Hotel Wars: the Drama behind the Hospitality Trade

LA Times

 

When Ross Klein arrived at Hilton Worldwide's Beverly Hills headquarters to create a new luxury chain, he was the "it" guy in the hottest segment of the lodging business.

A former retail marketing whiz, Klein had trained his fashion sense on the buttoned-down hotel industry, helping turn the W chain into a hip money-maker for its parent, Starwood Hotels and Resorts Worldwide Inc. Hilton lacked a product to compete. So it lured Klein away from Starwood in 2008 by offering him a chance to build a brand from scratch.

Klein delivered, quickly cooking up Denizen, a funky, sophisticated hotel concept. At a lavish launch party last year in Berlin featuring scantily clad dancers and an opera singer, Hilton Chief Executive Christopher Nassetta hailed Klein as a "creative genius."

But to hear his ex-employer tell it, Klein is a copycat and a thief. Starwood claims he carried off thousands of pages' worth of documents filled with the company's trade secrets and shared them with Hilton management, according to a civil lawsuit it filed last year in U.S. District Court in New York. Now federal prosecutors are looking into filing criminal charges against Klein and others that include conspiracy, computer fraud and theft.

Hilton denies that any senior executives knew about the material and says it is cooperating with the government. The company fired Klein after just 11 months on the job and killed the Denizen brand.

But the legal wrangling exposes a side of the cheery hospitality trade that guests and even hoteliers don't normally see — one rife with claims of corporate espionage, double-dealing and poaching of top performers.

"It's a very small-knit community where people know each other, and this sort of thing just isn't done," said Alan Reay, president of Atlas Hospitality Group.

Industry veterans say the suit is the ugly fallout from a lodging boom a few years ago, when investors were pouring money into expansion and hotel companies were scrambling for talent. Loaded with nearly $21 billion in debt from a leveraged buyout by private equity firm Blackstone Group, Hilton needed to deliver results.

"In my 15 years of practicing law in this area, I have not seen a case at this level," said Todd Sullivan, a lawyer with the firm Womble Carlyle in North Carolina, who specializes in trade secrets. "It's almost like Greek tragedy."

Klein's short Hilton career began soon after Blackstone bought the chain for $26 billion in 2007. The purchase put pressure on Hilton and its new chief executive, Nassetta, to expand beyond its 10 existing brands, which include the Waldorf Astoria and the Conrad Hotels.

Hilton had failed to get into the fast-growing boutique sector. Starwood's first W opened in 1998 in New York, and it quickly attracted stylish, young travelers who were willing to pay top dollar to enjoy the hotel's sultry lounges, individually designed rooms and trendy furnishings. Rooms there currently fetch as much as $750 a night.

Starwood founder Barry Sternlicht is credited for creating the W brand. But Klein, who served as the president of Starwood's luxury brands, became the force behind it after he was hired in 2003 from the fashion house Ralph Lauren. There, as senior vice president for marketing, he had helped pump up sales of Polo jeans and perfumes.

Klein declined a request to be interviewed. But hotel industry veterans say he stood out like a bolt of lightning in the conservative hotel industry with his artistic flair and colorful clothing. At the Berlin launch event he appeared tan and trim, sporting a goatee and a pink tie and vest.

"Ross is a flamboyant character," said Andrew Sangster, editor of Hotel Analyst. "In a very staid industry he looks, shall we say, unusual. And quite refreshing for it, frankly."

W was never the biggest brand — it currently accounts for just 35 of Starwood's 1,000 properties. But the niche is lucrative, and other chains hustled to catch up.

Court documents show that Nassetta began quietly recruiting Klein almost as soon as he took over at Hilton. Meanwhile, Nassetta's deputy pursued Klein's more straight-laced colleague, Amar Lalvani, a California-raised, Harvard-educated MBA who was responsible for overseeing the business side of W's global expansion.

Klein and Lalvani announced their departures from Starwood in May 2008, within a few days of each other.

"It was one of the biggest hiring coups in the industry that anyone remembers," said Mary Gostelow, editor of numerous hotel industry publications.

But Starwood said those defections cost it much more than talent. In his final weeks at Starwood's headquarters in suburban New York, Klein brought in a personal laptop to download company data, according to the lawsuit. He also packed boxes with "brand bibles," internal financial reports, demographic studies — "a veritable mother lode of computer and hard-copy confidential information," the lawsuit said.

The information quickly circulated among top brass at Hilton after Klein's arrival in Beverly Hills, the complaint said. Starwood alleges that 44 executives at the highest levels of Hilton, including Nassetta, read the purloined materials and used them to develop Denizen, knowing full well that they were the intellectual property of a competitor.

According to the lawsuit, one Hilton executive sent Klein an e-mail that said "I am voraciously reading these … W Residential Development Kits"; another advised discretion: "I'm concerned that these are all Starwood documents"; and yet another urged Klein to speed the "Hiltonizing" of documents, seemingly a reference to hiding the origin of the material so it could be shared with "the Exec Group ASAP."

Lalvani funneled confidential information to Hilton while he was still employed at Starwood, according to the complaint, including plans for a new W in Thailand. "Let's discuss protocol during my transition on deals like this so we don't miss them," Lalvani said in an e-mail quoted in the lawsuit. "This is going to be fun."

Klein and Lalvani also lured some of their old colleagues from Starwood to Hilton, and Lalvani sent an e-mail to one of the defectors asking him to bring along more Starwood documents, the complaint said.

A Hilton vice president blew the whistle in November 2008. In an e-mail cited in the lawsuit, the employee wrote that Klein had "put some of these highly proprietary documents on Hilton's internal computer server, and instructed Hilton personnel to use these proprietary Starwood documents as a detailed plan for them to follow."

Around the same time, Starwood attorneys sent a letter to Hilton requesting records related to the spate of employee defections. Hilton launched an internal investigation.

Still, work on Denizen proceeded apace. At the March event in Berlin, there were few signs of any trouble. Nassetta publicly praised the men.

"Our team has worked literally tirelessly, led by Ross Klein, the creative genius behind this fabulous brand, and Amar Lalvani, who has been running around the world," Nassetta said before announcing the Denizen name.

Barely a month later, Starwood filed its complaint in federal court. Hilton denied wrongdoing and vowed to press ahead with Denizen. But days later it agreed to scuttle its plans for the new chain. It also fired Klein, Lalvani and several other former Starwood employees.

Starwood has not let up. The first complaint accused only Klein and Lalvani of wrongdoing; a second, filed early this year, expanded its allegations to include dozens of Hilton executives including Nassetta and his corporate secretary and general counsel Richard Lucas. Starwood has asked that Hilton pay unspecified damages and that it be kept out of the W's lifestyle and luxury sector.

