restocking by businesses and consumers add to the nation's gross domestic product — the broadest gauge of economic production. GDP measures all goods and services produced in the United States.

Paul Ashworth, chief U.S. economist at Capital Economics, expects the storm to shave 0.1 to 0.2 percentage point from annual economic growth in the October-December quarter. He thinks the economy will grow at an annual rate of 1.5 percent to 2 percent in the fourth quarter. It grew at a 2 percent annual rate last quarter.

But Ashworth said any losses this quarter should be made up later as rebuilding boosts sales at building supply stores and other companies.

"People will load up on whatever they need to make repairs — roofing, dry wall, carpeting — to deal with the damage," he said.

In the short run, Caranci said the economic damage could be worst for small businesses that lack the money and other resources to withstand lost sales.

"It will remain to be seen how long disruptions to electricity and infrastructure persist," she said.

But she noted that the storm should help the construction industry, which shed millions of workers after the housing bust. Many who lost construction jobs were skilled employees with disproportionately high pay, and the loss of those jobs hit the economy hard.

Major retailers began trying Tuesday to ramp up their operations before the critical holiday shopping period.

Sears Holdings Corp., which operates Kmart and Sears, said 80 of its stores were still closed at midday Tuesday, down from 187 Monday. Wal-Mart Stores Inc., the world's biggest retailer, said it was working to reopen the 168 stores it closed. And Darden Restaurants Inc., parent of Olive Garden and Red Lobster, by Tuesday afternoon had reopened roughly 160 of the 260 restaurants it closed Monday.

Retailers collect up to 40 percent of their annual revenue in November and December. Retailers, excluding restaurants, could lose at least $25 billion in sales this week, estimates Burt Flickinger III of retail consultancy Strategic Resource Group. Because of the storm, he's reduced his forecast for holiday sales to a 2.1 percent increase over last year from the 3.2 percent increase he had predicted earlier.

Reopening is often difficult after a storm. Because New York's subways and buses remained closed Tuesday, it was hard for many employees to get to work. Macy's and Saks Fifth Avenue flagship stores stayed closed Tuesday — bad news for those retailers, because major department stores can derive 10 percent of annual sales from their Manhattan locations.

Still, those stores that could open for business did. A Westside Market in Manhattan remained open 24 hours a day throughout the storm, even though only about 20 percent of workers managed to show up Monday and Tuesday.

"They found a way to get here — I don't know how," store manager Jay Bilone said.

Insured losses from the superstorm will likely total $5 billion to $10 billion, the forecasting firm Eqecat estimates. Insurance losses are typically a fraction of the overall cost.

Chubb, Allstate and Travelers are the insurers most likely to suffer losses, said Greg Locraft, an analyst at Morgan Stanley. Those companies claim a major share of the affected areas.

But "as an insurance event, Sandy is going to be a blip on the balance sheet," said Duncan Ellis, U.S. property practice leader at Marsh, the insurance broker. "2012 has been a relatively catastrophe-free year."

Economists expect actual property damages from Hurricane Sandy to exceed those caused last year by Hurricane Irene, which cost $15.8 billion. Irene had little effect on the nation's growth.

Sandy will likely be among the 10 costliest hurricanes in U.S. history. It would still be far below the worst — Hurricane Katrina, which cost $108 billion in 2005.

But "there is every reason to believe that the hurricane won't kick the legs out of an already-fragile U.S. economy," Caranci said.

___

AP Business Writers Sandy Shore in Denver, Candice Choi, Anne D'Innocenzio, Matthew Craft, Bernard Condon and Bree Fowler in New York and Mark Jewell in Boston contributed to this report.

Who Gets Rich Off 'Free' Government Phones

NEW YORK (CNNMoney) -- One of America's fastest-growing wireless carriers is a company you've probably never heard of: Tracfone Wireless. It's the U.S. arm of a telecom empire controlled by the world's richest man, Carlos Slim, and it's the biggest player in an increasingly lucrative market: subsidized mobile phones for low-income Americans.

