Author: Chad Symens

May 5, 2014

Last week: Perhaps the biggest news in this data-heavy week is the rebound in wage growth.  Factories and stores, idled by winter weather, were back in business in March.  The jobs report shows they continued to catch up in April.  But as The Conference Board’s Leading Economic Index has been signaling for months, this is more than just a weather story.  The economy is getting stronger.  And the proof will come over the coming weeks as consumers gain more confidence and spend more (especially on long-delayed replacement items).  And perhaps there will be more business investment in the equipment needed to get the job done.

Employment Trends Index, March (The Conference Board)

This index does for the labor market what the Leading Economic Index does for the general economy.  The labor market is rebounding now.  Does this forward indicator show more underlying strength this summer, once the catch up is completed?

Fact Of The Week

As of late April 2014, according to the Drought Monitor, all of California is now in moderate to exceptional drought – for the first time in a decade and a half.  This is a big deal.  How big?  It could result in as many as 20,000 lost jobs and 800,000 acres of idle farmland.  Indeed, the worst drought conditions happen to be in the normally crop rich Central Valley.

The estimated costs could approach $7.5 billion.  But that’s not all.  A limited supply of food is sure to send its cost higher.  In this era of deflationary pressure, that might be the biggest deal of all.  We could have the Federal Reserve setting out on an expansive monetary policy to counter deflationary pressure while food prices skyrocket, resulting not just in a hit on the average household budget but causing consumers (taxpayers) to do more than complain.  Finally, it is not just California.  Western and/or southwestern states are dealing with a multi-year drought that is not letting up this spring and probably won’t let up during this crop-growing summer season.  Only Montana and Wyoming,  and of course northeastern Washington have escaped these conditions.

Source: The Conference Board

May 5, 2014

The Conference Board Employment Trends Index increased in April.  The index now stands at 118,000, up from 117.77 (an upward revision) in March.  This represents a 5.5 percent gain in the ETI compared to a year ago.

“April’s increase in the Employment Trends Index, and continued improvement in recent months, is signaling solid growth through the summer,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board.  “Despite the disappointing GDP figure for the first quarter, job growth remains robust and when coupled with the massive retirement of baby boomers will result in a continued rapid decline in the unemployment rate.”

April’s increase in the ETI was driven by positive contributions from five of its eight components.  In order from the largest positive contributor to the smallest, these were: Percentage of Firms with Positions Not Able to Fill Right Now, Number of Temporary Employees, Industrial Production, Job Openings, and Initial Claims for Unemployment Insurance.

The Employment Trends Index aggregates eight labor-market indicators, each of which has proven accurate in its own area.  Aggregating individual indicators into a composite index filters out “noise” to show underlying trends more clearly.

The eight labor-market indicators aggregated into the Employment Trends Index include:

• Percentage of Respondents Who Say They Find “Jobs Hard to Get” (The Conference Board Consumer Confidence Survey)
• Initial Claims for Unemployment Insurance (U.S. Department of Labor)
• Percentage of Firms With Positions Not Able to Fill Right Now (National Federation of Independent Business Research Foundation)
• Number of Employees Hired by the Temporary-Help Industry (U.S. Bureau of Labor Statistics)
• Ratio of Involuntarily Part-time to All Part-time Workers (U.S. Bureau of Labor Statistics)
• Job Openings (U.S. Bureau of Labor Statistics)
• Industrial Production (Federal Reserve Board)
• Real Manufacturing and Trade Sales (U.S. Bureau of Economic Analysis)

Source: The Conference Board

May 2, 2014

The labor market remains surprisingly and resiliently strong, as evidenced by the gain of 288,000 new jobs created in April.  The gain this month was aided by some catch up – hiring that perhaps would have happened earlier if not for the widespread inclement weather.  But that is only one part of the story.  Indeed, the more important part is that the economy has been gathering strength for some time.  The signals from the surveys of purchasing managers and The Conference Board Leading Economic Index have been pointing to some acceleration for months.  Weather, sequestration, a significant buildup of inventory and other factors have helped bottle up some of this strength.  Now, it would appear, the absence of these factors is finally allowing the economy’s underlying strength to come to the surface.  The result is not just a relatively strong gain in jobs in April but probably more of the same in May and June and perhaps right through the summer.  And more jobs means more pay checks, lifting sentiment and spurring more spending.  The business response will be to lift investment in equipment.  With consumption and investment picking up some steam, more new jobs will keep opening up.  In fact, it could be enough to send the unemployment rate below 6 percent late in the second half of the year.  Another outcome: discouraged job seekers going back into the labor market.  And that is an even better marker for how much improvement is in economic conditions and prospects.