Hilton attorney Aaron Marks said that Hilton warned Klein and Lalvani against bringing any proprietary Starwood materials with them.

"There's absolutely no evidence that anyone at Hilton encouraged, condoned or knew about former Starwood employees' bringing over confidential materials belonging to Starwood before it happened," Marks said. "From Hilton's perspective, these guys shouldn't have brought with them any of it."

The U.S. attorney in Manhattan has empanelled a grand jury to consider whether the actions of the Starwood defectors were criminal. This February, the prosecutors filed a motion with the judge overseeing the civil lawsuit filed by Starwood, asking for that case to be put on hold while the criminal prosecutors finish their probe into potential fraud, theft of trade secrets and conspiracy.

Klein still lives in Los Angeles. LinkedIn, a professional networking site, lists him as an independent marketing and advertising professional. The same site indicates that Lalvani has moved back to New York and founded One Day Partners, a travel consultancy.

A lawyer for Klein, Ronald Nessim, said: "This case is much more nuanced than Starwood's exaggerated and misleading complaint suggests."

A lawyer for Lalvani, Christopher Morvillo, said: "Starwood's complaint strings together half-truths, inaccuracies and hyperbole into a colorful but ultimately misleading story. Amar acted at all times consistently with his stellar reputation in the industry and looks forward to the truth coming out."

Hilton moved its headquarters from California to a suburb of Washington, D.C., last year, adopted a new logo and hired a new executive to explore the boutique sector. In the meantime, the privately held company has struggled under its debt load; it recently negotiated a $4-billion reduction with its lenders.

Like other hotel firms, Starwood has felt the economic slowdown. But the W chain has continued to expand. In January the newest W opened in Hollywood, and five more openings are planned for this year in places as far-flung as St. Petersburg and Bali. The parent company's share prices have been rising over the last year.

Industry insiders said the brief glimpses of Denizen left many with the belief that W might have had a worthy competitor.

"It was genuinely quite different," said Sangster. "How effective it would have been, no one will ever know."

Electric Vehicle Owners Tout Benefits

Baltimore Sun

 

John Alder's 1991 Suzuki GSX 600 Katana motorcycle barely made a sound as it pulled out of his driveway Monday. That's because the Catonsville man converted it to run on an electric motorcycle battery.

But lack of noise is just one benefit, he says. Even better, there are fewer climate-warming emissions, and dependence on gasoline is eliminated. Alder charges the bike at home in his garage at night.

The front-yard demonstration was part of an effort by local electric-vehicle owners and environmentalists to draw attention to the positive impact of switching our car-loving nation to less-polluting options.

"I thought electric vehicles would be something we'd have by now," Alder said, explaining why he converted his bike, at a total cost of about $3,500, including the motorcycle. "It's just not happening."

Alder and others called on Congress to pass energy legislation that would promote the greener technology. The House of Representatives has passed a bill, but the effort has stalled in the Senate.

Environment Maryland, hosts of the Monday event, called on Maryland senators to urge the leadership to take a vote. The group also released a report called "Charging Ahead: Curbing Oil Consumption with Plug-In Cars" that outlines the potential benefits and how the switch would work.

The report says the current electric grid could fuel up to 73 percent of U.S. vehicles without building another power plant if the vehicles were charged at night or solar energy was used during the day.

Brad Heavner, state director of the environmental group, noted that many carmakers are beginning to roll out plug-in hybrids or fully electric cars, including the Nissan Leaf, Chevy Volt and Toyota Prius. Operating costs are likely to be about 5 cents a mile, the report says.

But more federal backing is needed to push change faster, Heavner said.

"The catastrophe of the BP oil spill in the Gulf of Mexico is making it more clear than ever that we need to work harder to reduce our dependence on oil," he said. "The U.S. Senate must pass a comprehensive global warming bill that caps emissions and invests in clean energy options, including electric vehicle technology."

He was backed by the Maryland League of Conservation Voters and the Sierra Club, as well as state Dels. James E. Malone Jr. and Steven J. DeBoy Sr., Baltimore County Democrats. The lawmakers plan to work with homeowners associations on legislation in the next year to allow residents without garages to use extension cords to plug in electric cars – one of the logistical issues associated with the plug-ins. Other issues include the relatively high price to buy the vehicles, lack of a network of charging stations and the limits of their batteries.

Robert Neighbour of Laurel, who in January traded in his Pontiac Fiero that he had converted to battery power for a manufacturer-produced all-electric Toyota RAV4, said such vehicles still have speed and distance limitations. He and Alder said they expect that to change as the technology advances.

"But I haven't bought a tank of gas since October of last year," Neighbour said.

Wal-Mart Offers 1.4 Million Employees College Courses

Bloomberg / Business Week

Wal-Mart Stores Inc., the world’s biggest retailer, plans to offer its U.S. employees the opportunity to earn college degrees in a partnership with American Public University.

Workers will be eligible for grants from American Public totaling 15 percent of tuition, the Charles Town, West Virginia- based online educator said today in a statement. Earning degrees in fields such as security management, employees will receive credit for on-the-job experience, American Public University said. Academic work will be done through online classes beginning in September.

“Our partnership with APU will not only help you build an even better life for yourself and your family, but will help put you ahead in your Wal-Mart career,” Eduardo Castro-Wright, vice chairman and U.S. stores chief, said today in a letter to employees.

Wal-Mart, based in Bentonville, Arkansas, employed 2.1 million people worldwide and 1.4 million in the U.S. as of Jan. 31. The retailer’s stock price was unchanged at $51.72 in New York Stock Exchange composite trading at 4:15 p.m. The shares slipped 3.2 percent this year.

APU, part of American Public Education Inc., offers 70 undergraduate and graduate programs through online classes. Undergraduate courses cost $250 per credit hour and graduate classes are $300. Each Wal-Mart employee enrolled in the program will receive grants totaling 15 percent of tuition, the retailer said on its website.

American Public Education increased $1.11, or 2.7 percent, to $42.24 on the Nasdaq Stock Market. The shares have jumped 23 percent this year.

Economic Impact of Immigrants' Exodus from Arizona Debated

Arizona Republic

 

The exodus of illegal and legal immigrants predicted by some as a result of Arizona's tough new immigration law is expected to hurt a variety of businesses that directly and indirectly cater to immigrant populations.

It is difficult to estimate the potential economic impact, but economists and market analysts agree it could be substantial.

The fallout could cause a decline in sales at retailers and, ultimately, could cause some businesses to go under.

It could push up vacancy rates at older, Class C apartment complexes and retail centers in immigrant neighborhoods. Other businesses that cater to immigrants, such as check-cashing stores and taxi services, also could be impacted.