The subsidy became a political flashpoint recently thanks to an incendiary YouTube video featuring a Cleveland resident praising her free "Obama phone." Hype from the Drudge Report and conservative ringleaders like Rush Limbaugh propelled the video to nearly 5 million pageviews.

The real story behind the phones is more nuanced than the 45-second clip.

The subsidy is from a government-created program called Lifeline, which is paid for by customer fees on most phone bills. The program is overseen by the Federal Communications Commission, and has its roots in a universal access initiative that began in 1985, during Ronald Reagan's administration.

Here's how it works: If you're eligible for other forms of government assistance like Medicaid or food stamps (the rules differ by state), then you qualify to receive a $9.25 per month phone subsidy.

Participating wireless companies will typically offer a free phone (paid for by the company), with an allotment of
Lifeline minutes each month.

Lifeline subscribers can collect only one monthly subsidy, for either a landline or a wireless phone. Around 75% of them have chosen to go wireless.

Where does the money for Lifeline subsidy come from? You.

Take a look at your phone bill and you'll see a charge -- typically a few dollars a month -- for payments to the "Universal Service Fund." That's the umbrella program covering various ventures, including Lifeline, that are designed to make telephone communications universally available to all Americans.

The government requires most telecoms to pay into the fund. The carriers then typically pass the costs on to their customers as a monthly surcharge. Last year, Lifeline accounted for 20% of the $8.1 billion Universal Service Fund distributed to support connections for rural areas, schools, hospitals and low-income individuals.

There are 17 million households currently signed up for the program, up from under 7 million just four years ago.
There are two reasons for the rapid growth.

First, the recession dramatically increased the number of people who are eligible.

Second, in 2008, during George W. Bush's administration, the FCC allowed wireless carrier Tracfone to join the program's list of approved providers.

Tracfone has aggressively gone after Lifeline customers. It advertises its "free phone" on television, pays commissioned street teams to canvas low-income neighborhoods for new subscribers, and signs customers up through a splashy website that promises "250 Free Minutes Every Month! Pay Nothing!"

Those tactics are paying off. Tracfone now has more than has more than 4 million subscribers in its Lifeline program, called SafeLink, and collected $452 million last year from the program's subsidies. That's twice what it took in two years ago, and far more than any other provider. (The runners-up, AT&T (T, Fortune 500)and Sprint (S, Fortune 500), each collected around $274 million.)

The Lifeline cash is a substantial chunk of the $3.8 billion Tracfone generated last year in annual sales. The company is the American subsidiary of América Móvil, the Mexican telecom giant run by Carlos Slim, the world's richest billionaire.

Lifeline customers aren't as profitable for Tracfone as traditional ones, but the streams are reliable and help expand the company's customer base.

"The wonderful thing about the program is that individuals who no longer qualify for the phone keep the phone," says Jose Fuentes, Tracfone's director of government relations.
"They can continue to remain Tracfone customers."

Advocates say the program is an essential safety net: A telephone links people to emergency services, and it's almost impossible to get a job without a phone number.
"I use it to keep in touch with my family and my friends, and work-related services like business appointments," says Kathy Jarrett, a Brooklyn, N.Y. resident who has been a Lifeline subscriber for four years. "If I didn't have a phone I would be a wreck."

But in the days leading up the election, the booming Lifeline expansion is raising eyebrows. The program paid out $1.6 billion last year, more than twice the $772 million it spent in 2008.

Congressman Tim Griffin, a Republican from Arkansas, blasted it as a "government-run, taxpayer-funded" boondoggle that's "riddled with instances of abuse." He introduced a bill that would drop mobile phones from the program.

"That is one of the biggest misconceptions that are out there today, that federal dollars go directly to the Universal Service Fund," says Tracfone's Fuentes. "That is completely incorrect."

Griffin's retort: "Consumers are forced to pay it, and where I come from, that's a tax."

Democrats have also challenged Lifeline's excesses. Senator
Claire McCaskill, from Missouri, drew attention last year to Lifeline's minimal oversight after receiving a flyer at home inviting her to get a free cell phone. (With an annual Senate salary of $174,000, McCaskill isn't exactly the target market.)

