The price of rising employment: Slow wage growth, trade risks

If wage growth doesn’t kick into high gear, increasing inflation could swallow even the minimal improvement in purchasing power workers have attained.

A slowing rate of job growth in July nonetheless managed to pull some workers off the sidelines, but wage growth mired at 2.7 percent began to elicit concerns that wages will fail to keep up with inflation as the economy picks up steam.

At 157,000, the number of jobs created last month fell short of expectations, but upward revisions of the previous two months and a broad base of new jobs across industries left economists relatively sanguine about the miss.

“I don’t think you want things to be ‘great’ because great means the Fed worries about inflation and the economy moving ahead too quickly,” said Scott Wren, senior global equity strategist at the Wells Fargo Investment Institute. “The expansion killer is the Fed making a mistake, moving too fast. We don’t want to see great right now. We just want to see good.”
Upward revisions to May and June added a combined total of 59,000 jobs added, bringing the monthly average to 224,000 over the past three months.  “In the past, summer months tend to show large employment fluctuations due to the timing of seasonal hiring,” National Retail Federation chief economist Jack Kleinhenz said in a statement. The retail sector eked out a small gain of 7,000 despite a loss of 32,000 jobs, largely due to the closure of the Toys R Us chain.

 

The labor market sectors with the most notable growth in July were professional and business services, which added 51,000 jobs; and manufacturing and healthcare/social assistance, which added 37,000 and 34,000 jobs, respectively.

“U.S. manufacturing is flexing some muscle right now,” said Mark Hamrick, senior economic analyst at Bankrate.com, but noted these and other labor market gains could be threatened by President Donald Trump’s protectionist sentiments. “Obviously, there are huge risks associated with the trade dispute,” he said.

If wage growth doesn’t kick into high gear, increasing inflation could swallow even the minimal improvement in purchasing power workers have attained in the recovery so far.

“I don’t think we’ve seen the brunt of the tariffs yet,” said Arne Kalleberg, professor of sociology at the University of North Carolina at Chapel Hill. Manufacturing and agriculture-related jobs would be especially at risk if China or the European Union enact retaliatory sanctions, he said.

Derailing the current labor market expansion could hurt the most at-risk members of the workforce the most and slow mediocre wage growth even further, even as rising inflation erodes the value of Americans’ pay.

“We have to think about the fact that inflation’s running at a 2 percent rate,” Hamrick said. “We’re on this rising interest rate trajectory.” If wage growth doesn’t kick into high gear, increasing inflation could swallow even the minimal improvement in purchasing power workers have attained in the recovery so far.

Economists say demographics are one factor behind wage growth that trails what most experts consider the low end of healthy wage growth by nearly a full percentage point. As baby boomers leave the workforce, the younger and generally less-experienced workers taking their place don’t earn as much.

A yawning skills gap is another. Economists say a robust economy is drawing people back into the workforce, but this could be one of the factors holding down wage growth. “What businesses are having to do is they can’t find people with skills, so they have to hire them at unskilled wages and then train them,” said Dan North, chief economist at Euler Hermes North America.

The data bears this out: Compared to the topline unemployment rate of 3.9 percent, the broader U-6 measure of unemployment fell three-tenths of a percentage point to 7.5 percent in July, a percentage point lower than it was a year ago.

“Of course, the people hired without skills have lower productivity,” North added. The upshot is that unskilled workers aren’t being paid as much, which economists theorize could be holding down wage gains.

With fewer skills and lower productivity, these would be the workers most likely to lose out if companies have to start cutting jobs in response to a trade war-initiated slowdown. “I always worry about the quality of these jobs,” Kalleberg said. “There’s very little bargaining power on the part of workers.“

by Martha C. White / 

NBC News

Retail sales gain is a sign tax reform may be working

Retail winners and losers in 2018

Consumers are increasing their spending, which may be a plus for the stock market during a period of volatility. U.S. retail sales rose in March more than forecast after three straight monthly declines, with consumers buying more big-ticket items. This evidence of healthy sentiment could drive markets higher in the second quarter.

Retail sales increased 0.6% in March after a 0.1% drop in February, the Commerce Department reported on Monday. The January retail data was revised down to show that sales declined by 0.2%, steeper than the previously reported 0.1% dip.

Economists polled by Reuters had forecast that retail sales would rise by 0.4% in March. Year-over-year, retail sales increased 4.5%.