Senate Bill 1070 takes effect July 29. Arizona's immigration law makes it a state crime to be in the country illegally. It states that an officer engaged in a lawful stop, detention or arrest shall, when practicable, ask about a person's legal status when reasonable suspicion exists that the person is in the U.S. illegally.

Despite the expectation of economic fallout, many businesses say it hasn't come yet. Many of those same businesses reported an almost immediate impact after Arizona's employer sanctions bill took effect in 2008.

The Legal Arizona Workers Act, which took effect Jan. 1, 2008, gave the state authority to suspend or revoke the business license of any employer found to have knowingly or intentionally hired an illegal immigrant.

An estimated 100,000 illegal immigrants left the state as a result of the bill and some predict another 100,000 could leave as a result of SB 1070.

The impact of employer sanctions was quickly felt by Hispanic supermarkets such as Food City, which saw sales drop, and by retail centers that cater to the Hispanic population, such as Westcor's Desert Sky Mall.

Most of the businesses say they haven't yet seen a similar impact as a result of SB 1070, but note the measure hasn't yet taken effect, and they remain wary.

The apartment market is one area expected to take a hit.

"It could be significant," said Jim Kasten, president of Kasten Long Commercial Group, a Phoenix commercial real-estate brokerage that focuses on apartments.

The company recently surveyed Valley apartment owners and found that 60 percent believed they would be negatively impacted by SB 1070.

There are approximately 90,000 older Class C apartment units in metro Phoenix and about half of those are thought to be occupied by Hispanic immigrants, both legal and illegal.

Kasten said that increased vacancies could prompt landlords to lower rents even further to attract tenants, which could be detrimental to owners of Class A and Class B apartments as well.

Phoenix commercial real-estate analyst Bob Kammrath said that Class C landlords saw an immediate impact after the employer-sanctions bill was passed.

"They saw vacancies go up, and it became harder to lease up vacant units," he said.

Retail impact

Retail business in heavily Hispanic areas such as southwest Phoenix and downtown Mesa also saw an impact as a result of the employer-sanctions bill, but as of yet haven't seen a similar impact as a result of SB 1070.

"It's too early to tell, but the potential is there," Kammrath said.

He said that while many immigrants left after the employer-sanctions bill was passed, many may have returned because there have been few prosecutions under the law.

Kasten said that much of the impact of the employer-sanctions bill was felt between the time the law was passed and when it took effect.

"The perception of the law was scarier than the actual implications of the law," he said.

If that is the case with SB 1070, it could mean that the impact may not be much greater that what is currently being felt, he said.

Mall operator Westcor saw sales fall off at its Hispanic-oriented Desert Sky Mall in west Phoenix after the passage of employer sanctions, but like others hasn't seen a similar effect as a result of SB 1070.

"We're monitoring it," said Westcor spokeswoman Anita Walker.

Another business that caters to the immigrant population is the Phoenix Park 'n Swap near Washington and 40th streets.

Operations director Susan Barrett said the local swap meet attracts more than 10,000 people per week and caters to a predominantly Hispanic market.

On Wednesday night, which has been dubbed "Hispanic night," Barrett estimated that more than 90 percent of the vendors and customers are Hispanic.

She noted that the business saw an impact after the passage of the employer-sanctions law and also when there have been weekend rallies against SB 1070. But, she added the business hasn't yet seen a direct impact as a result of the new law.

"We're waiting," she said.

Small businesses hit

However, some small-business owners that cater to northeast Phoenix's Hispanic population saw an immediate drop in business since the passage of SB 1070.

Owners say they were already affected because their clientele was more likely to work in industries disproportionately affected by recent economic woes, such as construction. Many are contemplating closing.

"This is just going to make it worse," said Marissa Ruiz, owner of Contact Cellular, on Cave Creek Road. "On every corner on every street, there are empty businesses."

Owner Nick Solomon said business at shops he owns in northeast Phoenix's Palomino neighborhood, such as a laundry and grocery, decreased by 50 percent in the days after the passage of SB 1070.

An official at the Arizona Hispanic Chamber of Commerce said it only made sense that the state's small businesses would be affected by the state's new immigration law because many of their customers may no longer be in the state.

"When they leave, the local businesses that may have been catering to them . . . those people have to take a hit. The aisles are just not as crowded, it's a real impact but it's also an impact that has been steadily building," said James Garcia, spokesman for the organization.

Garcia said the chamber hasn't done any statistical research but has heard that small businesses in the Valley have been affected by the policy.

He said people tell him, "I had a restaurant in Guadalupe or I have a place in west Phoenix and it's been a real struggle" and "I've also heard recently, we were talking to one of these people with the ice cream in a little cart say, 'There used to be 35 of us with this small company. Now there are two,' " he said.

Foxconn Workers Say `Meaningless' Life Spurs Suicides‏

Bloomberg News

 

Ah Wei has an explanation for Foxconn Technology Group Chairman Terry Gou as to why some of his workers are committing suicide at the company’s factory near the southern Chinese city of Shenzhen.

“Life is meaningless,” said Ah Wei, his fingernails stained black with the dust from the hundreds of mobile phones he has burnished over the course of a 12-hour overnight shift. “Everyday, I repeat the same thing I did yesterday. We get yelled at all the time. It’s very tough around here.”

Conversation on the production line is forbidden, bathroom breaks are kept to 10 minutes every two hours and constant noise from the factory washes past his ear plugs, damaging his hearing, Ah Wei said. The company has rejected three requests for a transfer and his monthly salary of 900 yuan ($132) is too meager to send home to his family, said the 21-year-old, who asked that his real name not be used because he is afraid of his managers.

At least 10 employees at Taipei-based Foxconn have taken their lives this year, half of them in May, according to the company, also known as Hon Hai Group. The deaths have forced billionaire founder Gou to open his factories to outside scrutiny and apologize for not being able to stop the suicides. Gou built his company into the world’s largest contract electronics manufacturer and now clients from Apple Inc. to Hewlett-Packard Co. are probing the company’s working conditions.

Steve Jobs, Apple’s billionaire chief executive officer, who depends on Foxconn to make the iPhone and iPad, said the suicides are “very troubling.”

‘All Over This’

“We’re all over this,” said Jobs, speaking this week at a technology conference in Rancho Palos Verdes, California. His company does one of the best jobs inspecting suppliers, he said, adding the company is “not a sweatshop.”

Foxconn’s Longhua complex outside Shenzhen spans three square kilometers (1.16 square miles) and is criss-crossed by tree-lined streets with a water fountain at the center of the facility. Workers wearing polo shirts emblazoned with “Foxconn” in Chinese characters over their hearts walk along the streets. Men wear blue, women wear red. Security personnel wear white. The complex boasts its own hospital, a collection of restaurants and a swimming pool surrounded by palm trees.

