One answer to the riddle of why a strong employment market did not translate into a boom cycle for retailers may be that the jobs were low-paying gigs, which may be why disposable income has stagnated for many consumers.
That’s the perspective of Michael Thompson, managing director of investment advisory services at S&P Capital IQ. Thompson and his team of analysts crunched jobs data from the Bureau of Labor Statistics and the Federal Reserve Economic Database and found that the non-farm jobs added were from categories and sectors that are lower-paying in comparison to other sectors.
The top five industry categories that have added the most nominal jobs since the “non-farm payrolls bottomed out” in December 2009, the analysts said, are leisure and hospitality, food service and drinking establishments; professional and business services, support and administrative services; education and health services, ambulatory care; professional and business services, employment services, and education and health services, social assistance.
“Each of the top five industry categories in terms of nominal jobs created have a corresponding hourly average wage that is below that of the average for all private industries,” Thompson said. “In fact, four of the top five are associated with a wage that is 35 to 54 percent below the average wage for total private industries.
“So even after the Fed resorted to various traditional and unconventional monetary accommodation methods, total additional aggregated income resulting from recovery cycle non-farm payroll growth in the past six years only totals a relatively meager $12.2 billion,” Thompson added.
Thompson’s findings dovetail with a separate retail forecast report last week from Craig Johnson, president of Customer Growth Partners, who expects another year of “sluggish retail spending,” with 2016 annual sales showing a 2.4 percent gain. The weak growth, in Johnson’s view, is primarily due to “flatlining incomes for all but the top 20 percent of households, the diminishing effects of lower gasoline prices, and the decline of the ‘wealth effect’ due to the recent $2 trillion decline in stock market values.”
But Johnson stressed that the “single best predictor of retail sales is neither unemployment nor consumer confidence – but growth in disposable income. And the fact is that real median incomes have flatlined – if not declined – for many years now, for all but upper-income Americans.”
Additionally, the $12.2 billion aggregated income that Thompson estimates was generated by the jobs gains was quickly consumed. According to Johnson, U.S. consumers face $30 billion in higher services-related spending on housing, health care and insurance costs.
Households also doled out $20 billion in higher expenditures at restaurants and bars. And $25 billion more was spent on gas, which is cheaper but it is making people drive more and consume more fuel.