There have been hopes that with many Americans seeing their paychecks increase because of tax cut savings, consumer spending would climb. Such an increase, in turn, would be good for the economy overall, with more than two-thirds of U.S. economic growth attributed to consumer spending.

“These are strong numbers, no doubt surging from the shot in the arm tax reform provided,” said Mike Loewengart, vice president of investment strategy at E*Trade. “Consumers are seeing more in their paycheck, and it appears they’ve gone shopping—certainly good news for investors.”

Stock markets have gone through a volatile period and are seeking direction.

“With most earnings reports arriving in the next few weeks, this is a pivotal time for a market that is in search of something positive to latch on to,” Loewengart added. “It appears, at least at the moment, strong economic fundamentals just simply aren’t enough to fire the bull rally back up.”

National Retail Federaton Chief Economist Jack Kleinhenz called the retail sales report a “healthy spending report” despite market volatility, unseasonable weather and uncertain economic policies. “Consumers continue to show resiliency in spending, and these numbers reflect how the economy is performing with a strong job market, gains in wages, improvements in confidence, rising home value and judicious use of credit,” he said.

By RetailFOXBusiness

Cleveland’s economy fails to gain traction

A better job of measuring performance is key to turning around region’s fortunes

Illustration by Daniel Zakroczemski for Crain’s

While there is some question about whether he actually said it and exactly how he said it, business thinker Peter Drucker is credited with a mantra that has wide acceptance in management circles: “You can’t improve what you don’t measure.”

Expanding on that maxim, the need to better measure the strengths and weaknesses of the Northeast Ohio economy, as a prelude to improving it, may end up being a key takeaway from Jon Pinney’s June 8 speech at the City Club of Cleveland. There, the managing partner of the Kohrman Jackson & Krantz law firm pronounced that the Northeast Ohio economy was “dead last or near the bottom in most economic metrics.”

He cited recent national media coverage, such as Forbes’ “Best Cities for Jobs”survey, which ranked Cleveland last out of 71 major metro areas, and Business Insider’s ranking of the country’s 40 best and worst regional economies, where Cleveland also placed last.

As Business Insider reported, Cleveland had the highest February 2017 unemployment rate, at 5.7%, among the 40 biggest metro areas, and its job growth was the second-lowest, with non-farm payroll employment rising just 0.3% between February 2016 and February 2017.

The struggles of the region’s economy are nothing new. Some data make that point when they are periodically announced, such as Census Bureau reports that show the region’s population decline and when the Labor Department announces the monthly unemployment rate.

Pinney was highlighting the need to pay more attention on a regular basis to those and other measurements of the region’s performance and to compare that performance to other regions. He closed his comments by making a “grand challenge” to business and civic leaders to face up to the region’s poor showing when compared to the rest of the country and find solutions to the region’s economic sluggishness.

Before that can happen, however, the region needs better data — data that have not been as readily available in Northeast Ohio as they are in some other areas.

In Columbus, for example, Columbus 2020, the region’s economic development agency, posts on its website updated monthly data on the size and composition of the regional workforce, including a graph which shows if the employed workforce is growing or declining and a pie chart of which industries employ the most people.

It’s a barebones example of what economists call an “economic dashboard.”

Greater MSP, an economic development agency in the Minneapolis-St. Paul region, goes further. Its “Regional Indicators Dashboard” tracks changes in more than 50 economic, environmental and social outcomes and how the region ranks with a peer group of regional economies. It includes everything from average weekly wages to percentage of the population with a college degree to the cost of electricity.

Don Iannone, a Highland Heights-based economic development consultant, produced a dashboard for Ashtabula County after becoming CEO of the Growth Partnership for Ashtabula County in 2014. It provided a wide variety of regularly updated information for several years covering data on employment and business formation in the county.

But because the economy was struggling, business and civic leaders weren’t always happy to see their economic difficulties on display on the internet.

“People didn’t like the bad news. They just didn’t,” he said. But to him, it was a necessary regular assessment. “I said, it’s actually like going in for a physical and the doctor gives you all the news, good and bad,” Iannone said.

In 2005, the Federal Reserve Bank of Cleveland produced an economic dashboard proposal for the Fund for Our Economic Future, a collaboration of foundations and other philanthropies that focuses on regional economic development. The goal was “to encourage and advance a common and highly focused regional economic development agenda that can lead to a long-term economic transformation of the Northeast Ohio (NEO) economy.”