The workers, 86 percent of whom are under 25 years old, live in white dormitories with eight to 10 people sleeping in a room. The living quarters have stairs running up the outside walls and the company has begun covering them with nets to prevent people from jumping.

12-Hour Stand

Inside the compound, at a factory devoted to computer motherboards, rows of young men and women stand at assembly lines, their feet shod in blue slippers and white caps on their heads. The smell of solvent hangs in the air. About 80 percent of the front-line production employees work standing up, some for 12 hours a day for six days a week, according to Liu Bin, a 24-year-old employee.

“It’s hard to make friends because you aren’t allowed to chat with your colleagues during work,” Liu said at Shenzhen Kang Ning Hospital where he was seeking help for insomnia. “Most of us have little education and have no skills so we have no choice but to do this kind of job. I feel no sense of achievement and I’ve become a machine.”

The company provides counseling for workers such as Liu, according to supervisor Geng Yubin. Geng, who has worked six years at Foxconn, says between 30 and 50 workers come to him daily for advice on their personal lives. Common problems are homesickness, financial woes, lovers’ quarrels and spats with co-workers, Geng said.

Without Direction

“For many of the young people who are here, this is the first time they’ve been away from home,” Geng said. “Without their families, they’re left without direction. We try to provide them with direction and help.”

Tian Yu fit Geng’s description. Tian, 18, left her parents and a life of growing sweet corn and rice in Hubei province, central China, to find a job in Shenzhen after graduating from high school, her father, Tian Jiandang, said. She was isolated and without friends at work, the elder Tian said. She worked at Foxconn for about a year.

On March 17, she jumped from the fourth story of her dormitory in the Longhua complex. She survived and was in a coma for almost two months. Her father still doesn’t know why she jumped and is afraid to ask because he thinks it will upset her, he said in an interview by her hospital bed. Foxconn is paying for her medical care.

Puzzled

The suicides and how to stop them mystify Gou.

“Are we going to have this happen again?” said Gou, speaking on May 27 when he opened the factory to the largest media gathering in company history. “From a logical, scientific standpoint, I don’t have a grasp on that. No matter how you force me, I don’t know.”

Less than a day after Gou made the remarks, a 23-year-old Foxconn worker jumped to his death, according to the Shenzhen police. Another worker slit his wrist and was hospitalized.

Born October 8, 1950, in Taipei to parents who emigrated from China’s Shanxi Province, Gou formed his company in 1974 with $7,500. Over 36 years, he transformed the supplier of plastic television knobs to the maker of iPhones and Sony Corp. PlayStations. Hon Hai Precision Industry generates more revenue each year than Microsoft Corp., Apple or Dell Inc.

His net worth reached $5.9 billion this year, according to Forbes Magazine. He owns 10.8 percent of the company as its largest shareholder, according to Bloomberg data. Hon Hai Precision has dropped 21 percent so far this year.

Gou’s Success

The basis of his success is clear, according to Pam Gordon, founder of Technology Forecasters, a market research firm specializing in contract manufacturers and supply chain.

“It’s the prices,” said Gordon. “Their prices are lower for high-quality work.”

Gou says he’s proud of what he’s accomplished at Longhua.

“I came here more than 10 years ago to this piece of fallow ground, this mountain,” Gou said. “We brought some colleagues and step by step we built it up.”

Gou’s ambition and discipline come through in his interactions with subordinates, according to people who have worked with him. He can talk for hours without notes and remembers product plans in minute details, according to six people who’ve attended meetings with him.

In a session Gou held in the second quarter of last year with about 200 managers and engineers to discuss the future of the company’s mobile-phone business, the chairman peppered division vice presidents with questions on progress reports, said three people who attended the gatherings and declined to be named because the event was not public.

Executive Punishment

At the same meeting, Gou ordered a senior vice president who could not respond in enough detail to stand before the group for 10 minutes as punishment, three of the people said.

Foxconn won Apple’s order to make the iPhone after Gou ordered the business units that make components to sell parts at zero profit, according to two people familiar with the plans who declined to be named because the details are not public.

Foxconn’s labor policies and practices are in line with industry standards and are regularly reviewed by government authorities and customers, it said in an e-mailed response to questions. Foxconn declined to comment on Gou’s management style.

Because Gou is willing to forego margins to win orders, clients like Apple and HP are able to boost their own profits, said Daniel Chang, who rates Hon Hai Precision “outperform” at Macquarie Group Ltd. in Taipei. Hon Hai Precision had an operating margin of 4.3 percent last year, compared with 27 percent for Apple and 9.6 percent for HP, Bloomberg data shows. The company’s net income jumped 37 percent to NT$75.7 billion ($2.3 billion) in 2009, its second-best year on record.

Fundamental Problem

“The fundamental problem for Foxconn and other Chinese factories is that their business model relies on a low-cost workforce sourced from rural areas of China,” said Pun Ngai, a professor of applied social sciences at the Hong Kong Polytechnic University. “Due to its size, Foxconn has to be that much tougher than other factories, and has to become more emotionally detached from its employees than others.”

In addition to Apple, Hewlett-Packard and Dell, the world’s largest and third-largest personal-computer makers, have begun investigations of Foxconn. Dell spokesman Jess Blackburn and Hewlett-Packard spokeswoman Shelby Watts declined to comment on the status of the investigations.

Apple and other computer makers should emulate American toy makers, who faced a similar predicament, according Gene Grabowski, who chairs the crisis and litigation practice at Washington-based Levick Strategic Communications, a public relations firm in Washington.

Lead Paint

After Chinese suppliers for Mattel Inc. were found to be allowing lead paint into products sold in the U.S. in 2007, the company sent inspectors to watch over the plants and invited the media to monitor improvements.

“Apple is especially vulnerable because Apple’s computer buyers tend to be more socially aware,” said Grabowski. “They care about computers, they care about the environment, they care about working conditions.”

For the group’s more than 800,000 employees in China, Foxconn’s success also provides a livelihood. One of them, 30- year-old Chen Zhonglei, said the suicides are due to the immaturity of the workers and not the company’s policies.

“These young workers coming in now are not as ready to take on hardship as much as I was when I arrived,” Chen said. “Psychologically they’re more fragile. These new workers need to come in with an idea about what they want to get out of working here.”

Best Conditions

Foxconn’s working conditions are among the best in China, said Huang Ping-der, an associate professor of Business Administration at Taipei’s National Chengchi University. The recent suicides in China have highlighted weaknesses in the company’s management structure, he said.

China had a suicide rate of 16.9 people out of 100,000 taking their own lives in 2004, according to estimates from the World Health Organization.

