Posts for May 24, 2010

May 24, 2010

Last week's economic news was not as positive as in prior weeks. Of the seven major indicators that came out last week, only three improved. (To read all of last week's indicators, see the Latest Economic Reports section below.)

Although one of these reports moderated, two regional Federal Reserve district reports (New York and Philadelphia) showed that the manufacturing recovery continued into May. Positive effects from the homebuyer tax credit, which expired at the end of April, appear to be giving a temporary boost to the housing market. At the same time, serious headwinds, such as rising mortgage delinquencies and large numbers of distressed properties, will likely dampen a housing recovery going forward.

The NAM released the results of the first quarter 2010 NAM/IndustryWeek Manufacturing Index lase week. The NAM/IndustryWeek Manufacturing Index began in the fourth quarter of 1997. The latest results are based on the responses of 223 NAM member companies.

This quarter's survey showed that NAM member companies' confidence improved to its highest level in more than two years. In addition, there were improvements in expectations for sales, pricing power, employment and capital expenditures over the coming year.

When the economy was entering recession in the fourth quarter of 2007, 70 percent of survey respondents had a positive business outlook. By the first quarter of 2009, the level of optimism had fallen to just 28 percent. In the first quarter of 2010, the share of survey respondents with a positive business outlook returned to a level of 70 percent (see chart above).

Other key survey findings:

• Sales expectations for the next 12 months increased to 3 percent.
  
• Employment expectations increased to 0.4 percent.
• Capital investment expenditure expectations edged up to 0.3 percent.
  

The first quarter survey also included two timely questions on exports.

The results show that 71 percent of survey respondents export. Of those that export, about one-third (34 percent) expect exports to grow more slowly than domestic sales over the coming year; more than one-third (37 percent) expect export growth to rise as rapidly as domestic sales; and nearly one-third (29 percent) expect exports to grow more rapidly than domestic sales.

Complete results of the First Quarter NAM/IndustryWeek Manufacturing Index are online.

Dave Huether

Chief Economist

National Association of Manufacturers

BOEING MAY GET UNPREPARED ENGINEERS

May 24, 2010 – Today in Manufacturing.net
In the rush to fill a growing supply gap in the demand for aerospace engineers, some students may not be getting the education they need to become good engineers... continue

ECONOMIC TERRORISM

May 24, 2010 – Late Wire from Manufacturing.net
When America began off shoring products to China they naively expected the Chinese to play fair and act like America’s other trading partners, forgetting that China is one party authoritarian government and they might have a very different view of fairness and capitalism ... continue

ECONOMISTS MORE UPBEAT DESPITE DEFICIT WOES

May 24, 2010 – Today in Manufacturing.net
According to a new survey, economists forecast the pace of U.S. growth to pick up in the year ahead as consumers and businesses alike accelerate spending... continue

HOW E-MODS AFFECT THE BOTTOM LINE

May 24, 2010 - by Greg Summerhays, Workers Compensation Fund

If you don’t understand the definition of an experience rating modification factor (e-mod), you are not alone. The e-mod is a critical part of many employers’ workers compensation insurance costs. While this article attempts to explain in simple terms how e-mods are determined, it does not include all the detail that could affect your company’s e-mod.

CLASSIFICATION
Many insurance carriers use basic business and industry classification codes developed by the National Council on Compensation Insurance (NCCI). Under the system, each employee is assigned a class code based on job description and risk of injury. Many employers have multiple class codes on their policies because not all employees do the same job.

For example, a manufacturing company might employ office personnel, sales people and welders who all face different workplace hazards and therefore, different class codes.

NCCI assigns each class code a loss cost (base rate) that is based on the collective loss experience of companies within that code. Once class codes are determined for your employees, your manual premium can be calculated by multiplying the carrier’s class code rate with the estimated payroll for that classification.

ADJUSTMENTS TO PREMIUM
With the manual premium determined, adjustments (discounts or surcharges) are made to reflect the individual characteristics of the policyholder, and used to create the final premium. One such adjustment is the e-mod.