The work, said one economist who worked on the project, was noble, but was overwhelmed by other priorities at the time.

“The great recession had a major influence on how we could approach this activity,” said Jack Kleinhenz, an economist now running Kleinhenz & Associates in Cleveland Heights. “In 2005, the economy started to go in the tank and everybody was preoccupied, I hate to say it, more by survival.”

That effort is being revived.

Earlier this year, the Fund for Our Economic Future released “2 Tomorrows,” a report on the challenges facing the 18-county Northeast Ohio economy. “We are not innovating and investing to the level needed to drive and sustain global competitiveness,” the report stated. “We need to change what we consider success.”

Beyond basic economic concerns, the report focused on the concentration of poverty in the region and on racial inequalities in economic outcomes and challenges to create good jobs and rising incomes across the region.

It also offers a set of measurements to track how well the region is succeeding at meeting those challenges. “What gets measured gets done,” the study argued.

“In ‘2 Tomorrows,’ we put forth what we think is an effective way to measure the economy that looks like the right things,” fund president Brad Whitehead said. “We’ll be doing it quarterly, and it’s an open question whether anyone else will salute it.”

Its measurements look beyond the basic economic metrics and create a “Growth & Opportunity Scorecard” that creates measurements for metrics such as the growth of young businesses, the effort to improve prosperity and how well economic growth is shared across all people in the region.

“We began by thinking, blank slate, what would a successful regional economy look like?” said Peter Truog, director of civic innovation and insight at the fund. He called it an effort to “look at a group of peer cities and see how we stack up.”

Team Northeast Ohio, the regional economic development nonprofit, does gather information on the region’s economy and workforce. While it issues quarterly data to news media, it uses the data primarily to encourage businesses and site selectors considering expanding in the region.

Its president, Bill Koehler, does see the need for greater sharing of the information its researchers gather and would like to see some organization, not his, take a lead role in gathering and sharing that information.

“We need a common place where (this) data resides,” Koehler said. “But even if there is a centralized place where all the data is, we still have to have a common understanding of what the right performance drivers and metrics are, and all of us have to align our strategies around that. It’s not happening enough and people are starting to recognize and challenging those of us in the economic development community to take on the responsibility of doing a better job.”

2017 Crystal Ball Award Winners

For the majority of U.S. households, residential real estate is the single-largest asset on the balance sheet. Prevailing home equity levels–and expected home value changes–can have out-sized influence on consumer spending and behavior (i.e., wealth effects). As an asset class, U.S. housing has an aggregate value of almost $30 trillion. For these and other reasons, the home value expectations of experts bear watching, and forecasters with the most outstanding performance deserve recognition.

In every year since 2010, Pulsenomics has recognized the most accurate and reliable forecasters of U.S. home values with a Crystal Ball Award. More than 100 experts who participate on our panel vie for the honor in a variety of award categories by predicting the future path of the Zillow Home Value Index.

This year, Jack Kleinhenz (pictured), who heads Kleinhenz & Associates and also serves as chief economist of The National Retail Federation, earned first-place in two prize categories, including one that is arguably the most challenging: the five-year horizon. Jack won this prize in an especially impressive fashion. The actual cumulative change in U.S. home prices for the five-year period ended Dec. 2017 was 32.9%; back in 2013, Jack predicted prices would increase 32.8% over that period. That’s not a typo. Drop the mic, Jack!

Pulsenomics’ Top Ten panelist rankings include details of forecast accuracy in each of 11 categories. Please join me in congratulating all of our 2017 honorees!

Retail decline in region is ‘a permanent shift’

As more people do their shopping online, retailing in Northeast Ohio is changing. And while most brick-and-mortar stores are not in danger of going the way of the dinosaur, in a region where the population isn’t expanding, every online sale has a cost in the malls, in the storefronts and in jobs lost.

By more than one estimate, including by local economist Jack Kleinhenz, the chief economist for the National Retail Federation, online sales now make up 10% of retail sales. Sales, buoyed by rising prices, continue to grow modestly, though accurate regional sales figures are not available.