Foxconn raised pay for workers by 30 percent to 1,200 yuan from 900 yuan a month, spokesman Edmund Ding said yesterday. The additional money may not be enough to stem the suicides, according to Xiao Qi, a college graduate who works at Foxconn in product development. He earns 2,000 yuan a month, yet gets no joy from his job, he said.

“I do the same thing every day; I feel empty inside,” said Xiao, who said he has considered suicide. “I have no future.”

Head of Ratings Agency Tells Investors not to Rely on Ratings

Bloomberg / Business Week

Stephen Joynt, of Fitch, left; with Raymond McDaniel, center, of Moody’s; and Deven Sharma, of S.& P., are sworn in at a House Congressional Hearing in October, 2008.

Moody’s Corp. Chief Executive Officer Raymond McDaniel said his company’s ratings of collateralized debt obligations and residential mortgage securities in the past several years have been “deeply disappointing.”

McDaniel said the collapse of the housing market and subsequent economic slump were of a magnitude “many of us would have once thought unimaginable,” according to written testimony submitted to the U.S. Financial Crisis Inquiry Commission for a hearing today in New York on credit ratings. He said he is proud of Moody’s reputation and the firm’s record of 100 years of rating trillions of dollars in debt.

“However, the performance of our credit ratings for U.S. residential mortgage-backed securities and related collateralized debt obligations over the past several years has been deeply disappointing,” he said. “Moody’s is certainly not satisfied with the performance of these ratings.”

Moody’s, Standard & Poor’s and Fitch Ratings face scrutiny by Congress and state insurance regulators after assigning top grades to U.S. subprime-mortgage bonds just before that market collapsed in 2007, sparking the financial crisis. Moody’s said last month it may be sued by the U.S. Securities and Exchange Commission for filing false and misleading descriptions of its credit-ratings policies.

Warren Buffett, the billionaire chairman of Berkshire Hathaway Inc. and Moody Corp.’s largest shareholder, is also scheduled to testify. Buffett declined to provide his written testimony in advance, according to the FCIC. He had to be subpoenaed to be compelled to appear today, said Tucker Warren, a spokesman for the inquiry commission.

‘Not Pretty’

In his opening remarks, Chairman Phil Angelides said, “To be blunt, the picture is not pretty.” He added that “Moody’s did very well. The investors who relied on Moody’s ratings did not do so well.”

Angelides characterized the ratings service as a “triple-A factory,” saying that it assigned the top grade to 42,625 residential mortgage-backed securities from 2000 to 2007.

“In 2006 alone, Moody’s gave 9,029 mortgage-backed securities a triple-A rating,” said Angelides, whose panel was created to investigate the causes of the financial crisis as Congress debates the most sweeping overhaul of banking regulations since the Great Depression. “To put that in perspective, Moody’s currently bestows its triple-A rating on just four American corporations.”

AAA Downgrades

Many high-level ratings had to be lowered. In 2006, 83 percent of triple-A products were downgraded and in 2007, 89 percent of those considered investment grade were reduced to junk, Angelides said.

“This comes as close as you can to the very product being fraudulent or of no use to the marketplace in reality,” he said.

Former employee Eric Kolchinsky testified today that “it was very clear” that his future at the firm and compensation depended on the market share that he brought in. “That was reinforced in many ways, especially with these e-mails that were sent out at least quarterly and occasionally monthly,” he said.

“The problem with the ratings process is if you had a hunch that something was wrong or it was a qualitative feeling things were wrong, you couldn’t really do anything because you couldn’t say no to a deal,” Kolchinsky told the commission.

Kolchinsky has said Moody’s violated securities laws by knowingly providing “incorrect” ratings. The company has denied the claim.

Congressional Bills

The U.S. Senate in May approved a plan to allow regulators, instead of bond issuers, to choose who rates asset-backed securities after investors said the ratings companies inflated assessments of mortgage bonds because they were paid by Wall Street firms selling the debt. A panel, overseen by the SEC, would assign a credit-ratings company to evaluate an offering.

The proposal is part of a larger financial reform package that the Senate passed last month. After being reconciled with the House version of the bill, it must be signed by President Barack Obama to become law.

Moody’s shares gained 36 cents, or 1.9 percent, to $19.66 at 10:35 a.m. in New York Stock Exchange composite trading. They had lost more than 30 percent this year through yesterday.

S&P and Fitch representatives weren’t invited to speak at the hearing today because their testimony wasn’t needed to understand issues with the credit-ratings industry, said Warren, the FCIC spokesman.

The fact that only Moody’s executives will appear today isn’t related to its being notified by the SEC that the company may be sued, Warren said.

Buffett Sells

Buffett sold Moody’s stock in each of the last three quarters, reducing a stake that had remained steady at 48 million shares since 2000. Buffett, who oversees a U.S. equity portfolio with a market value of $50.9 billion at the end of March, invests in firms that he thinks have long-term competitive advantages.

Profits in the ratings industry are under pressure as bond buyers seek alternative sources of research, said Meyer Shields, an equity analyst with Stifel Nicolaus & Co. Some investors are doing more evaluations of debt on their own, while others are bypassing established firms such as Moody’s for newer ratings companies, Shields said.

“Clearly, rating agencies missed this whole crisis,” Shields, who has a “hold” rating on Berkshire shares, said in an interview. “It does, I think, change the perception of the value that the rating agencies bring to the table.”

Moody’s, whose founder John Moody created credit grades a century ago, competes with McGraw-Hill Cos.’s S&P unit and Fitch Ratings for business assigning grades to corporate debt and mortgage bonds.

D.C. Teachers' Union Ratifies Contract, Basing Pay on Results, not Seniority

The Washington Post

Washington Teachers' Union President George Parker calls the ratification of the contract "a great day for teachers and students." (Susan Biddle/the Washington Post) 

 

 

District teachers ratified a new contract Wednesday that dramatically expands Chancellor Michelle A. Rhee's ability to remove poor educators and places Washington on a growing list of cities and states that have established classroom results, not seniority, as the standard by which teachers are paid.

Members of the Washington Teachers' Union approved the pact 1,412 to 425 after a two-week voting period. The agreement now goes to the D.C. Council, where it is expected to be swiftly approved.

The contract, a product of nearly 2 1/2 years of contentious negotiations, combines a rich traditional financial package with unorthodox initiatives historically resisted by unionized teachers. It includes a five-year, 21.6 percent increase in base pay that will boost the average annual salary of a D.C. educator from $67,000 to about $81,000 and gives the city's public school teachers salaries comparable to those in surrounding suburban districts, according to a union survey. The payday stands out amid a wave of deep school budget cuts across the country. New York Mayor Michael R. Bloomberg said Wednesday, for instance, that his city will eliminate raises for its public school teachers and principals over the next two years to avoid deep job reductions.