Source: The Conference Board

April 23, 2014

Many economic discussions – especially those following the Great Recession – have focused on the short-term or immediate economy, particularly in regard to the labor market.

However, longer term issues regarding investments, hiring and other business decisions cannot be lost in our thinking about the economy and its direction.  While most of us don’t necessarily think or plan 10 years out, it remains vitally important to economists, retailers, policymakers and the consuming public to think about the future while creating budgets, plans or sales projections.

Fortunately, the U.S. Bureau of Labor Statistics provides information about the future with its Employment Outlook report that it issues every two years with a 10-year projection of employment and output.

Since the last BLS report, the economy has notably improved and is now poised for more sustained growth.  As the economy expands, long term patterns of growth and industry activity can be more readily observed and the BLS’ estimates and projections become valuable to retailers and others who need to make decisions about the future economy, employment and consumer spending.

So where will eht jobs be 10 years from now?

In the coming decade, BLS projects that the “retail trade” sector is expected to increase by more than 1 million jobs to a total of about 16 million jobs by 2022.  In fact, retail is projected to be one of the top three domestic industries for future employment opportunities – behind only construction and health care.

The projected growth in the retail industry – pegged at 0.7 percent annually – reflects the healthier pace of consumer spending at 2.6 percent (higher than the 1.8 percent of the last decade) and a strengthening economic recovery.  BLS assumes that the economy will grow by 2.6 percent per year, unemployment will drop to 5.4 percent and productivity gains will increase 2 percent a year (idealistic for sure but feasible).

Demographic Changes Abound

While the retail industry’s jobs increase isn’t as dramatic as those in construction and health care (retail already has a large employment base), the three growth sectors are all inter-related.

As housing and residential construction increases to accommodate a growing population, construction will continue to gather steam.  Increases in new units built and the replacement of old housing should pay dividends to retailers who will help buyers fill those homes – think appliances, furniture and garden supplies.

America’s rapidly aging demographic – baby boomers – are also spurring job growth in medical service fields.  An aging population and expanded medical insurance coverage (Obamacare) are factors the BLS incorporated into its projections.  Again, retailers – especially those selling health and personal care products – will play a critical role in that demand.

What is readily apparent from a review of the BLS report is the important role demographic changes are making in the economy.  While demographics have always played an important role in economic decisions, they are now becoming a centerpiece for discussion.

One of the most dominate changes is that the labor force participation rate among older workers is expected to continue its decline.  As the baby boomers (those born between 1946 and 1964) head into their retirement, fewer will be part of the American labor force, lowering the participation rate and slowing labor growth and economic activity.

This demographic change – while anticipated – is especially important for retailers.  As an individual ages, purchases change.  Retailers should take some time to prepare for these changes and remain ever-vigilant and responsive.

Source:National Retail Federation

May 1, 2014

For 11 years now, the National Retail Federation has gauged consumers’ spending intentions on America’s favorite holidays like Valentine’s Day, Mother’s Day, Halloween and of course, Christmas.

During that time, Halloween has grown to become one of the most popular holidays of the year, average spending on back-to-school items has increased 31 percent since 2004 , and Thanksgiving Day has officially become a bona fide shopping day for millions of bargain-hungry Americans.  So, how do holidays “rank” when it comes to consumer spending?  Here’s how each holiday ranks as of the release of the latest Mother’s Day survey:

Winter holidays: As the largest gift-giving holiday of them all, the winter holidays account for nearly 20 percent of total annual retail sales for retailers.  In 2013, holiday celebrants spent an average of $730 on gifts, food, decorations and more.  After all was said and done, NRF found that holiday sales increased 3.8 percent to $602 billon.  More than 90 percent of Americans celebrated Christmas, Kwanza or Hanukah last winter, the most celebrated season of the year.

Back to school/College: Spending on pencils, backpacks, denim, college dorm furniture and collegiate wear, tablets, smartphones and notebooks costs mom and dad hundreds of dollars on average and a total of $72.5 billion last year.  But savvy parents know bargains are not hard to find.  Almost every sector of retail plays a role: drug stores, thrift stores, electronics stores, department stores, discount stores and even grocery stores for penny-pinching college students and their parents.

Mother’s Day: Consumers say they will spend an average of $163 this year – $19.9 billion total – with the majority of their budget going to special outings, new apparel items and jewelry.  As to why Mother’s Day is so much bigger than Father’s Day: the types of gifts people typically buy mom tend to cost a little more, and dad even admits that he doesn’t like all the fuss anyway.

Halloween: In 2013, two-thirds of Americans said they would partake in Halloween activities, spending $75 on average to celebrate, for a total of $6.9 billion.  The holiday has become more of an adult event than ever before, helping boost spending on costumes, candy, decorations and party materials more than 55 percent since 2005.  With the growth in popularity, other sectors have jumped into the mix.  Home improvement stores take advantage of their vast space to sell life-sized yard decorations, and drug and grocery stores are also now devoting select aisles to decorations, candy and costumes.