“The decline in store traffic is not a trend anymore. It’s a shift, a permanent shift,” said Elad Granot, dean of the Dauch College of Business and Economics at Ashland University. “So brick-and-mortar retailers have to figure out what they can offer that Amazon can’t, and it’s getting to be a shorter and shorter list.”

Granot was referring to online retailer Amazon.com‘s move into the grocery business with its purchase of Whole Foods, and its expanding role in logistics. The logistics push includes a growing fleet of cargo airplanes and its fulfillment centers, such as the ones it is building in North Randall and Euclid, on sites of former shopping malls.

Granot said some retail categories are relatively safe. He said, for example, that shopping for makeup can entail trying out different products with an in-store stylist — what he calls an experience. The categories that should be worried about Amazon, he believes, are the categories that have no experience attached to consumption.

“If I need Band-Aids, I’m not going to wait until the next time I’m at CVS, I’m going to order them on Amazon right now,” Granot said, noting that he recently was on a flight of stairs with a student who was ordering a pair of sneakers online as they walked. “CVS provides me with no experience when I shop for Band-Aids.”

According to the Ohio Department of Jobs and Family Services, the retail trade in the seven-county Cleveland metropolitan area lost 8,758 jobs, 5.9% of total jobs in retailing, in the decade between 2006 and 2016. During the same time period, the number of retail establishments dropped 6.5%, a net loss, since new stores keep opening, of 601 establishments.

Much of that loss was in Cuyahoga County as new retail developments sprout up in neighboring counties. Over the decade, the core county lost 5,927 jobs, or 8.6% of its retail jobs, and 464, or 10%, of its retail establishments.

And the decline is continuing, according to preliminary jobs numbers for 2017.

While employment in major Northeast Ohio sectors such as manufacturing, financial services and education and health services held steady or rose, the region continued to lose retail jobs between January 2017 and January 2018, according to the state data.

Regional retail sales are growing, according to Alex Boehnke, manager of public affairs at the Ohio Council of Retail Merchants (OCRM), though regional sales are not well tracked.

The best estimate of the trend in retail sales in Ohio and its metropolitan areas is done by the Economics Center at the University of Cincinnati for OCRM. In November, as the holiday shopping season was beginning, the center estimated that retail sales in the Cleveland metropolitan area for the 2017 holiday season would grow only 3.1%. Sales in the Akron metro were expected to grow only 1.2%. Estimates of national holiday sales growth ranged from 4% to 6%.

“We don’t have the population coming in,” Kleinhenz said. “The pie is not growing.”

CBRE, a national real estate brokerage with a large Cleveland operation, calculates that only two metropolitan areas have more retail square feet per person than Northeast Ohio, where there is 29.9 square feet of retail for every person in the area. In its August 2017 report, “Dead Malls: a boost for retail?,” which is subtitled, “Is retail in Cleveland dying, or is it just overbuilt,” Cleveland-based research analyst Brandon Isner found that only Orlando, with 30.4 square feet per resident (a deceptive figure for a tourist city), and Atlanta, with 30 square feet per resident, top Cleveland.

“It is clear that Cleveland has a supply issue in regard to retail real estate,” Isner wrote. “(W)ithout the population growth that other metro areas have enjoyed, extra retail will weaken what remains.”

In Cuyahoga County, retailers in two mixed-use developments will be opening their doors in the coming months. Opening in the spring, Pinecrest, in Orange Village, has lured several dozen retailers, including Whole Foods, Pottery Barn and Williams Sonoma. In Shaker Heights, the Van Aken District will add about 100,000 square feet of retail space come summer.

Similarly, retail building booms in Avon in Lorain County and in and around the site of the former Geauga Lake amusement park in Geauga County have cost Cuyahoga County retail sales.

“There is no doubt there is a shift going on,” Kleinhenz said. “Are we overstored? In many cases, that is accurate. It’s just that it’s not necessarily that retail is declining broadly.”

Joseph Khouri, a real estate broker with CBRE in Cleveland, agrees with Granot. He, too, believes the retailers who survive will be the ones who sell an experience and activity related retail. He pointed to Toys R Us, which recently announced it was closing all of its stores nationwide after declaring bankruptcy.

“They didn’t differentiate themselves from online sellers,” he said. “People are gravitating toward experiential retail. Specialty food retailers, arts and crafts, home goods products that you have to touch and feel — unique offerings that are hard to mimic online.”