Like classifications, e-mods are calculated by NCCI. Employers must meet certain criteria to qualify for an e-mod. Generally, employers paying $3,500 in annual premium for two out of three years, or $7,000 in one year, are eligible. The e-mod calculation is generally based on the last three years’ losses and payroll per classification (excluding the most recent year).

E-mods are intended to predict an employer’s future losses by analyzing its past losses. Generally, the frequency of accidents has a greater impact on the e-mod calculation than the cost of the accidents.

For example, Company A has one loss of $100,000 and Company B has 20 losses of $2,000 each. Company A will probably have a lower e-mod than Company B. Cost however cannot be completely ignored in the calculation. To achieve this blend of frequency and cost, e-mods are “split rated”.

Split rating divides the actual costs of a claim into two buckets: (1) basic, or primary, and (2) excess. For each claim, the first $5,000 is primary. Any additional costs are excess. In the formula, the primary value is given more weight than the excess. In the example above, Company A’s primary value is $5,000 and Company B’s primary value is $40,000.

The expected losses are estimated and also split between the primary value bucket and the excess bucket. The actual losses are divided by the expected losses. The resulting number is the e-mod.

An employer with an e-mod below 1.00 has had less than expected losses druing the experience period. An employer with an e-mod above 1.00 has had losses that were more than expected compared to other employers in the same classification(s).

Here is a basic example of how the final premium is calculated. If Company 1 has an e-mod of .67, the final premium is $50,000 x .67 = $33,500. Company 2 has an e-mod of 1.71, the final premium is $50,000 x 1.71 = $85,500. That is a difference of $52,000.

An e-mod can be a reward for a good safety record or a penalty for a poor one. To keep your premiums and e-mod as low as possible, it is essential to create a safe workplace.

For more information on e-mods, contact your independent agent or WCF marketing representative, or visit NCCI’s website at http://www.ncci.com/.

Greg Summerhays is the Director of Public Relations at Workers Compensation Fund. WCF offers ongoing safety training and UMA members are eligible for a 5% premium discount through a partnership with WCF. Visit www.wcfgroup.com for more information.

FACTS
E-mods are mandatory for any company that qualifies to be rated.

E-mods are calculated by NCCI, not insurance carriers.

E-mods include all businesses under common ownership and in all states of operation.

E-mods are re-rated once a year, usually at policy renewal time.

Employers retain their e-mod even if they change insurance carriers.

E-mods may be transferable to new owners if the business is sold.

PRIVACY POLICIES

May 24, 2010 – Employers Council

At a time when identity theft is a real concern, employers should make sure their employee files are protected and their policies regarding privacy are up to date. While employers should do everything they can to ensure that employee files are secure, employers should also make sure that their employees are aware of privacy-at work expectations. For private employers, invasion of privacy claims generally result from a situation where an employer invades an area that the employee expected to be private. An employee's reasonable expectations of privacy in such situations can be limited by an employer's actions and communications. One of the most effective ways for employers to avoid invasion of privacy claims is to let employees know, through a handbook policy, that the employer's property and premises -- and anything employees choose to bring on the premises -- is not private.

Employers may inform employees that offices, desks, lockers, and anything else on the employer's premises may be subject to inspection and search under certain circumstances. Employers should also be clear about how they handle electronic information and should inform employees that e-mail messages, web browsing activity, voice mail, company cell phone usage, etc. are subject to being monitored. Employees should be informed that personal mail should not be directed to the office, as it will be assumed to be business-related and could be opened and reviewed, even unintentionally. The lesson is that employers can never be too careful, and employees cannot be over-informed!

UT PRIVATE EMPLOYER VERIFICATION ACT

May 24, 2010 – Employers Council

Starting July 1, 2010, private employers with 15 or more employees in Utah must use a status verification system (e.g., E-Verify) to verify a new hire's federal legal working status. A summary of this new “Private Employer Verification Act" is attached. The text of the Act is at
http://le.utah.gov/~code/TITLE13/13_47.htm.

Governor Herbert has decided NOT to call a special session of the legislature to reconsider the Act (S.B. 251, passed by the 2010 Utah Legislature). The Dept. of Homeland Security is offering free webinars on May 25th and 27th to provide on overview of E-Verify.

Click here to register.