Saturday, January 18, 2014

Low wages = retail woes and store closings

January is a big month in the retail industry, as final Holiday sales figures start to come in, which can make or break a number of stores. It also gives a big indication on where the consumer stands as we go into the New Year. With that in mind, we got December's retail sales figures for this U.S., and they weren't that hot.
Retail sales ticked up 0.2% in December, according to a report from the Census Bureau. Economists were expecting sales to be flat from November.

November sales, however, were revised lower. The government said sales grew by 0.4% in November from October, down from the 0.7% it had originally reported last month.

The number was lifted by strong sales in food, clothing and accessories and gasoline -- necessities or gifts on the lower end of the price spectrum. Sales at nonstore retailers, which includes online shopping, increased by 1.4%.

But big-ticket items that are generally considered staples of the holiday season weighed on the number. Sales at electronic and appliance stores fell by 2.5%, and auto dealers saw a 1.9% drop.
Among those electronic stores suffering was Best Buy, which suffered a drop in overall Holiday-season revenue compared to last year, leading to its stock being hammered on Wall Street this week. Another retailer that struggled was J.C. Penney, who announced plans to close 33 stores nationwide, causing approximately 2,000 employees to lose their jobs in the coming months.

And the state being hit hardest by the J.C. Penney closings? Wisconsin, with 5 stores closing here, while no other state has more than 3. Why are Penney's closings hitting so hard in Wisconsin? That was a question that Sara Morrison tried to answer in this nationwide story.
J.C. Penney said the stores were "underperforming." The Chicago Tribune blamed it on the dominance of Penney "archrival" Kohl's, which is headquartered in the state.

Or perhaps Wisconsinites just like their businesses independent. The Wausau Center mall will be especially hard hit: it's also losing a Gap and a Hollister this month. Janke Book Store co-owner Jane Janke Johnson told the Wisconsin Rapids Tribune that she "gasped" when she heard the news, but "there are still some very strong, viable and unique businesses in downtown Wausau, and I feel those businesses and anchors will continue to draw customers." I have a feeling she's talking about a certain book store.
Indeed, the evidence from Wall Street does indicate that some people have outgrown the concept of going to crowded malls in general, and would rather shop online and in stand-alone stores, as the improved online sales from the Holidays would indicate. But that could be quite a rough structural change for plenty of communities that have relied on the old way of shopping as a commercial anchor, as the image of a Wausau mall with three empty stores sure isn't evidence of a vibrant economy, as well as being an eyesore that drives down property values in the area.

Or maybe there's something bigger going on. Maybe it's an indication that the average consumer doesn't have the money to buy that much these days, and that a lot of people still have yet to feel the economic growth that we keep hearing about in the Wall Street-Centric media. Take a look at the real wages and earnings information that came out this week, and you can see that the average worker isn't any better off than they were this time last year.
Real average hourly earnings for all employees fell 0.3 percent from November to December, seasonally adjusted, the U.S. Bureau of Labor Statistics reported today. This decrease stems from a 0.1 percent increase in average hourly earnings being more than offset by a 0.3 percent increase in the Consumer Price Index for All Urban Consumers (CPI-U).

Real average weekly earnings fell 0.5 percent over the month due to the decrease in real average hourly earnings combined with a 0.3 percent decrease in the average workweek.

Real average hourly earnings rose 0.2 percent, seasonally adjusted, from December 2012 to December 2013. The increase in real average hourly earnings, combined with a 0.3 percent decrease in the average workweek, resulted in no net change in real average weekly earnings over this period.
And in Wisconsin, we know that take home pay for public employees has been slashed with Act 10, and that Wisconsin has the lowest average manufacturing wage in the Midwest. Maybe, just maybe, demand matters, and if people aren't getting paid much, they don't spend so much. And you can bet the 300 or so J.C. Penney workers in Wisconsin that are now facing layoffs in 5 cities won't be willing to shell out any time in the near future either.

So these gloomy retail reports prove again that low wages and the resulting inequality in our two-tier society are the biggest economic problem we face. And until Main Street starts to get the same share of growth that Wall Street and Corporate CEOs are getting, the amount of growth we have will be limited. The oligarchs may like that, but it sucks for the vast majority of us in the real world.


  1. Curiously, Wisconsin's sales tax receipts have been unusually consistently up about 6% on the same month a year earlier since May 2013.

    The withholding receipts are improved generally (although still pretty noisy). That's at least partially due to inflation of 1% combined with withholding tables that have been static for some time now pushing withholdings higher for the same real wage. If Wisconsin average real wages aren't doing at least some catching up to the nation (since number of jobs don't seem to be) then wage inequality must be rising quickly (so as to push a larger fraction of the sum of wages into higher withholding brackets).

  2. Interesting 6.4% drop in income withholding for December 2013, Geoff. Is that just a makeup for the big numbers the previous two months, or do you think that'll be reflected in the December jobs numbers?

    It's doubly interesting that sales taxes overall were up nearly 6% in Wisconsin for December 2013 vs. Dec. 2012, but the JC Penney stores are closing up. Do you think that reflects the fact that we now get sales tax from Amazon (estimated to be $28 million a year, but obviously there will be more sales in November and December)

    1. The Amazon sales tax collection began at the start of November, but as it represents a little over half a percent of annual sales tax receipts (conceivably slightly more on a monthly basis in the run-up to Christmas), on its own it's not going to rise above the level of noise in the sales tax receipts series.

      The withholding series is obviously even noisier: the raw figure is the total received during that calendar month, the adjustments are allowances for work done that month being compensated in the next month. Since it's so noisy, you shouldn't read anything into trends less than about 3 months long: the last quarter of 2013 was up 5.1% on the same period in 2012; largely it's a makeup for the strong October/November as far as this stat can tell us.

      As I mentioned in my comment on your previous post, I think the monthly CES has been overestimating gains in 2013. The UI stats for the CES survey week in December show a significantly lower annual decline than for November's reference week. That bodes ill for the December jobs stats (which I don't have to tell you are coming out on Thursday).