Source: National Retail Federation

April 29, 2014

After splurging on tablets and smartphones, beauty supplies, apparel and jewelry for mom last year, consumers this year will celebrate Mother’s Day keeping practicality in mind.  According to NRF’s Mother’s Day Spending Survey, Americans will spend an average of $162.94 on mom this year, down from a survey high of $168.94 last year.  Total spending is expected to reach $19.9 billion.

“As one of the most universally celebrated holidays, retailers will take this opportunity to attract Mother’s Day shoppers with promotions on ladies apparel items, health and beauty products, jewelry and even restaurant options,” said NRF President and CEO Matthew Shay.  “Now fully into spring, retailers are hoping consumer sentiment and spending intentions continue to grow as we round out one of the busiest retail seasons of the year and prepare for summer.”

Moms work hard and they are entitled to a show of appreciation on their special day.  Most consumers will acknowledge that appreciation with a greeting card (81.3%), though it appears her loved ones will also look for special gifts.  Two-thirds (66.6%) of those celebrating will buy mom her favorite flowers, spending a total of $2.3 billion, and 33.5 percent will look for spring sweaters and blouses, spending a total of $1.7 billiion on apparel and accessory items.  Mom’s loved ones will also buy books and CDs ($480 million), housewares or gardening tools ($812 million), personal experience gifts like a day at the spa ($1.5 billion), jewelry ($3.6 billion), and special outings like brunch or dinner ($3.8 billion).

Having spent the last few years treating mom to electronic gifts like tablets, smartphones, cameras and more, Americans this year may have less of a reason to invest in those items: 13.1 percent say they will buy mom a consumer electronic item and will spend a total of $1.7 billion, down from $2.3 billion last year.

“Americans haven’t forgotten about the state of the economy and are treating their finances and gift-giving budgets in a way that keeps practicality top of mind,” said Prosper’s Consumer Insights Director Pam Goodfellow.  “But like we saw with Valentine’s Day and Easter, people this year will look for special ways to treat mom to something nice without breaking the bank, knowing it’s the thought that counts.”

Most shoppers will head to specialty stores to find gifts (33.5%), but others will shop at department stores (32.4%), discount stores (24%), and online (29%).

The survey found 18-24 year olds are the most likely to shop at department stores among all other age groups; more than half (51.6%) will visit a department store in search of their perfect gift for mom.  But it’s 25-34 year olds who will spend the most on mom, spending an average of $216.53.

Nearly two-thirds (63.9%) of those surveyed say they will shop for their mother or stepmother, while 22.5 percent will shop for their wife, 9.2 percent will shop for their daughter and 6.6 percent will shop for their grandmother.

Source: National Retail Federation

May 1, 2014

Rite Aid posted $2 billion for the four weeks ended April 26, representing a lift of 4.9%.  Same-store sales increased 5% over the prior-year period.

April front-end same-store sales increased 4.7%, with 4.6% of the increase attributable to a shift in the timing of Easter, which fell on April 20 this year, compared with March 31 last year.  Pharmacy same-store sales, which included an approximate 138 basis points negative impact from new generic introductions, increased 5.2%.  Prescription count at comparable stores increased 2.3% over the prior-year period.

Prescription sales accounted for 67.9% of drug store sales, and third-party prescription sales represented 97.4% of pharmacy sales.

Same-store sales for the eight-week period ended April 26, 2014 increased 2.9% over the prior-year period.  Front-end same-store sales decreased 0.2% while pharmacy same-store sales increased 4.3%.  Prescription count at comparable stores increased 1.7% over the prior-year period.

Total drug store sales for the eight weeks ended April 26, 2014 increased 2.6% with sales of $3.9 billion.  Prescription sales represented 68.7% of total drugstore sales, and third party prescription sales represented 97.4% of pharmacy sales.

Source: Retailing Today

May 1, 2014

New Orders, Employment and Production Growing; Inventories Growing; Supplier Deliveries Slowing

Economic activity in the manufacturing sector expanded in April for the 11th consecutive month, and the overall economy grew for the 59th consecutive month, say the nation’s supply executives in the latest Manufacturing ISM Report On Business.  The report was issued today by Bradley J. Holcomb, CPSM, CPSD, chair of the Institute for Supply Management (ISM) Manufacturing Business Survey Committee.

Manufacturing expanded in April as the PMI registered 54.9 percent, an increase of 1.2 percentage points when compared to March’s reading of 53.7 percent.  A reading above 50 percent indicates that the manufacturing economy is generally expanding; below 50 percent indicates that it is generally contracting.