Although the contract breaks new ground for the District, the extraordinary pace of change in national education policy has in some ways overtaken the document. When negotiations started in late 2007, the concepts embedded in Rhee's contract and evaluation proposals -- performance pay linked to test score growth, weakening of seniority and tenure -- were far more politically polarizing. As both sides hammered away at the bargaining table, these issues were swept into the mainstream by the Obama administration. Its "Race to the Top" grant competition encourages states to revamp their laws to incorporate some of these ideas. Several states, including Colorado and New York, have passed laws addressing these issues in the hope of snagging some of the $3.4 billion on the table.

"The ideas have gained currency at the national level," said former Baltimore mayor Kurt L. Schmoke, who is dean of Howard University's law school and was a mediator between the union and the District. "What was seen as bold is now reform, not revolution."

The highlights

A voluntary performance pay program to begin this fall could add $20,000 to $30,000 to D.C. teachers' salaries, based on significant improvement in student test scores and other yet-to-be specified criteria. The system, to be financed for the first three years under a controversial arrangement with private foundations approved by District Chief Financial Officer Natwar M. Gandhi, could raise total compensation for some instructors to $140,000, officials estimate. Although cities such as Denver have had incentive pay programs for several years, none promise the kind of money that Rhee says she is prepared to pay. For teachers who enter the plan, it means no longer having to invest 10 to 15 years in a lockstep pay schedule to command a significant income.

The contract -- in tandem with a new teacher evaluation system that will use growth in test scores as one benchmark -- will also dilute job security for some educators. It allows principals to use job performance, instead of seniority, as the chief determinant when reducing staff because of declining enrollment or program changes.

Under a "mutual consent" clause, displaced teachers who used to be assigned to new schools -- whether principals wanted them or not -- will no longer be guaranteed spots in the system and must find administrators willing to take them. Teachers with good evaluations who are unable to find a job have a year's grace period, at full pay, to continue the search. They can also opt for a $25,000 buyout or early retirement with full benefits if they have 20 or more years of service.

Both sides nevertheless expressed satisfaction with the final version of the accord.

"I am very pleased with the contract," Rhee said. "It strikes a great balance between making teachers understand that we very much value and support the work they do every day and on the administrative side giving us the tools we need to staff the schools effectively." Washington Teachers' Union President George Parker called it "a great day for teachers and students."

Randi Weingarten, president of the American Federation of Teachers, who shared negotiating responsibilities with Parker, was less effusive. She said she was pleased that after months of divisiveness, the two sides found common ground in "wanting teachers to be the best they could be" with provisions for increased professional development and classroom resources.

But the agreement reflects the top-down character of school governance in the District, where, she said, Rhee and Mayor Adrian M. Fenty (D) do not recognize the importance of collaboration with teachers.

"At the end of the day, this is still one of the industrial model contracts where a lot of the authority is reposed in the chancellor herself," said Weingarten, adding that the union was able to incorporate checks and balances into the contract that lend more transparency to Rhee's power.

WTU General Vice President Nathan Saunders said that he continued to regard the raises in the contract as "blood money" because of Rhee's decision to lay off 266 teachers last fall.

"We have to be concerned with what happened to our neighbors," said Saunders, who is a candidate for union president. But, he added, "teachers voted for it, and I can conclude nothing more than that it was their will."

High-stakes fight

The contract was approached by both sides as much more than another collective bargaining agreement. With the involvement of Rhee and Weingarten, two of the most outspoken figures in public education, it was viewed locally and nationally as a high-stakes confrontation pitting a new generation of urban school leaders, impatient for rapid change in failing big-city systems, against the politically influential teachers union, which wanted to preserve jobs but also be seen as a force for reform.

Weingarten and union negotiators scuttled Rhee's original proposal for a two-tier plan that would have forced teachers seeking top pay levels to relinquish tenure for a year, exposing them to dismissal without the right to appeal. Rhee's plan would have required new teachers to select the higher-risk salary track.

But Rhee negotiated away relatively little of what she sought. Tenure -- granted to eligible teachers in the District after two years and assailed by Rhee as the "holy grail" of unions -- was left technically intact. But it was redefined to affirm that it is only a due-process mechanism to protect against unfair dismissal, not a guarantee of a lifetime employment.

The accord and the evaluation system give Rhee a formidable toolbox of personnel and policy rules that supporters say could help dramatically improve teaching and learning. The mutual consent provision, for example, has potentially significant implications should Rhee decide to replace or "reconstitute" some or all of the staffs at schools deemed to be failing under the federal No Child Left Behind law, something she has done in previous years.

"What Michelle has put together, no other school district has put together. It's the whole package," said Kate Walsh, executive director of the National Council on Teacher Quality, a longtime advocate for changes in how teachers are hired, trained and compensated.

Rhee benefited enormously from the District's status as a city-state, with a school system under mayoral control. She answered only to Fenty and did not have to contend with an elected school board or a state legislature -- often an important source of political support for unions. She also gained advantage from a mid-1990s law passed by Congress that gave the school system sole authority over creation of a teacher evaluation system.

It allowed Rhee to formulate the new evaluation system unilaterally last year, away from the bargaining table. The result is a new vehicle praised by supporters for its rigor and criticized by many teachers for its excessive complexity and subjectivity.

Homeowners Stop Paying Mortgages and Stop Worrying

NY Times

 

For Alex Pemberton and Susan Reboyras, foreclosure is becoming a way of life — something they did not want but are in no hurry to get out of.

Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.

“Instead of the house dragging us down, it’s become a life raft,” said Mr. Pemberton, who stopped paying the mortgage on their house here last summer. “It’s really been a blessing.”

A growing number of the people whose homes are in foreclosure are refusing to slink away in shame. They are fashioning a sort of homemade mortgage modification, one that brings their payments all the way down to zero. They use the money they save to get back on their feet or just get by.

This type of modification does not beg for a lender’s permission but is delivered as an ultimatum: Force me out if you can. Any moral qualms are overshadowed by a conviction that the banks created the crisis by snookering homeowners with loans that got them in over their heads.

“I tried to explain my situation to the lender, but they wouldn’t help,” said Mr. Pemberton’s mother, Wendy Pemberton, herself in foreclosure on a small house a few blocks away from her son’s. She stopped paying her mortgage two years ago after a bout with lung cancer. “They’re all crooks.”

Foreclosure procedures have been initiated against 1.7 million of the nation’s households. The pace of resolving these problem loans is slow and getting slower because of legal challenges, foreclosure moratoriums, government pressure to offer modifications and the inability of the lenders to cope with so many souring mortgages.

The average borrower in foreclosure has been delinquent for 438 days before actually being evicted, up from 251 days in January 2008, according to LPS Applied Analytics.

