WASHINGTON — America’s retail malaise is starting to bite into its workforce.
On the back of companies from Macy’s Inc. to Gap Inc. reporting poor results for the first quarter, specialty stores and department stores trimmed their payrolls in May. But general merchandise stores added jobs and the overall economy posted a slight uptick in employment, the U.S. Labor Department reported Friday.
Apparel and accessories stores cut 4,100 jobs to employ 1.38 million last month, while department store employment fell 2,100 to 1.32 million. General merchandise stores, a category that includes department stores and discount stores, added 8,200 jobs to payrolls to employ 3.2 million in May.
In the broader economy, employers added 38,000 jobs last month, falling far below economists’ expectations and the unemployment rate fell to 4.7 percent from 5 percent in April.
Scott Hoyt, senior director of consumer economics at Moody’s Analytics, said there were strong employment gains for specialty stores in January and February, noting the decline in May could be a function of stores laying off seasonal workers from the unusually warm winter months.
He said it was no surprise to see a decline in department store employment.
“There are more store closures than openings in that space,” Hoyt said. “A number of big players have been in the headlines with weak earnings and weak sales. “
Hoyt said he believes there will be an increased demand for hiring as consumer spending growth picks up and income growth and access to credit improves in the second half.
But it is a difficult environment at the moment for retailers, he noted.
“I think firms need workers,” Hoyt said. “They are struggling a little because it is a pretty difficult pricing environment right now. Prices are generally falling. Even when retailers move more merchandise, they don’t necessarily see a lot of sales growth.”
He does expect thing to improve in the second half but gradually.
“With continued strength in the dollar, price pressures will be slow to moderate and faster sales growth will clearly help,” Hoyt said. “Things will improve but I don’t think they will improve overnight.”
Jack Kleinhenz, chief economist at the National Retail Federation, said: “The economy is stronger than what today’s numbers suggest when looking at elevated consumer sentiment reports, dips in unemployment and wage gains.”
“While month-to-month swings in data are typical in the employment report, these numbers are overstating the weakness in the economy,” said. “What we are seeing is retailers stabilizing their workforce relative to expected near-term spending.”
In the manufacturing sector, apparel employers cut 700 jobs to employ 133,000, while textile mills making apparel fabric and yarn trimmed 700 jobs to employ 113,100. Textile product mills added 400 jobs to employ 117,600.
Nariman Behravesh, chief economist at IHS Global Insight, said the weak jobs report was “uniformly disappointing, even accounting for the negative impact of the Verizon strike.”
“Not only was May itself weak, but there is clear evidence that the pace of employment gains has slowed in the past few months,” he said. “The ‘disconnect’ between weak real GDP growth and strong employment growth seems to be resolving itself as employers are defending profits (and trying to boost productivity) in a soggy growth environment by managing payroll costs.”
IHS predicted job growth will remain sluggish for a few more months, “before returning to the 150,000 to 200,000 range, which is consistent with an underlying GDP growth rate of around 2.5 percent.”
“Notwithstanding the weakness in the payroll data, it is important to note that other indicators (initial unemployment claims, layoffs, and the Fed’s Beige Book on regional conditions) all point to continuing tightness in the labor market,” Behravesh added.
As for the probable impact on the Federal Reserve’s rate hike decision, Behravesh said the weak jobs report and “accelerating” wage inflation have taken the Fed’s June rate hike “off the table” and pushed off any hikes until September at the earliest.