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After the stronger than expected January employment report, economists and investors enter the new month anticipating another solid, though not quite as good February reading on jobs. The dual headwinds of bad weather and the West Coast port labor dispute likely kept job creation to 230,000, below the average monthly gain of 336,000 over the preceding three months. The retreat does not auger bad times, rather a return to more sustainable levels. While job creation is important, there will likely be more attention focused on hourly wages. After stagnating throughout the recovery, average hourly wages jumped by 0.5 percent in January, the best month over month increase since November 2008. With prices remaining low, wages do not need to rise too much to amount to a decent bump in a worker’s take-home. In the past 12 months ending January, real (after inflation) hourly wages were up 2.4 percent and that was before Wal-Mart and Target announced that each would increase their minimum pay to employees.
With regard to those much-ballyhooed increases, they are good news, but let’s take them for what they are: small increases in a sector that has the lowest hourly rate of pay. According to the most recent government data, the average hourly retail worker in a non-supervisory role earns $14.65, but that includes people who work at auto dealers and other outlets that pay more than traditional retailers. The average hourly pay is $9.93 for cashiers and low-level retail sales staff, according to Hay Group's survey of 140 retailers with annual sales of $500 million. The same goes for the food service industry, where wages increased at an annualized pace of 3 percent in the last half of 2014. Nonsupervisory food-service employees earned $11.11 an hour last year, compared to the national mean of $20.61.
What economists and employees are looking for in the upcoming jobs reports this year is a more broad-based wage increase that lifts American workers out of the recession/recovery doldrums. With the economy percolating at a decent pace, there is finally hope that those elusive gains should not be too far behind.
Beyond the jobs report, investors will be on NASDAQ 5000 watch. It has been 15 years since the NASDAQ composite first crossed the magical mark and last week, it came within 12 points, before slipping back. It will be historic to reclaim the level, but (here comes the buzz-kill alert) if you adjust for inflation (about 2.2 percent over the last 15 years), NASDAQ 5000 is actually NASDAQ 7000 (6,941 to be exact).
Of course the poster child for the dot-com boom and bust was Pets.com and its hysterical sock puppet. (Hat tip to CBS Producer Kim, who found this great montage!) The company was founded in 1998 and just one year later, the Pets.com mascot got its own balloon in the Macy's Thanksgiving Day and then appeared in a Super Bowl spot in January 2000. Pets.com raised $82.5 million in an initial public offering in February, rose to a high of $14 and nine months later the company melted down and everyone’s favorite sock puppet went to doggy heaven.
MARKETS: It was a strong month for stocks, with the S&P 500 tallying its best monthly percentage gain since Oct 2011.
THE WEEK AHEAD:
Mon 3/2:
8:30 Personal Income and Spending
9:45 PMI Manufacturing Index
10:00 ISM Manufacturing Index
10:00 Construction Spending
Tues 3/3:
Best Buy
Motor Vehicle Sales
Weds 3/4:
Abercrombie & Fitch
8:15 ADP Private Sector Jobs Report
10:00 ISM Non-Manufacturing Index
2:00 Fed Beige Book
Thurs 3/5:
ECB outlines bond buying program
8:30 Productivity
10:00 Factory Orders
Fri 3/6:
Staples
8:30 February Employment Report
3:00 Consumer Credit
Consumer spending grew steadily during the first three-months of the year, but the increase was mostly due to higher heating bills and medical expenses. Things improved towards the end of the quarter, with a brisk increase in March retail sales, but many economists attributed the surge to pent-up demand after the winter’s chill and a big uptick in auto sales. This week, we will learn whether Americans were willing to spend money in the stores during a mostly normal month. Analysts are hopeful that April Retail Sales will show moderate progress, on the heels of improving sentiment. In advance of the report, there were a number of retail milestones last week that beg the age-old question: With sales sinking and stores closing, can brick and mortar retailers adapt their business models to survive? Last week, Office Depot and Sears announced that they would close stores; and in addition to the massive security data breach, Target’s CEO Greg Steinhafel lost his job in part because foot traffic was down and the company continues to lose business to online competition.
Although sales in physical stores still account for over 90 percent of overall retail sales activity, research shows that growth of online sales will skyrocket in the future. Just consider that a third of consumers Forrester surveyed early last year said they use their smartphones to research and compare prices in-store, and many expect to use their phone for price research even more in the future. Or how about this neat factoid from the New Yorker’s Amy Merrick: “Five years ago, Macy’s revenue was around $23 billion, while Amazon’s revenue was about $24 billion. Last year, Macy’s had nearly $28 billion dollars in revenue; Amazon had more than $74 billion.”
All may not be lost! Some brick and mortar companies have made big investments online and it appears to be paying off. For the first time in 10 years, Wal-Mart’s online sales growth surpassed Amazon’s last year (30 percent vs. 20 percent). Of course Amazon still holds a huge advantage: Amazon's online sales of $67.8 billion dwarfs Wal-Mart's $10 billion and last year, Amazon sold more than its next 10 biggest competitors combined. That said, Wal-Mart and other forward thinking retailers have jumped into the fray, which should eventually put pressure on the e-commerce giants. Wal-Mart, along with Macy's, Nordstrom and Kohl's will report earnings this week.
One more retail milestone: Chinese-based Internet marketplace Alibaba, which has been described as e-Bay, Amazon and PayPal combined, announced its US initial public offering, which could be the largest Internet IPO since Facebook. Alibaba has grown into the largest e-commerce company in the world’s most populous country, with a reported transaction volume that’s triple the size of eBay, and more than double the size of Amazon.com.
MARKETS:
THE WEEK AHEAD:
Mon 5/12:
2:00 Federal Budget
Tues 5/13:
7: 30 NFIB Small Business Optimism Index
8:30 Retail Sales
8:30 Import/Export Prices
10:00 Business Inventories
11:00 Q1 2014 Quarterly Report on Household Debt and Credit
Weds 5/14:
Macy's, Deere, Cisco Systems
8:30 Producer Price Index
Thurs 5/15:
Nordstrom, Kohl's, Wal-Mart Stores
8:30 Weekly Jobless Claims
8:30 Consumer Price Index
8:30 Empire State Manufacturing
9:15 Industrial Production
10:00 NAHB Housing Market Index
10:00 Philadelphia Fed Survey
Janet Yellen Speech: “Small Businesses and the Economy”, National Small Biz Week 2014
Fri 5/16:
8:30 Housing Starts
9:55 University of Michigan consumer-sentiment index
10:00 April Regional and State Employment and Unemployment