While there are no firm figures on how many households are following the Pemberton-Reboyras path of passive resistance, real estate agents and other experts say the number of overextended borrowers taking the “free rent” approach is on the rise.

There is no question, though, that for some borrowers in default, foreclosure is only a theoretical threat for a long time.

More than 650,000 households had not paid in 18 months, LPS calculated earlier this year. With 19 percent of those homes, the lender had not even begun to take action to repossess the property — double the rate of a year earlier.

In some states, including California and Texas, lenders can pursue foreclosures outside of the courts. With the lender in control, the pace can be brisk. But in Florida, New York and 19 other states, judicial foreclosure is the rule, which slows the process substantially.

In Pinellas and Pasco counties, which include St. Petersburg and the suburbs to the north, there are 34,000 open foreclosure cases, said J. Thomas McGrady, chief judge of the Pinellas-Pasco Circuit. Ten years ago, the average was about 4,000. “The volume is killing us,” Judge McGrady said.

Mr. Pemberton and Ms. Reboyras decided to stop paying because their business, which restores attics that have been invaded by pests, was on the verge of failing. Scrambling to get by, their credit already shot, they had little to lose.

“We could pay the mortgage company way more than the house is worth and starve to death,” said Mr. Pemberton, 43. “Or we could pay ourselves so our business could sustain us and people who work for us over a long period of time. It may sound very horrible, but it comes down to a self-preservation thing.”

They used the $1,837 a month that they were not paying their lender to publicize A Plus Restorations, first with print ads, then local television. Word apparently got around, because the business is recovering.

The couple owe $280,000 on the house, where they live with Ms. Reboyras’s two daughters, their two dogs and a very round pet raccoon named Roxanne. The house is worth less than half that amount — which they say would be their starting point in future negotiations with their lender.

“If they took the house from us, that’s all they would end up getting for it anyway,” said Ms. Reboyras, 46.

One reason the house is worth so much less than the debt is because of the real estate crash. But the couple also refinanced at the height of the market, taking out cash to buy a truck they used as a contest prize for their hired animal trappers.

It was a stupid move by their lender, according to Mr. Pemberton. “They went outside their own guidelines on debt to income,” he said. “And when they did, they put themselves in jeopardy.”

His mother, Wendy Pemberton, who has been cutting hair at the same barber shop for 30 years, has been in default since spring 2008. Mrs. Pemberton, 68, refinanced several times during the boom but says she benefited only once, when she got enough money for a new roof. The other times, she said, unscrupulous salesmen promised her lower rates but simply charged her high fees.

Even without the burden of paying $938 a month for her decaying house, Mrs. Pemberton is having a tough time. Most of her customers are senior citizens who pay only $8 for a cut, and they are spacing out their visits.

“The longer I’m in foreclosure, the better,” she said.

In Florida, the average property spends 518 days in foreclosure, second only to New York’s 561 days. Defense attorneys stress they can keep this number high.

Both generations of Pembertons have hired a local lawyer, Mark P. Stopa. He sends out letters — 1,700 in a recent week — to Floridians who have had a foreclosure suit filed against them by a lender.

Even if you have “no defenses,” the form letter says, “you may be able to keep living in your home for weeks, months or even years without paying your mortgage.”

About 10 new clients a week sign up, according to Mr. Stopa, who says he now has 350 clients in foreclosure, each of whom pays $1,500 a year for a maximum of six hours of attorney time. “I just do as much as needs to be done to force the bank to prove its case,” Mr. Stopa said.

Many mortgages were sold by the original lender, a circumstance that homeowners’ lawyers try to exploit by asking them to prove they own the loan. In Mrs. Pemberton’s case, Mr. Stopa filed a motion to dismiss on March 17, 2009, and the case has not moved since then. He filed a similar motion in her son’s case last December.

From the lenders’ standpoint, people who stay in their homes without paying the mortgage or actively trying to work out some other solution, like selling it, are “milking the process,” said Kyle Lundstedt, managing director of Lender Processing Service’s analytics group. LPS provides technology, services and data to the mortgage industry.

These “free riders” are “the unintended and unfortunate consequence” of lenders struggling to work out a solution, Mr. Lundstedt said. “These people are playing a dangerous game. There are processes in many states to go after folks who have substantial assets postforeclosure.”

But for borrowers like Jim Tsiogas, the benefits of not paying now outweigh any worries about the future.

“I stopped paying in August 2008,” said Mr. Tsiogas, who is in foreclosure on his house and two rental properties. “I told the lady at the bank, ‘I can’t afford $2,500. I can only afford $1,300.’ ”

Mr. Tsiogas, who lives on the coast south of St. Petersburg, blames his lenders for being unwilling to help when the crash began and his properties needed shoring up.

Their attitude seems to have changed since he went into foreclosure. Now their letters say things like “we’re willing to work with you.” But Mr. Tsiogas feels little urge to respond.

“I need another year,” he said, “and I’m going to be pretty comfortable.”

Foxconn Raises Worker Pay 30% after Suicides

Associated Press

 

Taiwan's Foxconn Technology Group, shaken by a spate of suicides at its China plants, said Wednesday it is raising the pay of workers by 30 percent, a greater increase than first planned.

The company, which makes iPhones, iPads and other electronic gadgets, said the pay increase will take effect immediately at its plants across China.

"With the pay raise, we hope workers don't need to work overtime as much and thus gain more time for leisure and have a happier working environment," said a Foxconn official who asked for anonymity because he was not an authorized spokesman.

"It may also help cut the turnover rate and raise productivity and product quality level," he said.

The basic salary at Foxconn's China plants is currently about 900 yuan ($130) per month.

Foxconn had been considering raising pay for months to cope with a labor shortage following China's recovery from the global recession. The eventual raise is higher than the 20 percent the company had initially planned.

Ten workers have killed themselves and three have attempted suicide at Foxconn's operations in southern China this year, involving mainly workers who jumped from buildings. The most recent suicide attempt involved a 25-year-old man who slashed his wrists in the factory dormitory last week. One additional Foxconn worker in northern China also committed suicide this year.

Labor activists accuse the company of having a rigid management style, an excessively fast assembly line and forced overwork. Foxconn denies the allegations.

The company, part of Taiwan's Hon Hai Precision Industry Co., is the world's largest contract maker of electronics. Its long list of big-name customers include Apple Inc., Sony Corp., Dell Inc., Nokia Corp. and Hewlett-Packard Co.

Last week, Foxconn Chairman Terry Gou led a media tour of the company's mammoth industrial park in Shenzhen and promised to work harder to prevent more deaths.

Safety nets were being installed on buildings and more counselors were being hired. He also said all employees were being divided into 50-member groups, whose members would watch for signs of emotional trouble within their group.

