Sharp Drop in Retail Signals Consumers' Gloomy Mood

Sharp Drop in Retail Signals Consumers' Gloomy Mood

The sector hit hardest in the March jobs report was retail trade. The sector, highly dependent on consumer spending, shed 24,000 jobs last month, far more than any other part of the economy. Worse, it reversed positive trends in a sector that had been doing relatively well. Over the past 6 months, the sector had gained an average of 30,000 jobs a month. The sharp reversal is an ominous sign for the overall economy. 

Consumer spending accounts for around 70% of the economy. Consumer spending grew slower than expected in the 4th Quarter and, with wages essentially flat, was sustained only by a sharp drop in the savings rate. That isn’t sustainable and March’s contraction in retail jobs is likely an advance signal that consumers are becoming stingy. 

The drop in retail jobs was sharpest in clothing stores and garden/home improvement. Both of these sectors represent highly discretionary spending. They are among the first spending consumers choose to forgo. The pullback is likely a direct result of the higher payroll taxes that came into effect at the beginning of the year. 

It may also be an early signal of the impact of ObamaCare, which will require employers to provide health insurance for full-time workers or pay a fine. That mandate takes effect on January 1st. The retail sector, which generally doesn’t provide coverage, would be among the hardest hit. It will be telling if the sector continues to shed jobs in the months ahead. 

Follow Mike Flynn on twitter: @Flynn1776

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