That ability of local retail to be an experience leads Granot to say that he believes local, boutique retailers can also survive.

“Shopping local, especially in Northeast Ohio, is a point of pride,” he said. “There is a lot of room for local retailers to do well, as long as they offer an additional benefit beyond the actual product and price, because it’s going to be increasingly harder to beat Amazon.”

Jay Miller

Crain’s Cleveland

Toys “R” Us to start liquidation sales; economist says closings don’t represent entire industry

Jack Kleinhenz, Ph.D and chief economist for the world’s largest retail trade association, said while the rash of reported national retail store closings and job losses are real, he wouldn’t say they are a direct indication that the retail industry is moving backward.

“I think there is misinformation or a misunderstanding about the health of the retail industry,” said Kleinhenz, who is also principal and chief economist of Kleinhenz and Associates, a Cleveland-based registered investment advisory firm that specializes in financial consulting and wealth management services.

“We recognize these store closings are happening, but overall we’ve got to be careful to not focus just on store closings because other areas are performing,” he said, noting that in February, according to the Bureau of Labor Statistics, 50,000 jobs were added in retail nationwide including auto sales and gas sales. “If we take out those two categories then, still 46,000 retail jobs were added in the month of February.”

However, according to U.S. Labor Department data, job loss can’t be ignored. Between 2001 and 2016, jobs at traditional department stores fell 46 percent. For perspective, that’s a bigger drop than other troubled industries such as coal mining (32 percent drop) and factory employment (25 percent drop) during the same time span.

MarketWatch reported that in 2017, department stores alone lost 29,900 jobs, while general merchandising stores cut 15,700 workers. In addition, last year’s BLS data also showed retail discharges and layoffs grew to a total of 212,000 nationwide – the highest level in nearly two years.

Kleinhenz said based on all of the area data he’s analyzed and the NRF’s forecast, they still believe 2018 will be a stronger year for retail.

Some department stores are moving toward cost fulfillment centers, while other e-commerce retailers, discount stores, luxury goods, and even some small businesses with specialized niches are growing.

In Northeast Ohio for instance, Amazon is building a fulfillment center in Euclid in what once was a retail strip that included a shuttered Toys “R” Us. The dead mall will be replaced by an Amazon fulfillment center, scheduled to open in 2019.

A similar, but larger, project is under construction and set to open next year in North Randall, where Randall Park Mall once stood. Between the two Amazon facilities, the company will employ more than 3,000 people.

“The landscape is changing and the way the industry is operating is changing. They’re looking to be more cost efficient. Ultimately retailers want to deliver good price and value, which is no different than any other industry,” he said.

“Undoubtedly they’re facing significant competition and consequently they need to change the way they’re operating given the environment.”

RETAIL CLOSINGS

The national retail landscape is changing rapidly with a great deal of upheaval as brick-and-mortar stores continue to struggle to change and adapt in the highly competitive digital age.

Claire’s Chapter 11 bankruptcy filing on Monday, is the latest in a string of mall-based stores shutting down in what’s fast becoming one of the biggest waves of retail closures in decades.

But mall-based stores aren’t the only casualties of consumers increasingly more comfortable ordering products online. Toys “R” Us, another company left deep in debt from a leveraged buyout, said last week that it was liquidating its 735 stores in the United States. The bankrupt retailer is closing one-fifth of its U.S. outlets, which could end up being more than 180 stores including locations in Mentor, Western Hills, Dayton and Dublin, Ohio. Liquidation sales were to begin Thursday, but were delayed this morning until possibly Friday or later.

In 2017, nearly 9,000 stores closed across retail sectors. Cushman & Wakefield said that number will be between 10,000 and 11,000 doors this year–and that’s fewer than the 13,000 the analysts initially forecast, thanks in part to Simon Properties’ legal action attempting to block Starbucks from closing Teavana locations.

“Not everyone is shrinking! Off-price apparel, discounters, warehouse club stores and dollar stores will continue to post record growth,” Garrick Brown, vice president of Retail Intelligence for the Americas, said in a January blog.

“Grocery stores and most restaurants will continue to account for growth, even as the weakest concepts will increasingly struggle with a saturated marketplace,” he said.

Still, last year was a record year for both store closings and retail bankruptcies. Dozens of retailers including Macy’s, Sears, and J.C. Penney shuttered thousands of stores — far exceeding recessionary levels — and 50 chains filed for bankruptcy.