U.S. Wants to Boost Airline Passenger Bumping Fee

Reuters

Maximum compensation for bumping passengers off oversold flights would rise to $1,300 under a U.S. government proposal released on Wednesday.

 

 

 

The Transportation Department plan would also expand its runway delay program to overseas airlines, making them comply with the same requirements as domestic counterparts for ground delays exceeding three hours.

Current bumping fees range from $400 to $800, depending on whether an alternative flight is available and whether the trip is domestic or international service.

U.S. airlines also would have to clarify charges for checking luggage and notify consumers if the fees rise.

The rule builds on steps taken by the Obama administration to bolster consumer protection in the wake of long ground delays and charging for bags as a way to get more money from their customers.

Other aspects of the new rule, which would take effect later this year if finalized by regulators, would allow passengers to cancel ticket purchases within 24 hours of making them without paying a penalty.

Nurses in Minnesota, California set Strike Dates

Associated Press

 

MINNEAPOLIS — Thousands of nurses in Minnesota and California on Friday announced plans to walk off the job for a single day next month if they don't reach contract agreements with hospitals.

The nurses — 12,000 in the Minneapolis area and nearly 13,000 at hospitals across California — both set June 10 as a strike date. The walkout stands to be the largest in U.S. history.

Nurses in California say low staffing levels are their main concern. In Minnesota, nurses cited that along with pay and pension issues in authorizing a strike last week. On Friday, the Minnesota nurses said filing notice of intent to strike was necessary to get the hospitals to move on negotiations.

"There is no way to meaningfully negotiate when one side doesn't show up," Nellie Munn, a registered nurse at Children's Hospital in Minneapolis and a negotiator, said.

Maureen Schriner, a spokeswoman for the Minnesota hospitals, said the strike notice "clearly shows the union is interested only in a strike and has demonstrated that it does not want to negotiate in good faith."

She said the hospitals would detail their plans to respond to a walkout next week. "The hospitals will take the steps necessary to maintain patient safety," she said.

The two sides are scheduled to meet with federal mediators Wednesday and next Friday.

A strike would affect thousands of patients at 14 hospitals in Minnesota, but it wouldn't affect two of the largest Twin Cities hospitals, Hennepin County Medical Center in Minneapolis and Regions Hospital in St. Paul, nor two large suburban hospitals that don't have union nurses or a contract up for renewal.

In California, National Nurses United bargaining director Jill Furillo said the one-day strike on June 10 would involve nurses from all University of California hospitals, Citrus Valley Medical Center in Covina, San Pedro Hospital and Olympia Medical Center in Los Angeles.

The union says there isn't enough staff to treat patients, requiring more attention from nurses. UC spokeswoman Leslie Sepuka dismissed that, saying safety is a top concern and the hospitals follow the law.

California law requires hospitals to maintain specific staffing levels in different areas of the hospital. For example, one nurse must be present for every two critically ill patients.

UCLA Ronald Reagan Medical Center oncology nurse Manny Punzalan said on weekends, evenings and lunch breaks, nurses frequently double up on their patient load because there are no nurses dedicated to cover breaks at many UC hospitals.

Last month at UCLA, an intensive care nurse assigned to one critical patient took on two more critical patients so a fellow nurse could take a lunch break, Punzalan said.

During the break, one patient went into atrial fibrillation, which means their heart stopped pumping properly, requiring immediate attention.

"All the other nurses jumped in and helped that patient, but you can imagine a time when other nurses are busy" in a critical care unit, said Punzalan.

German Economy Surges

Bloomberg / Business Week

Unemployment falls twice as much as forecast

 

German unemployment fell more than twice as much as economists forecast in May as exports from Europe’s biggest economy surged, bolstering the recovery.

The number of people out of work declined a seasonally adjusted 45,000 to 3.25 million, the lowest since December 2008, the Nuremberg-based Federal Labor Agency said today. Unemployment was forecast to shrink by 17,000, according to the median of 28 estimates in a Bloomberg survey. The adjusted jobless rate fell to 7.7 percent from 7.8 percent.

“The labor market seems to turn much earlier than many had thought,” Carsten Brzeski, an economist at ING Group in Brussels, said in a note to investors. “It should only be a matter of a few months before the unemployment rate returns to its pre-crisis level.”

Demand for goods including Siemens AG turbines and Daimler AG cars in emerging economies such as China is prompting companies to add workers. While the euro area’s fiscal crisis is undermining consumer confidence in the region, it’s also providing a boost to exporters. The euro has fallen 15 percent against the dollar this year.

German exports surged 10.7 percent in March, the most in 18 years, the Federal Statistics Office said May 10. Factory orders rose 5 percent, more than three times economists’ forecast.

The euro remained lower against the dollar after the report and was down 1.5 percent to $1.2120 as of 10:38 a.m. in London. Bonds rose, with the yield on the 10-year German bund falling 6 basis points to 2.595 percent.

OECD Outlook

The Organization for Economic Cooperation and Development raised its global growth outlook on May 26 and said Germany’s economy will expand 1.9 percent in 2010 and 2.1 percent in 2011.

Still, German business confidence unexpectedly fell last month after Europe’s debt crisis rattled financial markets and fueled concerns about the future of the euro. At the same time, additional budget cuts by countries trying to reduce deficits could damp economic growth and curb European demand for German goods. Unemployment in the euro area rose to a 12-year high of 12.1 percent in April, a separate report today showed. Spain had the region’s highest rate, at 19.7 percent.

‘Spring Recovery’

The Bundesbank said on May 26 that Germany’s economy will probably grow “strongly” in the second quarter, boosted by exports, the Bundesbank said May 26. Capacity utilization among manufacturers will rise to 79.8 percent in the quarter, the highest since the final quarter of 2008, it said.

“The spring recovery in the labor market continued in May,” Labor Agency head Frank-Juergen Weise told reporters in Nuremberg today. “Current developments reflect once again a clear improvement in the most important indicators.”

Chemicals maker Lanxess AG on May 28 said the second quarter is proceeding well and reiterated its outlook for a “significant” improvement in earnings this year because of exports. The company said it will spend as much as 150 million euros ($184 million) in 2010 to expand facilities in Germany.

Airbus SAS plans to add 800 workers at its German factories this year, Hamburger Abendblatt reported May 19, citing Chief Executive Officer Thomas Enders.

While Germany’s economy shrank 4.9 percent last year, the most since World War II, the government limited the unemployment increase with incentives for companies to retain workers. Chancellor Angela Merkel’s Cabinet in April extended the job incentives program until 2012, having earlier extended it to the end of this year.

According to OECD data, Germany’s jobless rate was 7.3 percent in March. The equivalent rate in France was 10.1 percent and the U.S. rate was 9.7 percent.