The FCC implemented anti-fraud measures earlier this year, requiring subscribers to prove their eligibility, canceling service if the phone is not used for 60 days, and preventing individuals from having multiple phones. The agency says it canceled 800,000 duplicate contracts and expects to save $200 million this year.

Lifeline "wreaks havoc" in the competitive market, according to Roger Entner, the founder of Recon Analytics, a wireless industry research and consulting firm. Carriers targeting the prepaid market -- one of the industry's fastest-growing segments -- can't compete with free phones.

But in the end, he thinks the safety net is worth it.

"As a country we want everyone to have communications. Without a phone, you can't get a job," Entner says. "I'm sure that Lifeline has literally saved people's lives."

Source: http://money.cnn.com/2012/10/26/technology/mobile/tracfone-free-phones/index.html

Megastorm’s Effect on Gas Prices Will Come in Waves

How Hurricane Sandy will affect gas prices will depend on how much damage it causes and how long oil production slows.

On the one hand, the drop in demand on the East Coast as businesses shut down, mass transit and airline travel stops and people stay home could bring a slight drop in gas prices here, predicted Phil Flynn, a gas industry analyst for the Price Futures Group in Chicago.

Already, on Monday, crude oil prices fell $1, or 1.1 percent, to $85.32 a barrel.

Tom Kloza, chief oil analyst at Oil Price Information Services, said he expects the drop in demand for oil and refined products “will be about as significant as we’ve seen since Katrina made landfall” in 2005.

But on the flip side, if East Coast refineries are hammered, consumers could be, too, said Beth Mosher, spokeswoman for AAA Chicago, pointing to the Phillips 66 Bayway Refinery in Linden, N.J., which processes about 240,000 barrels a day and is directly in the storm’s path.

On Monday, Phillips shut the Linden refinery, and most other big refineries in the Northeast were running at reduced capacity.

Illinois gas prices have been trending downward, as is expected this time of year. The average price of a gallon of regular unleaded gas was $3.496 on Monday, down from $3.957 one month ago, according to AAA’s fuel gauge report.

Contributing: AP

Source: http://www.suntimes.com/business/16038668-420/megastorms-effect-on-gas-prices-will-come-in-waves.html

Skills, Job Gap Widens for Local Manufacturing Firms

Local manufacturing encompasses a mind-boggling array of stuff, from Little League trophies to biopsy needles. But there's something manufacturers can't get from a production line, and it's what they need most: skilled workers.

Say "skills gap" to any manufacturer, and invariably they'll respond with the number 600,000. That's the gaping hole of unfilled jobs at U.S. manufacturers — for Illinois, estimates point to 30,000 unfilled jobs. The talent shortfall carries serious consequences. In a Manufacturing Institute 2011 skills gap report surveying more than 1,100 U.S. manufacturers, 74 percent of respondents said a lack of skilled production workers was harming productivity or hindering their ability to expand operations.

That skills gap will widen. The Society of Manufacturing Engineers, based in Dearborn, Mich., predicts the number of unfilled manufacturing jobs will reach 3 million by 2015.

Despite the dire outlook, some say there's a relatively simple way to defuse the sector's talent bomb. Peter Cappelli, for one, likens manufacturers' talent complaints to shopping for a car, not finding the vehicle you want within your budget — and then concluding there's a car shortage. "If you want to get people into a particular field, you might start by paying them more," says Mr. Cappelli, director of the Center for Human Resources at the University of Pennsylvania's Wharton School. "Or make the training more attractive and easier to do."

Entry-level wages for machinists in Illinois were $12.74 an hour in 2011, or $26,500 annually. The median, meanwhile, was $18.82, or $39,150 annually, according to the Illinois Department of Employment Security. By contrast, the average wage for a machinist 25 years ago was $12.08 an hour, according to a survey conducted in 1986 by the Illinois Manufacturers' Association. Adjusted for inflation, that wage would be $25.51 today.

And for young people considering a career in manufacturing, recent employment trends could be discouraging. Manufacturing employment statewide stood at 594,800 in September, according to IDES; 10 years ago, the figure was 799,100.

Filling the skills gap will become even more critical in coming years, as manufacturing equipment becomes more technical, requiring an even higher aptitude for math and computer skills.