The commercial real estate firm CoStar has estimated that nearly a quarter of malls in the U.S., or roughly 310 of the nation’s 1,300 shopping malls, are at high risk of losing an anchor tenant. Chains that have confirmed they will be closing locations in 2018 include Bon-Ton, Gap, Sears-Kmart and Walgreens.

In January, Walmart announced plans to close 63 Sam’s Club stores across the U.S. including one in Cincinnati.

Teen retailer Abercrombie & Fitch is bouncing back by cutting its stores. The New Albany, Ohio-based company was praised by analysts easier this month after it announced positive same-store sales growth in its fourth-quarter results. Same-store sales were up 9 percent overall at the company, boosted by 11 percent growth at Hollister and 5 percent at the Abercrombie brand itself.

But at the same time, the company also announced it would be closing up to 60 Abercrombie and Hollister stores in 2018. Closing store locations have not been identified yet.

By Marcia Pledger, The Plain Dealer

cleveland.com

Retailers are hiring more people. One reason: Home renovations.

The nation’s unemployment rate remained unchanged in February, but there was one bright spot many economists weren’t expecting: an influx of retail jobs.

In all, retailers added 50,300 jobs in February — four times the number from the month before — even as the U.S. unemployment rate stayed steady at 4.1 percent.

One reason for the gains, economists said: Americans are increasingly renovating their homes instead of buying new ones, helping create thousands of retail jobs at companies like Home Depot and Lowe’s.

Building-material stores hired more than 10,000 workers in February to keep up with booming demand, according to data from the Bureau of Labor Statistics. Those positions accounted for more than one-fifth of the total retail jobs added last month.

The gains are part of a larger trend. Building-material and garden supply stores have added roughly 49,000 jobs in the past year.

“This is a housing repair and remodeling story — and not just because of the recent hurricanes and fires,” said Diane Swonk, chief economist at professional-services firm Grant Thornton. “In many cases, people are realizing it’s cheaper and easier to add on to their homes than to buy new ones.”

Low housing supply and high costs, particularly in larger cities, are prompting prospective buyers to think twice before buying a house, Swonk said. Other factors, such as rising interest rates and changes to mortgage-related tax credits, are also contributing to their decisions.

“Add to that the housing stock is older and more decrepit than it used to be, and you’re seeing a boom in remodeling,” Swonk said, adding that she is in the process of replacing the roof on her Chicago-area home.

Homeowners are projected to spend $340 billion on home improvements and repairs this year, up 8 percent from last year, marking the highest increase since before the Great Recession, according to Harvard University’s Joint Center for Housing Studies.

Increased demand is also helping create new jobs, albeit low-wage positions that are often seasonal. Home Depot announced plans to hire 80,000 workers last month, while Lowe’s said it would hire more than 53,000 seasonal employees to prepare for spring.

“What’s striking about these numbers is that they are unaffected by online retail,” said Jed Kolko, chief economist at the online jobs site Indeed. “Most people aren’t buying their lumber or potting soil online.”

But wages remain low: The median pay for retail workers is about $11.01 per hour, or $22,900 a year, according to BLS data.

The jump in employment is a departure from recent months: The retail sector lost 25,900 jobs in December but added 14,800 in January. (Warehouse jobs, which are not counted in the retail figures, grew by about 400 positions in February.)

“I did not expect a large increase in February, in all honesty,” said Jack Kleinhenz, chief economist for the National Retail Federation, a trade group that lobbies on behalf of the industry. “This was a substantial increase at the industry level.”

General-merchandise stores such as Walmart, Target and Costco added 17,700 jobs, while clothing and accessories stores hired 14,900. A number of those newly created positions, economists said, were probably focused on retailers’ growing online and mobile businesses.

Walmart, for example, has hired more than 18,000 personal shoppers in recent years as it builds up its shop-online, pick-up-in-store service, executives said on a Tuesday call with reporters.

“Companies are putting more people on the floor,” Swonk said. “We don’t have a handle on whether they’re hiring for online operations vs. in-store, but we know they’re hiring.”

