Today’s guest blog post is courtesy of Dr. Robert Yerex, Chief Economist at Kronos. You can find more information on the Kronos Retail Labor Index and details about the most recent results here. You can listen to a podcast conversation with Robert on “the new normal” here.
The New Normal, with High Unemployment
The past year saw a general stabilization in a number of important aspects of the consumer retail market. Many of the changes wrought during and immediately after the recession are likely to be permanent, at least until the next significant change.
This figure gives us a glimpse of this emerging new normal. Retail sales, represented by the width of the line, have steadily though slowly increased since the “bottom” of the recession in mid-2009, as has industrial production of consumer goods. What has not returned are the jobs. The color scale clearly shows that the unemployment rate remains stubbornly high.
During 2010, the most important changes in the retail / consumer economy included:
- Reduced Labor Capacity: Retailers have reduced their overall labor capacity by 9.7%.
- Increased Efficiency: While retailers were reducing their labor forces, retail sales have recovered to prerecession levels. This combination results in retailers using 13.3% less labor per dollar of sales when comparing Q4 2010 to Q4 2006.
- Compressed Holiday Hiring: During 2010, retailers continued to shorten the lead time for holiday season hiring, with the peak not occurring until Nov. 18.
- Shrinking Workforce: The percentage of the U.S. population actively participating in the labor market is at a 20-year low. This change has masked the unemployment rate, which counts only the percentage of participants who are out of work.
- Uncertainty Reigned: Economic and political uncertainty ruled the day during the last half of 2010. Issues critical to retail employment that were undecided until late in the year included the fate of long-term unemployment benefits and renewal of the Bush-era tax cuts.
- Reduced Borrowing: Consumers held less revolving debt in November 2010 than they did in August 2006. There remains considerable debate as to how much of this debt reduction is voluntary and how much is due to lenders writing off bad debt.
- Lagging Housing Market: The housing market remained depressed through most of 2010, with the percentage of homeowners facing foreclosure continuing to rise. Many real estate market experts predict that the peak of foreclosures will occur sometime in 2011 at a rate 20% higher than currently being recorded.
Dr. Robert Yerex, Chief Economist at Kronos, was recently recognized by the National Association for Business Economics for his paper “Consumer Driven Economy at a Cross Roads”. Robert’s research leverages the Kronos Retail Labor Index, a family of metrics and indices that analyze the relationship between the demand and supply sides of the labor market within the US retail sector, and provides a distinct and early indicator of the overall state of the economy.
Robert and I spoke in December about the key findings in his paper and what they portend for the recovery of the global economy. At its peak in the 2007/2008 time frame, consumer spending made up 70% of the US GDP. This spending, driven in large measure by high consumer debt that was often built on home equity, has retracted significantly during the recession.
In this podcast, Robert discusses what his research reveals about the “new normal” with respect to economic growth in the US and what must be done to achieve the right balance between encouraging consumer spending without re-creating the adverse economic situation we’ve experienced in the recent recession.
Click here to listen to my conversation with Robert Yerex about the “new normal” consumer economy.
Visit the Kronos booth (2319) at the NRF 2011 Show in New York City next week to hear how organizations like Jamba Juice and Bob’s Stores are working with Kronos to effectively manage retail workforce productivity and quality.
Dr. Robert Yerex of the Kronos Staffing Science Team provides the following context for this month’s Retail Labor Index report:
Retail employers increased the number of hires they made in June to a level that was more than 30% higher than in June of 2009. Unfortunately for those seeking a position, the number of applicants also increased dramatically driving the Index down to 3.47, an improvement over June of 2009 but well below the levels seen prior to that. There continues to be considerable evidence of a jobless recovery. Of additional concern is the percentage of those who have been out of work for 27 or more weeks, now at an historic level of more than 46%. For all those individuals counted as unemployed in the U.S. Department of Labor survey, the average number of weeks out of work has increased to 33. The lost income represented by this statistic is very significant and represents a growing suppressor of consumer spending
Trends in the four most important constraints on consumer spending are moving against increased consumption: the savings rate is increasing; real disposable income has not shown a significant increase in the past few years; asset values continue to decline; and total outstanding revolving consumer credit is at its lowest level since March 2006 and will likely drop further as consumers continue to try to lower their debt. With all these factors dampening consumer spending, retailers are unlikely to increase hiring rates any time soon.