And then, there's the retirement problem.

"One of the largest manufacturers in the world is telling us that they're going to lose 40 percent of their workforce in the next couple of years," says Jeannine Kunz, SME's director of professional development. Confidentiality prevents her from naming the company, she says, "but if I told you, it would scare you."

To address the skills shortage, Ms. Kunz says she's seeing manufacturers invest more in training. She acknowledges that's a shift from the economic boom at the end of the 20th century, when many manufacturers cut training programs. "Now we're kind of paying the price," she says.

It's possible that the retirement wave could have an upside, says Steve Ferrara, chief operating officer of BDO USA and a member of the Chicago-based accounting and consulting firm's manufacturing industry group. He sees it as "an opportunity for innovation, because some of the older people are afraid of technology," he says. "These kids today, they grow up with a computer in their crib."

Of course, that opportunity hinges on the ability to sway tech-savvy youngsters toward careers in manufacturing. The sector has an image problem.

"You're dealing with people whose great-uncle worked in manufacturing, and their memory of manufacturing is of a shrinking industry," says Michael Sloan, dean of agricultural and industrial technologies at Illinois Central College in East Peoria. At his school, culinary arts classes fill quickly, but that's not the case for the one-month classes that give 160 hours of training to operate computer numerical control machines—even though local manufacturers have about 250 CNC jobs open. The school has trained two dozen CNC operators this year, an improvement over last year, when about five people signed up.

'GROW THEIR OWN'

The solution, as Pam McDonough sees it, is for manufacturers to "grow their own" via training. But training can be expensive and time-consuming, particularly for smaller firms. The organization she heads, NORBIC (the North Business and Industrial Council)—a sister organization to the Alliance for Illinois Manufacturing—aims to help businesses handle the paperwork required to get state and federal training grants. "The little guys don't even know about programs like this because they're so buried in trying to run their business," she says.

Some manufacturers are training lower-skilled employees to take on higher-skilled jobs. For several years, that strategy has succeeded at Nation Pizza Products in Schaumburg. That includes providing language training, because some higher-skilled machines require a certain level of English comprehension.

But lifting lower-rung employees up the ladder doesn't fill every open position, says Michael Alagna, Nation Pizza's chief operating officer. For many employees in lower-skilled positions, like assemblers, today's skills gap looks more like a chasm. Many lack the basic math or computer aptitude required to operate more sophisticated machinery.

"In the past, a maintenance mechanic had a wrench, a hammer and a screwdriver," he says. "Today, if you're talking about running or maintaining a machine, you have to know ratios. You have to be able to go into the computer and find what might be at fault in the program."

Last year, Nation Pizza spent about $200,000 on training, and received about $100,000 in reimbursement from the state Employer Training Investment Program, a subsidy launched in 2003 that reimbursed manufacturers for up to 50 percent of training spending. But grants have dried up, says Mr. Alagna, especially from the state; he says he hasn't received any ETIP reimbursement for training costs this year.

That's not a surprise: ETIP funds have shrunk to $9.9 million this fiscal year, from $12.5 million in fiscal 2010. For fiscal 2013, job-training funds available to the Illinois Department of Commerce and Economic Opportunity plummeted to $615,000. In addition, the Illinois General Assembly redirected $6.75 million in job-training funds to five private entities, including the Illinois Manufacturers' Association and the Chicago Federation of Labor.

At Trelleborg Sealing Solutions in Streamwood, managers have seen another, harder-to-measure cost of the skills gap: burnout.

Five years ago, Trelleborg had three CNC machines; now it has 33. In late 2011, it often spent up to six weeks trying to fill CNC positions. "It hurts the bottom line," says Kathy Keblis, human resources director. When positions went unfilled, other employees had to work six days a week, and fatigue set in. "When you work people too many hours, you start to have quality issues and absenteeism." In response, the company started an in-house CNC apprenticeship program in

January, which is training 27 employees.

Source: Read more: http://www.chicagobusiness.com/article/20121025/ISSUE02/121029899/skills-job-gap-widens-for-local-manufacturing-firms#ixzz2APbAYXK6