Abha Bhattarai

The Washington Post

Americans Spend More Than Expected as Holiday Season Heats Up

November retail sales up 0.8% from prior month; economists saw 0.3% increase

Customers checking out at a Target store in Alexandria, Va., in November.
Wall Street Journal

 

Americans are spending more than expected this holiday season, fueled by income gains, confidence in the economic outlook, buoyant financial markets and modest inflation.

The boost includes in-store and online spending at brick-and-mortar retailers such as Wal-Mart Stores Inc. and Nordstrom Inc., which clocked the largest year-over-year November sales increase in seven years. Home-furnishing stores and electronics-and-appliance stores also logged strong spending numbers, despite competition from online-shopping websites, which also posted robust gains.

“It’s an impressive start to the holiday season and probably the best in the last few years,” said Jack Kleinhenz, chief economist at the National Retail Federation, a group that represents retail stores. “When you put the pieces together, job and wage gains, modest inflation, healthy balance sheet and elevated consumer confidence…there’s an improved willingness to spend.”

Altogether, sales at online retailers, brick-and-mortar stores and restaurants rose 0.8% in November from the prior month, well above the 0.3% increase economists surveyed by The Wall Street Journal had expected. That was up 5.8% from a year earlier, the largest yearly November increase since 2011. Despite their woes from online competition, general merchandisers such as department stores fared well, registering a 3.6% sales increase from a year earlier, the best November performance since 2010.

“Overall these data are much stronger than expected,” said Ian Shepherdson, an economist at Pantheon Macroeconomics, in a note to clients. “People have the inclination and the wherewithal to continue spending at a robust pace.”

Taken altogether, the data suggest the U.S. is on track for robust growth in the fourth quarter. Macroeconomic Advisers, a forecasting firm, estimated the economy is growing at a 2.8% annual pace in the October-to-December period, up from a 2.6% forecast before the retail-data release. The Federal Reserve Bank of Atlanta estimated a 3.3% growth rate.

One caveat: Spending is so strong it is outpacing income gains, meaning Americans are saving at a slower rate, which could lead to a spending slowdown later or the threat of rising debt levels.

Spending comparisons to last year were boosted by a weak holiday season in 2016 for retailers, which were plagued by high inventories and a slowdown in purchases by international tourists amid a rising dollar.

This year, some brick-and-mortar stores appear to be better managing their inventory. In their most recent quarter, both Macy’ s Inc. andKohl’s Corp. said their stores had less excess merchandise to clear out at steeply reduced prices. “We don’t have the albatross of a lot of extra inventory like we did last year,” Macy’s Chief Executive Jeff Gennette said in an interview on Black Friday. That, in turn, resulted in less discounting, Mr. Gennette said.

Mr. Kleinhenz said increasingly sophisticated website and app advertising is helping brick-and-mortar retailers too. “It’s a combined strategy that retailers have developed that integrates the use of the internet with the brick-and-mortar shopping approach,” he said.

A Brief History of Retail

The retail industry is undergoing another major shift — to e-commerce. How did we get here?

Since Nov. 1, online revenue has risen 24% compared with the same period last year, said Slice Intelligence, a research firm that tracks online purchase receipts. Online sales at Target Corp. ,Kohl’s Corp. and Costco Wholesale Corp. rose the fastest, the firm said, though Amazon continued to grow rapidly from a larger sales base.

Better-than-expected quarterly results were reported by some mall stalwarts that have been battered, including Macy’s Inc. and Gap Inc. “There is a consolidation taking place” in the apparel market, Gap CEO Art Peck told analysts on Nov. 16. “Almost regardless of consumer sentiment, we’ve got an opportunity to drive growth and gain market share,” Mr. Peck said, as the company closes stores, remodels others and speeds up its product pipeline.

 The closure of thousands of stores this year could be giving those left standing a boost.

“On an overall basis, a portion of our improvement in our sales trend is attributable to our targeted efforts to capture share from competitive store closures in some of our trade areas, and we expect this will continue, if not accelerate, through the holiday season,” Kohl’s CEO Kevin Mansell told analysts in November.

Some businesses, meanwhile, are feeling a boost from the stronger labor market. Pete Benck, owner of Madison, Wis.-based vintage clothing store Good Style Shop, said this holiday season’s business has been stronger than last year’s.

“We have had a lot of foot traffic, and I think there’s a lot of confidence in our consumers lately,” Mr. Benck said.