A PMI in excess of 43.2 percent, over a period of time, generally indicates an expansion of the overall economy.  Therefore, the April PMI indicates growth for the 59th consecutive month in the overall economy, and indicates expansion in the manufacturing sector for the 11th consecutive month.  Holcomb stated, “The past relationship between the PMI and the overall economy indicates that the average PMI for January through April (53.3 percent) corresponds to a 3.3 percent increase in real gross domestic product (GDP) on an annualized basis.  In addition, if the PMI for April (54.9 percent) is annualized, it corresponds to a 3.9 percent increase in real GDP annually.”

Of the 18 manufacturing industries, 17 are reporting growth in April.

Source: Institute For Supply Management

May 1, 2014

American workers have endured six years of depleted wealth, stagnant wages, and general insecurity.  But their fortunes are about to change, according to a surprising new study from The Conference Board.  ‘From a Buyer’s Market to a Seller’s Market’ predicts unemployment in the United States – currently 6.7 percent and falling rapidly – will reach its “natural rate” of 5.5 percent by late 2015.  The decline will continue well past this benchmark; over the next 15 to 20 years, U.S. unemployment may even dip below 3.8 percent, the lowest rate recorded since the 1960s.

“While our conclusions may seem unlikely today, they rest on a simple fact: nearly all baby boomers will be out of the job market by 2030,” said Gad Levanon, Director of Macroeconomic Research at The Conference Board and a co-author of the report.  “As woriking-age population expansion slows to a crawl, even modest job growth should steadily tighten the labor supply and force wages higher.  In the short run, this will be good news for workers.  But it could also become a major handicap on U.S. growth and competitiveness, which we must prepare for now.”

Among the report’s other key findings:

• Most of the millions who left the active job market during the Great Recession are unlikely to return.  Many are retired or disabled, while “skill erosion” has made others uncompetitive in the eyes of employers.  Thus the official unemployment rate is a broadly accurate measure of slack in the labor market, not misleadingly low as many commentators argue.
• Since 2009, unemployment decline has outpaced previous recoveries even as GDP growth lags behind.  Meanwhile, wage growth, voluntary quit rate, and employers’ difficulty in filling positions are all trending up, suggesting the transition to labor shortages is underway.
• As baby-boomer retirement mounts, wage pressure will form a growing constraint on corporate profits and, ultimately, economic growth.  Seeking to increase productivity and reduce costs, companies may raise prices and move operations to cheaper areas.
• Impacts will vary widely across industries.  Those in which older workers are concentrated – and which attract few skilled immigrants – will be at highest risk of labor shortages.  These include law enforcement, plant operations, and rail and water transport.  Conversely, relatively high numbers of young and foreign entrants should mitigate the effects on high-growth and technology fields.
• Immigration and productivity are open factors in general – a surge above trend growth for either could offset much of the demographic pressure currently projected.

Source: The Conference Board

April 29, 2014

Lowe’s and Porch.com have expanded their strategic partnership to the more than 1,700 Lowe’s home improvement stores across the U.S.

Every Lowe’s store in the country now features Porch as the in-store resource to help homeowners find the right home improvement professionals for nearly any project outside of Lowe’s current installation services.  In addition, home improvement service professionals can sign up for a free Porch profile to help increase the exposure of their business to homeowners in need of their specific services.

“While we have already been able to help our customers with projects like installing flooring or remodeling a kitchen, our partnership with Porch means we can now guide customers to find help for nearly any home improvement service, from routine maintenance to dream projects,” said Jay Rabello, VP new business development and corporate innovation at Lowe’s.  “Homeowners trust Lowe’s products and project expertise, and now that relationship can extend to the search for home improvement pros by providing a highly personal, localized experience through Porch.”

Porch was first introduced at Lowe’s stores in the Carolinas and the Seattle area in January.  If a Lowe’s customer needs a professional for a service Lowe’s does not currently offer, such as handyman, painting or landscaping services, employees can access the Porch network of pros on their mobile devices and in-store terminals to identify local providers.

“From day one, Porch has been on a mission to make home improvement simple, easy, and delightful,” said Matt Ehrlichman, CEO of Porch.  “We launched our product just over six months ago and thanks to the enthusiastic feedback and support of our customers, Porch is becoming a true center of gravity for home improvement professionals and homeowners, enabling them to connect and work together like never before.  Our team is excited to continue our collaboration with Lowe’s to improve every facet of the home improvement experience.”

The partnership with Porch is the latest in a series of technology initiatives Lowe’s has introduced to enhance the in-store support employees can offer customers, including equipping employees with iPhones to help customers access information, view how-to videos or locate product in the store efficiently.

Source: Retailing Today