Retail Jobs Peaked Before Retail Sales

The main take-away message from today’s release of US retail sales is that they have shown their longest losing streak (declines) since late 2008, at the centre of the financial crisis.

But we must also note that US retail sector jobs have tended to peak out before the top in retail sales in the last two recessions.

In 2007, retail jobs topped out in November at the same time of the peak on sales. Although both retail jobs and retail sales topped out in November, retail jobs fell straight down in subsequent months, while retail sales attempted a sharp reversal in spring 2008 before declining anew.

In 2001, retail employment peaked out in February, eight months before the peak in retail sales. In the current cycle, retail employment reached a peak of 14,756 jobs in January, two months before retail sales hit their cycle high of $US 406 bn.

The rationalization that retail jobs peak before sales is partly explained by the ongoing activity in Internet retail sales despite a drop off in retail hiring. Yet, on-line sales have hardly ever reversed the slowdown in overall hiring.

In the last jobs report, retail trade employment shed jobs by 2K in June and continues to slow from the accelerating pace of the last two years. This is the third decline in the last six months, thereby raising questions about the sustainability of the US consumer, which remained instrumental in to carrying the US economy –alongside manufacturing. This is seen in the last three GDP reports, where the contribution of personal consumption expenditure to GDP has risen steadily. As we have shown in previous reports, slowing retail sector hiring has coincided with consumer confidence (as is doing so now) with the University of Michigan consumer sentiment and Conference Board’s consumer confidence. These two have already begun topping out.

It is no secret that today’s release of the June decline in retail sales (headline and core) is a sign of broad weakness, which will drag Q2 GDP by 0.3-0.4 percentage points.

And so for the third year in a row, the Fed’s annual Jackson Hole Conference in August will grapple with the question whether to add QE, albeit this time, will be a more difficult question as to whether to add outright QE to the existing Operation Twist. Fed Chairman Bernanke tomorrow will tell us of the options, including the extension of low interest rates back towards 2014. The lower part of the charts above sows NFP & equities had began their decline during the peak of retail sector jobs in 2001 and 2007. This time, however, SP500 continue their “hanging” act, awaiting the latest trick in central banks’ bag.

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