The National Retail Federation expects consumers nationwide to spend about 4% more during the holiday shopping season than they had in 2016. That would make 2017 the strongest holiday season since 2014. Mr. Kleinhenz said the U.S. appears to be on track to meet that goal.

Write to Sharon Nunn at sharon.nunn@wsj.com

Photo credit: Customers checking out at a Target store in Alexandria, Va., in November. PHOTO:REYNOLD/EPA/SHUTTERSTOCK

Retailers Are Hoping For the Best Christmas Sales Since the Recession

With consumer spending surging, retailers are hoping for something they haven’t seen since the last recession began a decade ago: a truly great Christmas.

The Commerce Department reported better-than-expected U.S. retail sales for November and revised its October figures upward, bringing a fresh wave of optimism to a long-embattled industry.

Holiday shoppers are snapping up Nintendo Switch devices and Fingerlings toys as their disposable income grows, according to Craig Johnson, head of the Customer Growth Partners. His research firm just boosted its forecast for holiday sales to 5.6 percent, well above the 4.3 percent it had targeted earlier.

“We think this marks the beginning of a real and sustained rebound,” Johnson said in an interview. After tracking the 50 largest retailers across 90 major shopping venues, he believes that spending will grow more this season than in any holiday since before the Great Recession began in 2007.

“It’s all demographics, and it’s geographically widespread,” he said.

Austin Kreitler, a 21-year-old college student in New York, is one shopper who is ready to open his wallet this holiday season.

“I definitely spent more this year than I have in previous years,” he said during a visit to Bloomingdale’s in Manhattan. “I got some novelty things, but I also got my mom a pearl necklace and earring set.”

E-Commerce Growth

The spending uptick is good news for retailers of all stripes, but some are faring better than others. Online spending growth is expected to outpace brick-and-mortar expenditures, and plenty of companies are still struggling.

Pier 1 Imports Inc., the home-furnishings chain, saw sales weaken in the first two weeks of December. The slow start to the holiday season weighed on the company’s fourth-quarter forecast, sending the shares on their worst rout in almost three years Thursday.

Traditional retailers are increasingly chasing online dollars. Wal-Mart Stores Inc. has acquired web brands such as Jet.com and Bonobos, and it’s offering two-day free delivery to entice shoppers. Target Corp., meanwhile, agreed to buy e-commerce startup Shipt Inc. this week for $550 million, aiming to challenge Amazon.com Inc.

The greater emphasis on online orders may be one reason why a rosier holiday season isn’t translating into traffic gains at many malls. During Black Friday, foot traffic was down slightly for the second year in a row, according to data compiled by Prodco Analytics and Bloomberg.

Genevieve Domingo, a shopper who was trying on boots at Bloomingdale’s, said she’s getting most of her gifts online this year, including a Game of Thrones drinking horn and a DNA kit for her brother.

Broad Gains

Merchants without physical stores saw their biggest sales gain last month since October 2016, the Commerce Department reported on Thursday. But retail growth was broad-based, with 11 of 13 categories posting increases. Apparel sales had their third straight uptick, the longest such stretch since mid-2014.

The numbers indicate that household spending, which accounts for about 70 percent of the economy, is picking up during the final stretch of the year. The job market remains strong, with solid hiring and an unemployment rate that’s the lowest since December 2000. In addition, stock-market gains and rising home values are boosting household wealth.

If this season’s sales reach Customer Growth Partners’ target, it would be the best holiday performance since 2005. The industry posted a 6.1 percent increase that year, when the economy was still booming and a red-hot housing market was fueling spending.

Tax Cut?

One wild card is the tax bill wending its way through Congress. The legislation promises to to lower the burden for households by doubling the standard deduction, but consumers who can’t withhold as much of their state and local taxes could lose some spending power.

The National Retail Federation, the industry’s biggest trade group, has argued that consumers are spending more this season because they anticipate a tax cut. About 174 million Americans shopped during the long Thanksgiving weekend, 10 million more than expected, the organization said.

“All in all, it’s really portending for a very solid and maybe one of the best holiday seasons that we’ve seen in years,” Jack Kleinhenz, the NRF’s chief economist, said in an interview. “We’ll have to wait and see how December plays out.”

— With assistance by Matthew Townsend, and Sho Chandra

Bloomberg

Photo credit: Pedestrians view a holiday window display at a department store in New York.Photographer: Victor J. Blue/Bloomberg