Last week’s employment data looked pretty rosy. The economy added 175,000 new jobs in May, according to the Bureau of Labor Statistics, more than many economy-watchers and investors anticipated, but not so many that the Fed might be tempted to tighten credit. Retail jobs comprised a sizable chunk of the increase, a net gain of 28,000, indicating an underlying bullishness on the part of retailers about consumer spending, since May is not typically a big hiring month for stores.
Looking behind the numbers, however, particularly in light of other recent economic data, a murkier picture emerges.
Job Growth is Slow
First, despite May’s jump, overall job growth has been painfully slow for the past year, ranging somewhere between 1.5% and 1.7% per month on a 12-month smoothed basis, as the chart below shows.
The unemployment rate, though close to a four-and-a-half year low, actually increased in May, from 7.5% to 7.6%, as news of the improving job situation caused many of the unemployed who had given up looking to reenter the job-hunting fray.
And, as is usually the case this time of year, over a million newly-minted college graduates were thrust kicking and screaming into the real world (or at least back to their old bedroom at Mom and Dad’s). This year’s crop carried record loads of student debt.
New Jobs are Low-Level
Yet another problem is that the jobs that are being created are not exactly the most sought-after, and tend to earn less than those eliminated during the recession, a phenomenon that shows no sign of reversing itself any time soon.
For example, restaurants and bars added a whopping 38,000 jobs in May, evidence that people have finally started to eat out more, usually a sign of an improving economy. However, these jobs tend to pay less than minimum wage – certainly not enough to eat out very often!
Professional and business services added a lot of jobs, too. But despite the media cacophony about a surge in tech and other math-and-science-related fields, only 5,000 jobs were in computer systems, and another 6,000 in engineering – hardly enough to satisfy the hundreds of thousands of recent IT and engineering graduates. The greatest number of new jobs in the professional services sector – 26,000, to be exact, was in the not-so-lofty temporary office help area.
Last month, one in every six new jobs was in retail. In fact, as the chart above shows, retail job growth has been outpacing that of total employment in the US since late 2012. However, most of these jobs are hourly jobs at the store level, and pay at or slightly above minimum wage.
Sluggish Income Growth
Income growth has been sluggish for the past several months, further evidence of the beating paychecks are taking, which means that the rampant price-and value-consciousness will persist for a while, and will continue to wield a huge influence on consumer behavior and retail strategy.
Finally, consumer spending is nothing to get excited about. Although sales of durables like automobiles and furniture have been brisk, spending on nondurables like food, clothing and personal care items has slowed in recent months. Much of the slowdown is due to lower prices on food and gas, but nonetheless threatens to intensify the share wars taking place at retail.
It’s probably worthwhile to point out that while all this hiring was taking place, the Dow and S&P each continued their upward climbs, bringing year-to-date stock market gains to over 15% and reinforcing the wealth effect among the high-income folks. This has been fueling growth in luxury retailing and intensifying the polarization between haves and have-nots. How long this will last depends in large part on the financial markets. A big stock market correction could put the brakes on luxury spending.
Who’s Hiring At Retail?
Retailers, anxious to gain whatever share they can in this low-growth market, are making sure they are sufficiently staffed. General merchandise stores, including variety and the very popular dollar stores, have added the most jobs so far this year, at 44,000, as shown in the chart below, almost half the 93,000 new retail jobs. Dollar stores have been expanding their brick-and-mortar footprint faster than other channels.
Department stores have added 22,000 jobs, both in-store to provide improved service, and at the corporate level to fill expanding e-commerce and social media departments. Specialty apparel stores, many of whom are closing underperforming doors, have sustained a net loss of 17,000 jobs so far this year.
Amid all the uncertainty, though, the tough job market has been a windfall for retailers in one key way. These companies have access today to some of the most educated, innovative, tech-savvy and creative talent ever. Retailers should identify the high-potential employees early in their careers, and begin grooming them to be the next generation of industry leaders.