Posted tagged ‘retail’

What’s Behind the Weak Jobs Report?

April 5, 2013

Bad news arrived today with the release of the monthly employment report by the U.S. Bureau of Labor Statistics.  Only 88,000 non-farm jobs were added across the country in March. Following  two months which saw the U.S. add 148,000 and 268,000 jobs respectively in January and February, the low number raises concerns that the U.S. may again be heading for a “Summer slump” after showing signs of stronger job growth early in the year.

I share that concern but I am most interested in what the job growth numbers may or may not imply about recent U.S. economic and domestic policies.  I know sequestration is the hot policy topic and may be blamed or credited for all evil or good that occurs in the U.S, economy this year, but it is really too early for it to register much  impact on March’s job growth.  Two other policies have the potential to more significantly impact job growth in the near term.  The details of the March employment report provide some clues about if and how these policies may affect job growth in the future. The elimination of the temporary reduction in the payroll tax and health care coverage mandates in the Affordable Care Act are policy impacts that we worried about before we started worrying more about the potential impacts of sequestration.

I last posted that gains in home values, stocks and, retirement accounts along with increases in wages and salaries would help the economy overcome the large potential impact on consumer spending from the rise in the payroll tax (elimination of the temporary rate reduction) that took effect in January.  I may have been a little too optimistic about those factors ability to help the U.S. economy overcome more than $100 billion in lost consumer spending power (over $600 million in New Hampshire).   For me, the most troubling piece of data from the March job growth report was the seasonally adjusted decline of 24 thousand retail trade workers and generally downward trend since January, that has followed several months of solid gains in late 2012 (chart below).

U.S. Retail emplyoyment

When housing values are recovering, homeowner’s equity is rising, and employment and wages are growing, retail employment should not decline.  The elimination of the payroll tax cut (along with higher gasoline prices early in the year) likely provided a greater shock to consumers than anticipated.  But another explanation is that implementation of the health care mandates of the ACA could be affecting employment more in some industries.  If so, it would likely impact industries that typically are less likely to offer their employees health care coverage and industries that employ more part-time workers.  Retail and leisure and hospitality industries  meet those criteria but only retail trade lost employment in March.  Because the ACA mandates coverage for full-time employees, one way to avoid the mandate would be to increase part-time employment.  In that case I would expect the average weekly hours of workers in retail or other industries that may be more  affected by the mandate to decline, as more workers were shifted to part-time status but average hours have increased slightly in retail over the past three months.  Looking more closely at the data on part-time employment is needed to get a handle on any ACA impacts.  Over the next few months I will be looking for evidence of  increases in the number of workers working “part-time for economic reasons” – meaning they are working part-time when they want to be working full-time, as well as employment trends in businesses employing between 50 and 499 workers (those most affected by ACA).  Trends in these employment data would provide stronger evidence of any ACA effects but for now, it looks like the payroll tax is the culprit in the retail employment data.

E-Commerce’s Small % of Sales Has Big Implications

March 21, 2013

Total retail sales increased modestly last Christmas season (4.0% higher in QIV than in QIV  2011) while e-commerce (Internet) retail sales  increased 15.6% during the same time period.   E-commerce sales are still a relatively small percentage of total retail sales but some of that is a function of the percentage of consumer goods that will never be sold over the Internet (don’t look for free shipping and returns on gasoline or boneless chicken soon).  E-commerce now accounts for about 5.4% of retail sales, a new record.

e commerce sales

E-commerce sales are an interesting issue for a lot of reasons. It portends heavyweight policy battles over the taxation of e-commerce and brick and mortar sales as well as policy debates over taxing the source or destination of sales.  It also has longer-term implications for the demand for commercial real-estate, the usage, mix and look of downtowns, malls, and probably the nature of a good percentage of our socialization and interactions, but that won’t be apparent for some time.   For someone who doesn’t like to shop (and even for those who do), e-commerce essentially reduces the cost (time and travel etc.) of shopping and comparison shopping to near zero, so it has the potential to increase the time available for other activities.   That could be a good thing, but if it reduces the time we spend walking through our downtown or otherwise interacting with our communities so that we can get to know a thousand more people infinitely less well on-line, I ‘m not sure it makes that much of a contribution.   To the upside, e-commerce has given a lot of us yet another  reason not to try-on the clothes or shoes we buy.

The data in the chart above shows that while e-commerce sales dipped during the recession, they continued to increase their percentage of total retail sales.  That means they dipped less than overall retail sales.  There are tremendous long-term implications for the growth in e-commerce and that  prompts more than a few questions in my mind:

  • Are consumers especially motivated to comparison and price shop on-line during recessions or in weaker economic times?  Does a weaker economy convert more sales to e-commerce?  I look at state level data and use quarterly industry earnings data to estimate state-level retail sales in some states and noted that NH’s retail sales fell less than neighboring states during the recession.  A result I attribute, in part, to the 5% or greater savings due to NH’s lack of a retail sales tax, that consumers may be even more motivated to realize during a recession.
  • Can the most attractive elements of e-commerce be combined with brick and mortar retailing to “double the pleasure”.  Which retailer or type is most likely to find the formula?
  • How much different are the demographics of on-line buyers than are those of traditional retailers?  I assume for the most part e-commerce buyers have somewhat higher incomes and are likely to be younger.  If income were the primary difference I would expect that e-commerce sales would probably decline less than total retail sales.  If age is a significant contributor, how much will demographic trends matter?  Its been a while since I’ve been in a mall, have  teenagers forsaken them for on-line social gatherings?
  • How are sales trends affected by differences in the percentage mix  of products sold on-line and at bricks and mortar stores. As an example, furniture stores and home furnishings sales were pummeled during housing market drop and recession and I have to think those items are less representative of e-commerce sales.  Will shopping downtown now mean going to an internet cafe?
  • Is there an e-commerce substitute for “recreational shoppers”?

These are just a few of the questions I will never have time to investigate.  Recent trends are  probably a combination of these factors and more and  no doubt someone who looks and writes about  these trends more thoroughly has answers where I have only questions.  The comment lines are now open.


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